Trading A Reversal: $SOXL Review
- Trader Stewie
- Aug 24
- 6 min read
Updated: Aug 25
Hi Folks,
Last week (08-21-2025) we took $SOXL long in the Art of Trading private feed. This trade returned a quick 10%, half of the position is still held. I figured this would be a great time to break this trade down step-by-step and help walk you through what makes a good trade, great!
This in depth, step-by-step educational guide will include:
Entry tactics - How did it set up? Why was the trade taken?
Targets - How were targets calculated?
Position Management - As the trade progress how was it managed?
Exit Strategies - How to plan for an exit, Potential management techniques
YOU CAN CLICK EACH SECTION TO SKIP INTO THAT TOPIC
Entry Tactics:
Typically with an entry tactic on a reversal trade you're looking for a technical oversold condition. Something like a test of a major moving average like the 20 day exponential moving average or the 50 day simple moving average, or one of my go-to's an oversold $NYMO or $NAMO reading! These are the most commonly occurring reversal setups.
On more rare occasions you may get a reversal setup that sets up on consecutive days down (A long reversal entry) or setups up on consecutive days up (A short reversal entry)
This is exactly what caught my eye for the $SOXL entry. Paired with major indices being down 5 and 6 days in a row ($QQQ specifically) a strong, potential short term reversal was starting to set up. Even if the reversal only played out for a 1 to 2 day period risk vs reward on the setup was attractive enough to take an attempt at the trade. This is where "The Art of the Trade" plays an important role. A probability trade can be as strong if not stronger then a "textbook" technical trade setup.
This was a point of discussion, specifically on this setup -
Its important to note that I typically only try these types of trades with index ETFs / leveraged index ETFs. This way you're not "betting" on a single stock but more so the entire market. Increasing the chances of a profitable trade based on consecutive days down in the market, instead of just picking one single stock which may or may not follow the market on a typical day.
So, on $SOXLs 5th day down I took an entry. On the previous day $SOXL put in a nice hammer reversal candle, which in itself would be a fantastic technical trade reversal setup. From personal experience though I've seen stronger entries from hammer reversal candles on the second day of the reversal attempt then the first day. So I waited patiently for a potential entry on the second day of the reversal attempt.
I took an entry at $25.15 with a stop at $23.40. Short term targets sat at $29 - $30.
Risk: $1.75 on the trade.
Reward: $4 - $5.
Setting the trade up with a 1:2 to 1:3 risk to reward profile.
What stood out specifically on the entry day was the narrow ranged inside day candle the stock created on the daily timeframe chart. An "Inside day" candle is a candle that forms within the previous days trading range. It falls within the high and the low of the previous day trading range without breaching the high or the low of that previous day. Typically speaking the strongest inside day candles tend to be those that hold the upper price range of a wide ranged previous day price action. This specifically shows that buyers are still interested in the stock or index and they're trying to hold the price up in anticipation of a reversal.
Targets:
With reversal setups, specifically those that may be "short term" in nature your target must be set realistically. You expectations on these shouldn't be in the mindset of big home runs. Typically speaking when an index or a stock pulls back quickly from a high it takes a bit of time to digest. Short term bounces do occur but typically not back into previous highs right away. When I analyze the setup before taking the trade I ask myself "If this index were to bounce does the potential target area make sense in terms of where my stop must be?"
Firstly I'm looking at where my stop must be. In the case of trading reversals your stop should sit slightly below the established local low that the stock made. Most times with short term reversal trades like this $SOXL example its the previous days low.
In the $SOXL trade I set my stop about 1% below the previous day low. The entry was $25.15 and the stop was $23.40. Risking $1.75.
Then while analyzing the stock chart for a target I asked myself "If $SOXL bounces from here does it have a chance to reclaim $29?". Realistically speaking yes, especially since its a leveraged ETF. It doesn't take much of a movement in an index to make this leveraged ETF bounce in either direction.
Asking these questions and being honest with yourself helps build out these profiles for your trading setups. If you consistently set realistic expectations for both downside risk and upside potential you'll naturally build stronger trading plans, execute more consistently all while hitting targets and booking PnL!
Position Management:
When I take reversal setups my first priority is not let a green trade go red, especially when it starts to bounce in my favor. There is a fine line here though. Micromanaging a reversal setup can cause less then ideal exits so you must remember stocks and indices near tops and bottoms can have increased periods of volatility, they tend to bounce around a range. Identifying and analyzing that range helps with setting stops to protect the position but not getting yourself stopped out early within that range.
In the case of this $SOXL position, it had bounced 3% from the previous days entry early into the session on the very next day after the entry. I knew volatility could ramp up with the looming "Jackson Hole" Jerome Powell speech so I took the opportunity to protect the position and raise the stop slightly above the entry point from the previous day.
My personal bias towards the Jackson Hole summit and the looming Jerome Powell speech was that I didn't think that the market was going to react negatively to the event. That being said I'd rather protect positioning around events like this instead of just following along with my own bias. It was actually a topic of discussion around this specific position.
Here were my thoughts on the topic:
On a secondary note earlier that day it was interesting to see $SOXL gain early momentum despite the negative China/US trade drama and the halt of H20 chip production.
A negative headline in a weak market that doesn't get traction or an opposite reaction of what you would generally expect is a good sign that the market is ready to pivot, at least temporarily.
Exit Strategies:
The Jackson Hole summit - Jerome Powell speech caused the market to explode higher. $SOXL quickly gained 10% from the entry allowing a half size exit of the position. I quickly took advantage of this.
With bounce and reversal trades you want to do your best to capture and net short term gains. Selling half is a strong tactic because it immediately helps cover downside risk and it allows you to hold the position through potentially more volatility while it tries to gain back more ground. Ultimately it helps you see the trade through, while eliminating emotions that may come from that holding a larger position.
From here the stop could be raised an addition 2% into around the $26 range and a sell limit order could be set on the upside target of $29 - $30. Basically a hands off trade until it either gets stopped out lower or sold out higher.
That's all for this in depth, step-by-step educational guide! Be sure to check out the large collection of top quality educational content on the Art of Trading blog. I've written about a variety of trading topics with nearly 100 articles just like this one to choose from!
Cheers and happy trading!
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