Short Term Trades Review: ARKK, AMD, XLE, F, AAPL
What went right and what went wrong?
This has been a crazy start to the year. While the S&P 500 and Dow hit new high early in 2022, it’s been a big “whoosh” lower since. Every week I like to review my trades to see what I did right, what I did wrong and what I can improve on.
Not just what I can improve on going into next week or next month, but what can I improve on going forward…period.
In my opinion, it’s all about keeping a sharp edge and trade reviews help sharpen and hone that edge.
Let’s get started with a couple that stood out to me. Each trade was from this week’s game plan. If you want these sent to your inbox each morning, consider taking a two-week free trial.
Winner: ARKK — Tuesday Jan 18
Coming into the week, stock markets were closed on Monday. So on Tuesday, I had a pretty narrow focus: Goldman Sachs and ARKK.
As part of the “bigger picture,” we were looking for the $72 to $75 zone. But for just this day, the plan was simple:
Set to gap down on Tuesday morning, keep an eye on last week’s low near $77.50. I’m of course looking for a potential reversal through this level should it break below it this week.
ARKK undercut last week’s low by 25 cents, which let us get long with a stop-loss of about 30 cents.
The trade works by waiting for ARKK to break $77.53, then bottom and trade back up through this mark. When it reclaims $77.53, I get long and put my stop-loss just below the session low.
In this case, I used a 30 cent stop-loss. If the stock rallies 75 cents from our entry, we’re already at a 3:1 Risk/Reward setup.
Less than 10 minutes into the trade, it had already given us $1 a share in profit (4:1 R/R) and by 9:50, ARKK was hitting resistance at $79…+$1.50 from entry (and a 6:1 ratio).
***As a general rule of thumb, I almost always like to trim at 3:1 because I am ahead nicely in the trade vs. what I was willing to risk. Ideally, I trim in quarters or thirds. If the market is dicey, I will trim the position by half.
Even more so though, trimming allows me to move to a break-even stop and that keeps my head incredibly clear. I can’t explain the level of relatively stress-free operation when you have some money in your pocket from the trade and are operating in what is essentially a “risk-free” trade.
Eventually ARKK pushed back into Friday’s resistance area near $80.25, before fading lower and actually giving us the same setup in the afternoon. I don’t mind the “Round 2” trades, but in general have less faith than the first time around and trade it with a smaller position size.
Winner: AMD — Thursday Jan. 20
It was an ugly week for the markets, but there were opportunities in certain stocks at certain levels. For AMD, we were watching two levels: $128 and $125.
The former was the prior day’s low and the latter was the prior week’s low. I wrote:
“I am watching two levels here. The first is ~$125, which is roughly last week’s low. A break of this low and a reclaim could give us a potential high R/R long setup…
However, see if this $128 area is resistance and struggles to be reclaimed. Not only is it yesterday’s low, but it’s also the 200-unit sma on the H4 chart and the 21-week moving average. We want a quick reclaim and hold of this level, otherwise it runs the risk of rejection.”
Notice how AMD tried to rally off the gap down, but was rejected. Then we got the undercut of last week’s low. That’s such a great example of being flexible and open minded. I first wanted the reversal up through $128, but when it failed (which was in the notes, we shifted gears).
Once AMD reclaimed $125.03, it let us get long with a stop at $124.75 — the session low was $124.80.
Similar to ARKK, that's a risk of just under 30 cents but the snap-back rally quickly put the AMD trade ahead by $2 a share.
Shares did pull back to $125.04 — a penny above our break-even stop (after taking our first tranche of the trade off) — but even if you were stopped out, that’s still a damn good trade, peaking at more than 6.5:1.
***(Notice how $125.03 was resistance the following day. AMD is really good with this kind of technical trading).***
Missed Winner: XLE — Thursday Jan 20
You can’t hit them all and I did not hit XLE.
I had it on my radar, but not for this particularly setup and I simply missed the trade and couldn’t get long in time as I worked the AMD setup.
On the left is a daily chart, showing that strong trend. On the right is a 15-minute chart.
The XLE is an important example of relative strength. Put simply, look at how well the XLE had been trading before Friday. For what it’s worth, it’s the only sector that’s positive on the year, so buy-the-dip setups are clearly in play.
Ignore Friday, because this trade was on Thursday morning. We had a two-day low of $63.78. When the XLE undercut this level and traded down to $63.58, reversed and went back up through $63.78, we officially had a trade on our hands.
With a difference of 20 cents, a 25 cent stop-loss would have worked great. In less than an hour, this trade was almost 4:1. By the afternoon, it had taken out the prior day’s high and eclipsed 6:1 on the risk/reward ratio.
Here’s the thing, though: Book ‘em while you got ‘em!
I like to try and get to a 3:1 R/R before trimming about ⅓ of the position and move to a break-even stop. My goal is to ride to a 5:1 R/R and again trim. It’s hard to put it in writing though, because it depends on the tape. If the S&P is calm, cool and collected, I have a lot more patience with a trade.
If it’s finicky and acting idiotic then I don’t have patience and will gladly remove ¾ of the trade between 3:1 and 5:1, allowing just a runner the opportunity to gun higher — and maybe I will just take off the whole thing.
You have to take in many factors all at once and try to make a good decision.
Loser: Ford — Wednesday Jan. 19
I have been watching Ford for weeks, taking small trades on the smaller timeframes, but mostly waiting for a nice “reset trade” down to the 10-day. It’s been on my go-to list for more than a month.
No more.
Above is an hourly chart overlaid with the daily moving averages. Notice how it knifed right through the 10-day like it wasn’t even there? Right off the bat, that should have been my queue to cut and run.
However, the stock ran out of sellers near the 21-day moving average, so I thought maybe we could get a bounce. Spoiler: It didn’t happen.
Ford gapped-down the next day too, but quickly reclaimed the 21-day. “Okay, still a chance,” I thought. It also filled the gap at $21.88, so I really thought it could hold up.
By the close, it had petered out again and then gapped down on Friday, this time losing the daily VWAP and 50-day moving average.
Disappointing all around. Thankfully I played this one with calls and got out when they were down about 66%.
***With options, I always take on the position as if it can go to zero. That way I’m not in an outsized position in case things go awry. However, I try not to take a loss of more than 50% (unless it’s purely a lotto play).
Further, I tend to use them when I can’t clearly define the risk. When I can’t clearly define it, I don’t like trading with common stock, because the losses can get out of hand too quickly.***
Loser: AAPL — Wednesday and Thursday Jan. 19 and 20
Last but not least we have Apple. This was a FAANG leader and a market leader. I thought with the combo of the 50-day and reclaiming last week’s low ($168.17), it could be enough to give it a boost.
AAPL broke $168.17 on January 19 and quickly bounced, giving us a long position. It went about 1:1 on the trade and maybe in hindsight, the risk was too wide (about $1 a share in risk, so to justify a long position, we would need $2 to $3 from a bounce for it to be worth it).
You can justify 1:1 setups, but you have to be right a lot. I like 3:1 because it gives me more cushion on the trade.
I took about ⅕ of the position off at 1:1 because it ran out of gas and I wanted to get something rather than nothing. I stopped out at B/E, then tried the setup again around 3:00 pm (remember what I said about Round 2 attempts) and booked a small loss.
The same setup presented itself on Thursday Jan 20 and I took it again with similar results (although there was no second attempt in the afternoon).
The Bottom Line
When volatility picks up, we really need to dial in on proper risk/reward setups and we need to be willing to book profits when they’re there. That’s one thing that stands out with almost all of these trades: they gave back everything they gained and then some.
You can time them perfectly, but if you don’t have the discipline to book some gains along the way, you will give them all back (or worse: see a winner turn into a loser).
This is trading and you gotta roll with the punches. See you Monday!