Compounding Profits And Reducing Drawdowns In FAS Stock

The 10-year treasury yield may be off its 2020 lows but it’s still low by historic standards. But when it rises, financial stocks tend to benefit. The Direxion 3X Financial Bull (FAS) ETF acts more like a stock because of the leverage. That makes FAS stock an ideal candidate for swing trading.


Swing Trading Example: FAS Stock

It’s not often that we choose stocks below their 50-day moving average line. But after tight action around its 21-day line, we added FAS stock to SwingTrader as it popped above a tight area (1). The tight area around the previous day’s close seemed like a natural support area and we set a close below that level as our stop.

It wasn’t an easy hold. The next day FAS stock erased its gains and at one point undercut the lows of our entry day (2). It was still above our stop, but we took a third off out of caution.

We were unusually patient with it and on Aug. 3 it dropped below our stop early in the session (3). Rather than panic at the open, we usually wait a few minutes to see how the trading unfolds. FAS stock immediately got support and by the close we were on our way to positive territory again.

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Locking In Profits

The gap up on Aug. 6 would normally be a place for us to take profits with over a 7.5% gain (4). However, our cautionary sell was dragging the performance of the trade down so we gave FAS stock more room.

A few days later and we took our second third of profits after hitting a 15% gain (5). That was near a short term top and a few days later we exited the position (6) after it undercut the lows of our last profit taking. FAS stock ended up recovering by the end of the day but we didn’t want to give up gains.

Another Go For FAS Stock

By locking in the profit early, we avoided a drawdown as FAS stock undercut its 21-day line over the next week (7). But it also set up with another upside reversal along with the market indexes the next day (8). It was a good opportunity to add FAS stock back to SwingTrader at a lower price than our last exits.

We were a little quicker to take profits this go around without the cautionary sell. We took a third off when we had over a 3% gain (9). Then another third peeled off once we had 8% profit from our entry (10). The lower position size had its appeal heading into Federal Reserve chief Jerome Powell’s statements at the virtual Jackson Hole monetary conference.

Each of those exits nearly matched our last two exits of the prior FAS stock trade. It’s a great example how swing trading can help you milk more profits out of a trade with less drawdowns.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.


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