In February, my swing trading stock returns were solid across the board

The S&P 500, Dow Jones Industrial Average, Nasdaq and Russell Index finished higher than where they they all started the month at and compounded on the gains from January in terms of overall stock market returns.

Right now it is easy to forget that stop-losses are needed or that risk has to continuously be managed. That is because, when the market keeps going higher unabated, most traders will get lax, and not give as much thought to such mundane concepts.

But even when the market is rallying and rallying hard, caution is still warranted and risk still has to be managed. Because every good rally eventually comes to an end. And when it comes to the current rally in the stock market the same is also true and swing-trading is no different. So, even though the market is rallying like crazy, you still have to make sure that if the market is to turn against you that you’re not left holding the bag while everyone else dumps their stocks.

Here’s my swing-trading stock returns in February

Granted, there is about one position that still remains open and is actively being managed in a profitable state – Facebook (FB). But there were plenty of nice trades along the way. Some of the gains on individual trades could have been even better, but that would have required me to violate one of my biggest trading rules and that is to never hold a trade through earnings. To do so would be entirely unpredictable and reckless, and I prefer to remain disciplined in my trading.

Here’s the breakdown:

• I was correct on 61% of my trades overall.
• 14 out of 17 (82%) trades were profitable that that were focused on bullish/long setups.
• 1 out of 6 (17%) trades were profitable that were focused on bearish/short setups.

The short setups were to hedge against the market bullishness in case things started to turn lower.

I actually think I could have done a better job with my short positions. Because I was hedging against the market, I was willing to take a loss on them, because the large number of long positions would more than offset any small loss that might be incurred on my short plays.

But on a majority of those trades, I was up about 1% at one point or another, and could have easily booked those gains and moved on to the next trade. So that is definitely something to keep in mind going forward as I swing trade into March.

Ultimately though, the best approach to hedging yourself against a raging bull market like what we saw in February, is to aggressively raise the stop-losses on each trade. That way, if the market does, in fact, sell-off, you aren’t watching all of your profits get wiped out, and instead you are getting out very close to or near the top and being ready to take advantage of any market weakness.

As for my bullish trade set ups there were no issues there. Baidu (BIDU) is a perfect example of why I do not hold trades through earnings. I got long on February 3rd at $174.30, and held on for almost three weeks. But instead of holding through earnings, I dumped the stock the day before at 187.00 for a 7.0% profit. I didn’t want to get out of the stock, but because it was reporting earnings, I had no way of knowing how they’d perform after the report. So I booked those gains and eliminated the earnings risk.

Had I traded undisciplined, nine days later, all my gains would have been erased and I would be trading in the negative at the $173’s.

That is why I do not trade through earnings!

Another trade I was thoroughly disappointed in, but impressed with the manner in which the risk was managed was with Ollie’s Bargain Outlet Holdings (OLLI). This stock was horrible from the start, and as soon as I got in it, I found myself also getting out. Initially, when I got long on the trade, it was breaking out above resistance at the $33 level. I got long at $33.20 (awful, right?). Nearly right away, the stock started getting hammered on news about Trump wantinjnug to tax imports and OLLI is very dependent on imports – so the stock sells off.

I sold that same day at $32.50 for a 2.1% loss (yeah, it sucks!). But once it gave up all those gains, there was little to no reason to be holding this stock any longer. It was showing signs of rolling over and breaking back under the support it had just broken. Today, it is trading at $31 and often times underneath $31.

Moral of the story: stop-losses work. Keeping losses small, keeps them from getting big.

Another trade, was simply a victim of bad timing. That was Amazon (AMZN). I was early on the trade. That is okay though – that is going to happen. The stop-loss was sound, in the right place, and based on the information the charts were showing me at that time, it made sense to get long at that point.

I got long immediately after earnings once it looks like it was basing at key support of $803-805 range. My entry following the initial bounce was at $814.26. My stop loss was at the day’s lows, and of course, the stock was stopped out on Monday the following trading day. The loss was small – only 1.3%. But after that day, it made a nice hard run higher, never once looking back until it reached the $850’s again. Such is trading and I have found of late, that it is very difficult to get long on a stock the day following an earnings report as the price action is less predictable and doesn’t provide the best edge for trading. Lesson learned!

But I did manage the risk and the results are simply something I can live with.

What worked best in terms of maximizing profits and minimizing losses? When we were stuck in sideways markets like what was seen during much of 2016 prior to the election, it would be a mixture of long setups and some exposure and vice versa. In this market, and I did try it a few times, being short on the market did not provide much help to minimizing downside risk. Mainly because the market never sold off during February.

As a result, I resolved myself to be extremely diligent with the the stop-losses and consistently raise them as much as I possibly could. By making sure I was coming away with 70-80% and more of the possible gains to be had on a trade, I was making sure I was exiting trades near the top of a price move.

But you can’t simply arbitrarily raise the stop-loss and think that is an effective strategy, because it is not. Instead, you have to raise the stop-loss to levels that make it most likely the trade is over if a particular price level is broached.

In some cases that means a break of a rising trend line, and in other situations it means a violation of a key support level or a invalidation of a bullish price pattern.

In essence my swing trading stock returns were largely predicated on raising my stop losses regularly.

Another perfect example of this was my swing trade in Flex Ltd (FLEX). I bought it at $15.62 and sold it a couple of weeks later at $16.57 for a 6.1% profit. Very solid. This stock trade here I also raised the stop on multiple occasions and it worked – worked really nice and got out pretty close to the top of the trade.

Swing trading stock returns going forward

With March trading in full swing, we are seeing some hesitation out of the market, and the potential with diverging indicators that the market may not be overly zealous to continue on with the post election euphoria that Trump’s victory brought about. Flexibility will be key to the month’s success. There may be an opportunity to take on some more short positions than what has been the norm of late. If a real sell-off occurs, I would expect it to be one that is multi-month, but along the way you’ll have to be weary of sharp bounces higher. So aggressively booking gains to the short side, when you have them, will be vitally important.

Consider taking a Free 7-Day trial in the SharePlanner Splash Zone to better equip you for the likely volatility that is heading towards this market at some point in the near future. Each day in the Splash Zone, I am guiding traders through the twists and turns the market has to offer. Try it and start getting my swing-trade alerts via email, text and my vibrant chat room filled with other traders just like yourself.

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