Scaling out of a winning trade is an excellent way to maximize profit, while minimizing risk. Here’s how we entered $FSLY and scored an average gain of +51% over a five-week period—despite selling partial shares too soon.
In early April, $FSLY gapped above months of horizontal price resistance and closed with a whopping 45% gain. Most importantly, that monster move was fueled by volume that was seven times greater than average:
At first glance, most traders will avoid a stock that is already up 20% or more in a single day because they feel it is “too extended” for a low-risk entry point.
However, if such a gain of 20% or more is due to a breakaway gap on monster volume, then it’s actually a powerful buy signal that often marks the beginning of a new rally–not the end.
The Buy Entry Setup
Aggressive traders can buy a breakaway gap up by using a rally above the opening 5-minute high as an entry. However, this entry is tough to pull off if you are working during market hours and can not monitor opening price action closely.
Since our swing trading system is specifically designed to accommodate part-time traders who work around a full-time job, we provide members with a more suitable entry strategy for such trades.
Whenever there is a big gap up on massive volume, we typically wait for a 2-5 day pullback (or at least a low-volume consolidation day) to enter on slight weakness.
This allows subscribers of The Wagner Daily to participate in the trade by setting a planned “buy stop” order the night before the market opens.
Two days after $FSLY broke out, it formed a tight-ranged candle on lighter volume (consolidation day):
This tight-ranged day on lower volume was the pause we were looking for, which allowed us to clearly set a buy stop above the intraday high.
Once again, our patience in waiting for a stock to form a proper, low-risk buy signal paid off.
$FSLY triggered for buy entry in our swing trading report the next day, then zoomed to an impressive gain of nearly +30% above our buy entry, less than two weeks later.
At that time, we began scaling out of the winning position with partial share size. After four separate exit points, the final result was an average gain of +51% on the trade.
First exit to lock in profits
+25% average gain on 60% of position size
Because $FSLY rallied to a +29% gain just eight days after our buy entry, we made a judgment call to sell partial share size into strength to lock in some profit.
There was nothing wrong with taking some profit off the table with our first exit, but we got shaken out of some shares for gain of just +23% when the stock slipped below its 10-day moving average in early June.
In hindsight, we should not have sold those shares when the stock only dipped below its 10-day moving average. It was a bad exit at the time, and still looks bad as we now review this trade. Although it’s tough to look at, trading isn’t easy and this surely will not be the last mistake we make.
Second exit to maximize gains
+91% average gain on 40% of position size
After scaling out of 60% of our position for an average gain of +25%, we carefully managed the remaining 40% of shares to lock in a price gain of +91% from our buy entry:
We sold partial shares into strength for a gain of +72%, then finally exited the remaining shares for a sweet gain of +101% when our stop triggered below the June 23 low. The sell points are annotated on the chart above.
What we did right and wrong
To continually grow and improve as a trader, it’s crucial to regularly review your past trading performance. Your goal is to honestly determine exactly what you did right on each trade, as well as what you should have done differently.
Overall, we were pleased with the net average gain of +51% that we and our subscribers scored on this $FSLY trade.
Yet, our mistake was selling too much of the position too soon.
The price had not yet extended much above the 20-day exponential moving average. We should have been more patient to let the trade setup take form and do its thing, especially since we had a true market leader at a good price.
Our average sell price led to a great +51% gain, but it really should have been closer to +75%.
Successful trading is a journey, not a destination. You should never stop learning and improving on your trading strategy.
To get on board with us for the next monster mover, just sign up now to The Wagner Daily report.