Doing a post analysis of trades is a critical component of improvement. But as we can see with the example of DVN stock, it’s not just about the outcome. Whether the stock eventually went up or down is only part of the answer. The journey it took to get there is also important.
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Swing Trading Example: DVN Stock
Most of the dominant industry groups of 2022 start with the words oil & gas. It’s been one of the few areas providing strong returns while market indexes plummeted. Devon Energy (DVN) is a leader among them with an astounding 1,500% gain at its June peak from the lows of the Covid crash.
After correcting 38%, DVN stock found support near its 200-day line (1), and surged 41% in just three weeks (2). With DVN stock establishing an uptrend again, we looked for a pullback opportunity to potentially try another swing trade.
DVN stock pulled back but got strong support at its 21-day exponential moving average line (3). As the market rally after the Labor Day holiday started failing, Devon Energy broke above short-term resistance and joined SwingTrader (4). At the same time, the relative strength line surged near highs.
Protecting Capital Still Rule No. 1
We weren’t inclined to give DVN stock a lot of leeway. We only had two positions because of the market environment and our exit strategy was to sell at a close below the entry day low. DVN stock triggered our stop the next day and we didn’t wait for the close (5). In fact, the market action pushed us to all cash after exiting DVN stock.
As the stock fell another 20% from our exit, multiple high volume days on poor price action showed up (6). However, after a few weeks, DVN stock was right back at our entry (7).
So was our sell a mistake? Were we just too impatient?
When looking at the outcome, it’s easy to come to that conclusion. But the journey and the process matters. Based on our entry, this isn’t a stock that could be held without breaking multiple capital-preservation rules.
No one likes to be wrong and it’s easy to break sell rules in order to avoid it. But not selling because you have comebacks like DVN stock on your mind means you risk being even more wrong on a stock like Shopify (SHOP) or Upstart (UPST) that fell more than 80% from their buy points. The risks outweigh the rewards.
You can be a wrong a lot as long as you avoid taking big losses. And the best way to avoid taking big losses is by taking small losses like DVN stock.
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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