Forgive the pun but solar stocks have been hot lately. While the leading names might produce higher returns than the Invesco Solar ETF, the volatility can be tough for swing trading. How do you keep losses small on stocks that move more than 5% daily? That's why we've gone with TAN stock recently with multiple trades.
TAN Stock Offers Lower Volatility But Still Performs
There is a reason we've gravitated toward ETFs lately on SwingTrader. With so many stocks coming off bottoms, it was hard to find setups initially. But with the diversification offered by ETFs, it's easier to go for mean reversion of a group rather than facing single stock risk.
Even more important is the lower volatility. Sure, the leading stocks in the solar space have had better gains. But it's also easier to get shaken out or open yourself to larger losses. Invesco Solar, by contrast, has less volatility but can still have big moves. Just look at how TAN stock tripled in price in 2020.
Swing Trading Example: TAN Stock
As for coming off the bottom, we initially tried TAN stock as it made its fourth attempt at conquering its 200-day line in early July (1). It initially looked promising and we took our first third profit the next day with a 3% gain (2).
But when TAN stock fell below our entry day low and sliced through its 10-day line, we removed the remainder of the position in order to keep our loss small (3). The initial profit taking helped take some of the sting out of the pullback with a reduced position.
Want to learn more about swing trading? We featured TAN stock in our latest webinar Swing Trading Rules Of The Road
Whether a stock or an ETF, we don't let an initial failure prevent us from trying a position again.
Solar Stocks Benefit From Policy
Just a couple weeks later and we gave the solar ETF another shot as it broke above its 200-day line again (4). This time, our trade in TAN stock had the benefit of a climate bill that pushed it up 10% the next day (5). We took off our first third from this new trade with an 8% gain. With that kind of cushion, you can give a stock or ETF more room to wiggle around, but you still want to have a line in the sand to protect your profit.
TAN stock never breached the low of its gap up day (around 80) and quickly recovered to make further gains. Once we were up 15% from our entry, we took another third off into the strength before it reversed for the day (6). While we didn't know it was going to reverse lower that day, following our rules naturally reduced our exposure.
Still, TAN stock ended up moving higher and we set a target of 20% for the remaining position. At the same time, we used a rising 10-day line as a potential line in the sand to protect our profit.
We nearly hit our 20% target before TAN stock showed another downside reversal (7). This one led to a more dramatic pullback and we removed the remaining position after it broke below its 10-day line and didn't get support (8).
But that didn't mean it left our radar. It's not just failed trades that we watch for another chance. Successful trades can often run again. After TAN stock found support at its 21-day moving average line, we gave it another chance (9).
Even with the weak close on Friday, we still have a small gain in TAN stock. Now it's just a matter of making sure we don't let our solid gain turn negative on us.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
