Trading Case Study: 3 Big Lessons Learned From Trading a $3 Oil Stock
On October 24, 2017, fracking Fairmount Santrol Holdings (FMSA), a name familiar to Daily Market Report subscribers, came back on my radar.
It showed a 50% retrace from the $2.50 summer base to the early October $5.00 high.
It also successfully tested the 50-day moving average, as you can see on the chart.
I initiated a long swing position, getting us in at $3.64. Our initial stop was set at $2.95.
On October 27, FMSA was trading at $3.94, giving us a quick 8.2% gain.
But it wasn’t time to sell. FMSA was setting up with an Expansion Pivot buy signal, and I added to my position.
The good times didn’t stop there.
FMSA fell into the Weekly Plus One/Minus Two pullback buy position. This happens when 2 consecutive lower lows are followed by a 3rd week that finishes up.
It also came after a successful test of the 20-week moving average.
Let's zoom out on the weekly chart so you can see what that looks like:
On October 31, with the stock trading at $4.25, I notified Daily Market Report subscribers that I was adding to my position AGAIN.
Let's to back to the daily now:
By November 3, FMSA broke $4.50, and that afternoon, I made the call to sell half the position as the stock hit $4.66.
That’s a gain of $1.02, or 28% from our original buy, in 8 trading days.
Let's recap that quickly:
10/24: Buy at $3.64
10/27: Add at $3.94
10/31: Add at $4.25
11/3: Sell half the position at $4.66
As is our practice in the Daily Market Report, after locking in that 28% gain from our original purchase, we moved our stop up to breakeven at $3.64.
I am now looking for FMSA to hit $6.50.
There are some important lessons to be learned:
- When bullish setups trigger on top of bullish setups, don't be afraid to add to a winning position
- Use multiple time frame analysis to improve the accuracy of your trades
- When you're sitting on top of a high-percentage winner like this, trail a protective stop so you balance risk management with capturing a large part of a move
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