A follower of the site asked if there are any Long-Term Trades that stand out to me at this time. As my focus has been on the shorter-term price movements of the market lately, I will take some time this week to update both the existing Long-Term Trade ideas (which are geared towards longer-term swing traders, trend traders and investors) as well as scanning for some new Long-term Trade ideas. In looking at the trade setups in that category, I noticed that TNK (Teekay Tankers Ltd) had not been updated in quite a while.
TNK was added as a Long-term Trade Setup back on May 21st of last year as a possible entry at that time but with my preferred entry criteria as to: “…wait for a close or very solid intra-week move above the weekly downtrend line, preferable on above average volume.” It took four months from there but TNK finally did print a solid weekly candlestick close on about 2x average volume in late Sept. From there, the stock went on to hit & exceed the first weekly target (T1), climbing about 80% before coming back in to backtest the T1 level on two separate occasions. The originally weekly chart from that post is shown below, followed by the updated weekly chart.
Although TNK fell off my radar since then without any follow-up commentary, the longer-term technical outlook for this stock looks attractive. With prices not too far from the former T1 level, which is now support (resistance becomes support once broken), TNK might still offer an objective entry around current levels (3.90) or any move back down to the 3.45 area with a stop on a weekly close below 3.40. By prices being “not too far” from the former T1 level, keep in mind that is relatively speaking as in relative to the distance to the next price target. Assuming an entry at current levels and a stop below 3.40 (about 50 cents below), that would be a 13% loss if stopped out. However, with T2 about 62% higher, that would provide an R/R (risk-reward ratio) of nearly 5:1.
Allowing for a 13% stop-loss is certainly not for everyone but what I find useful, almost critical, when swing trading volatile stocks like this with very large gain/loss potential is to make a downward adjustment in my position size for the trade. E.g. – Someone who trades with a usually stop allowance of 5% & 20% profit target with a typical position size of $10,000 could take a $5,000 position in a trade with a 10% stop/40% gain potential & make (or lose) the same dollar amount as they normally would on a trade. This is what I often refer to as Beta-Adjusted Position Sizing.
Another method that I use to help mitigate the risk when trading volatile high-risk, high-return trades, especially when accumulating shares above the idea entry point (in this case, that would have been the last two backtests of the T1 level) would be to utilize a scale-in approach. Scaling in means to accumulate fractional positions at various prices over a time, with the “time” being commensurate with the expected holding period of the trade, which in the case of TNK would be months. Hence, a 3-5 week scale in on TNK would seem appropriate based on the expected multi-month duration of the trade, if successful. Think of scaling in like dollar-cost-averaging into the mutual funds in your IRA, only on a shorter time frame. However, with dollar-cost-averaging using equal dollar amounts & time intervals, I prefer to scale in to a position strategically by using the charts… adding to longs on pullbacks to support or on breakouts above resistance.