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Triple leveraged drawdown selling rule
#1
Hi all,

I spent an hour or so pouring over financial charts of my beloved triples today, and I came up with a simple, effective algorithm to ideally make sure I don't get fleeced on these things. Basically, you plot a line between the most recent bottoms and sell when the price falls say more than 10% below that line.  It doesn't work as well when they are moving horizontally, but this strategy should allow me to take maximum advantage of a spike.  I wonder if this should apply to other equities as well.  

Let's start with the poster child of spikiness - NAIL.

[Image: 0acf7a0a-e9e2-451e-bccf-1d51b046bf3c.png]

In the great spike of 2018, had I owned it then, I would have looked to exit once it dropped below $100/share, because that's when the big advance ended.

In the covid drawdown of March 2020, the rule would have said exit around $85/share.  

Currently, the line plotted by the two most recent bottoms points to an exit around $63/share, which it is well above.

Now let's move on to the old stalwart, TECL; arguably the "safest" triple.

[Image: 2c2a7b1d-b1d9-430b-a20c-ee8c3c0da694.png]

2018 had a relatively modest drawdown as far as triples go, but this rule would have still kicked in around $15/share.

The covid drawdown of March 2020 was massive, but I would have gotten out around $28.  (Fun fact: I didn't.  I watched it drop all the way down..., from the $40k I had at the start to about $12k at the bottom.  Yes it did return in just a few months but that's missing the point.)

Currently the line I've plotted says get out around $38.  Note that I'm using a bottom a little farther back than "the most recent two".  Art more than science here.

Onto SOXL:

[Image: aa92e776-5e8a-4c31-890c-22b3efa0d479.png]

SOXL was very choppy in 2018.

2019 had a little spike, and I would have gotten out around $12.

The larger 2019-2020 spike going into the covid drawdown would have had me out around $17.

Current momentum points to a $36 exit point, which it is only slightly above.

And DFEN:

[Image: 84edda8b-8474-4ca3-9dc1-5353815dfd07.png]

A nice run from 2017 into 2019, and depending upon which bottoms you pick, of course, but I would have definitely been out by $47ish.

Then after the drawdown, 2019 into the covid bust - wow what a decimation!, I'm happy to report this rule gets you out at $59 or so.  

Currently the line plots to a sell out rule around $17.50

Finally, we come to LABU:

[Image: 638c7a76-49c8-4990-9218-0c9812a25a04.png]

If I'd had this rule in place, I would have gotten out around $130.  Sigh.  But for someone buying this right now, it's trickier, so I plotted a line against some previous bottoms with the most recent one of just a few days ago.  Current exit is a tight hook at $76.  LABU is like that reliever who strikes out a lot of guys, but gives up the longball and loses the game for you too often.

*****

Not addressed yet is after you sell, how to know when to get back in.  I think the logical answer is when you can plot an upward line again and state a new exit point which the stock is currently above.
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Messages In This Thread
Triple leveraged drawdown selling rule - by ken-do-nim - 03-31-2021, 03:50 PM
Triple leveraged drawdown selling rule - by vbin - 04-01-2021, 05:24 AM
Triple leveraged drawdown selling rule - by vbin - 04-06-2021, 12:43 PM
Triple leveraged drawdown selling rule - by vbin - 04-06-2021, 12:48 PM
RE: Triple leveraged drawdown selling rule - by ChadR - 04-27-2021, 05:40 PM
RE: Triple leveraged drawdown selling rule - by ChadR - 04-28-2021, 08:37 AM



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