Highlights from the Week

Biggest Winner: Nvidia (NVDA)

Nvidia (NVDA) continued its stride from last week following its acquisition of Mellanox, becoming Get Irked’s first two-week winner with a gain of 4.53% despite Friday’s sell-off. Nvidia closed the week at $177.50 with our position up 255.50%.

Biggest Losers: Citigroup (C) and JP Morgan (JPM)

After the Fed announced it doesn’t plan any rate hikes for the remainder of 2019, the financial sector got slammed. We’re  bunching Citigroup (C) and JP Morgan (JPM together since they lost 6.46% and 6.37%, respectively. Citigroup closed the week at $60.98, leaving our position down -4.68%. JP Morgan closed the week at $99.76 and struck our position harder, leaving us down -5.48%.

This Week’s Moves

Contingent Orders: Protecting Apple (AAPL) Profits

When Apple (AAPL) started rocketing skyward this week following several hardware announcements and excitement over next week’s streaming-services announcement, we wanted to protect profits. However, not only did we want to lock in gains, we also wanted to reduce our position size if Apple popped over $191.63.

We wanted to both protect our gains and capitalize on the move at the same time without being too greedy, and this kind of scenario is exactly when Contingent Orders can be incredibly powerful.

To accomplish our goal, we could use two different kinds of Contingent Orders: a One Cancels Other (OCO) order or a Trailing Stop (TS).

Although not offered on Robinhood, many brokerages like Charles Schwab and others allow investors and traders to place contingent orders.

The One Cancels Other (OCO) Scenario

When a trader creates a OCO order, we place two different orders at the same time, however the broker will automatically cancel the open order if either of the two fill.

In this case, our two orders would be (1) a stop-loss limit order to sell Apple at a minimum price if it drops below our set price and (2) a regular limit order to sell Apple if it reaches $191.63 or higher. The OCO element to this order means the broker will automatically cancel the other order if either move happens.

Using an OCO protects against a stock’s volatility where a big enough range could result in our higher limit-order being filled followed by a significant price reversal also filling the other order if Apple’s price dropped which would result in twice as much stock being sold as we wanted.

The Trailing Stop (TS) Scenario

We opted to use a Trailing Stop (TS) with Apple. A TS order allows the trader or investor to automatically buy or sell a stock if it suddenly changes direction and reverses by a set amount. The investor sets how far above or below the current price to execute the order by a set amount either by price or percentage.

In our example, we observed that Apple had never retreated more than 2% before heading higher in its current run, so we set a trailing stop at 2%.

As Apple heads higher, the brokerage automatically raises our sell order to match 2% less than the last highest price. If Apple reverses direction, our sell price does not go down meaning that Apple will automatically sell if it retreats 2% from its last upward high point.

Of course, using a trailing stop in this case this means we will lose 2% of our profits from Apple’s last highest price point, but we will protect the profits we have up until our 2% stop.

Trailing Stop orders also work for buy orders. An investor who wants to buy a stock dropping in price sets a certain amount the stock can move up before the order fills.

Many investors and traders will never need or use contingent orders, however they can certainly be powerful tools if needed or if an investor wants to make more advanced trades.

The Result

We placed our trailing stop at 2% lower than Apple’s trading price on Wednesday when it was trading at $187.68.

On Thursday, when Apple’s upward momentum increased, we decreased our trailing stop to 1% below the current level. Apple hit a high of $197.66, reversed and dropped to our stop price of $195.68 with our order filling at $195.20 – a 4% improvement over placing a standard limit sell order at $187.68 and only 1.24% less than Apple’s highest possible price (which ended up being its daily high) of $197.66.

Apple (AAPL) closed the week at $191.05 (down 2.12% from our selling price) with our position now up 350.70%. Although AAPL is still our biggest holding, we’ve reduced its size from 7.40% of our portfolio last week to 6.30% of our portfolio now.

In Summary

Forecast: More Uncertainty Ahead

If there’s one thing we’ve seen since the fourth quarter of 2018, it’s that the certainty of a consistent Bull Market is a thing of the past. With all the mixed messages and data points, it’s important we have our trading plans in order and remember our time horizons.

Although this kind of market volatility can make investors feel like we need to make decisions right now, a long time horizon means not getting the perfect entry point isn’t going to have that much of an effect on long-term gains.

Stick to your discipline and don’t let emotion guide your actions.

Want Further Clarification?

As always, if you have questions any of our positions or have positions of your own that you’re curious about –  feel free to leave a comment below!