How We Played iShares Nasdaq Biotech

Back in August, we explained the technical setup for our swing trade entry into iShares Nasdaq Biotechnology Index (IBB). We then followed up with a post showing the technical analysis criteria for a secondary buy setup for swing traders who missed our initial buy entry. Last Thursday we sold IBB for a seven-point gain when it hit our original price target of $140.80. In case you missed our initial explanation for a swing-trade entry into this bullish ETF, we suggest reviewing those two posts before going on to the following paragraph, which details last week’s exit strategy.

Because our stock and ETF trading newsletter -- The Wagner Daily -- is fully designed to be an end-of-day stock-picking service, the rules of our trading system dictate that we automatically sell our open positions whenever they hit their price target or protective stop loss (whichever comes first). On September 6, via our Courtesy Trade Confirmation alert, we confirmed the exit of our IBB position when it hit the official target price of $140.80. Upon doing so, we locked in a solid gain of $1,100, which was a 5% gain from our entry point (equal to a 2% gain in our model trading portfolio).

Although IBB can easily move higher from here in the intermediate term, we do not mind selling into strength and moving on to the next trade. This is especially true considering the general lack of follow-through we’ve been seeing in the market for the past several months.

The Strategy
The daily chart pattern below details our exact entries and exit prices for the IBB swing trade. As explained on the chart, our initial buy entry was on August 14, but we initially entered the trade with a reduced share size in order to minimize risk. However, the tight price action over the next seven days was bullish, which allowed us to increase our exposure with a second low-risk entry point on August 24.

Stock vs. ETF Returns
For individual stock swing trades, we typically seek to gain 15% to 20% returns on the stock price. However, for ETF trading, our average returns are usually 5% to 10% because ETFs are usually less volatile than individual stocks. The combination of trading both individual stocks and ETFs enables us to realize maximum gains in strongly trending, healthy markets, while retaining the ability to profit from from trading currency, commodity, international or fixed-income ETFs, all of which typically have a low correlation to the direction of the stock market, in choppy or range-bound environments.

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