Trade The Journey

Trade The Journey

Bet with your head, not over it.



Trading Asset:

SPY (S&P 500 ETF)

IWM (Russell 2000 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $505 call

Leg 2: Sell $510 Call

Premium: $9.92

Profit/Loss: $7.07

2nd Spread (RUT)

Leg 1: Buy $202 call

Leg 2: Sell $506 Call

Premium: $3.38

Profit/Loss: $1.32

Trade Expiration:  03/4/2024

Hypothesis: SPY could retest the high if the GDP, PCE, and consumer confidence reports hold steady. Fed speakers should reiterate recent messages about being data dependent unless the data surprises.

Trade Hypothesis Clarified: My decision to engage in this trade was predicated on the observation that as SPY approached a new all-time high, it might incentivize traders to sustain the bullish momentum. Economic indicators are pivotal in gauging inflation trends. Recent surprises in CPI and PPI data suggest a potential uptick in PCE, indicating inflationary pressures. The decision to trade the Russell towards the week’s end was influenced by the realization that interest rate movements significantly impact both the Russell and Nasdaq indices.

Trade Execution Insights: My entry into SPY was based on an anticipation of the day’s low. Although my timing was slightly off, securing a position near the day’s nadir was a pleasant surprise, evidencing the refinement of my entry strategy. Yet, SPY dipped further, marking the week’s lowest point before rebounding post the PCE report. This report was keenly awaited for insights into the Federal Reserve’s inflation strategy, acting as a critical determinant of market direction. Resistance at $508 was persistent until a breakthrough later in the week, underscoring the challenges of trade management amidst anticipatory market dynamics.

Reflections on Market Dynamics: The approach to trading the Russell was cautious, given the complexities of initiating a new position. However, leveraging the Russell as an indicator of bullish sentiment had proven beneficial previously. Economic data indicating a deceleration in growth led to a strategic exit from the Russell position at what was perceived to be the day’s peak, while maintaining the SPY position with expectations of reaching $512, illustrating the potential for markets to exceed expectations.

Trading Evaluation: Reflecting on the trade, while profitable, the exit strategy could be optimized for enhanced outcomes. The improvement in entry accuracy is attributed to diligent market observation, including Level 2 data, tick charts, and 5-minute charts, offering nuanced insights into market sentiment and trends. These tools, despite their rapid dynamics, reveal the market’s directional bias, underscoring the importance of adaptive strategies based on market and self-analysis. Recognizing personal intuition as a guiding factor in decision-making emphasizes the continual learning process in trading, highlighting the value of internal signals in refining trading acumen.

I’ve come to understand that my trading signals stem not from charts or market movements but from my instinctive responses. Whenever I sense that the market has hit its bottom and is due for a reversal, it’s time for me to close my position. Conversely, if I perceive that the market has reached its peak and a correction is imminent, I should maintain my position. While certainty is elusive in trading, I am confident that these intuitive cues will guide me towards improved trading proficiency.

Bet with your head, not over it – Sopranos quote

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