Trade The Journey

Trade The Journey

Trade Review: Week of April 21st

SPY (S&P 500 ETF): Five minute chart

IWM (Russell 2000 ETF): Five minute chart

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $511 Call

Leg 2: Sell $516 Call

Premium: $6.90

Profit/Loss: ($5.70)

2nd Position

Strategy: Vertical Spread

2nd Spread

IWM (Russell 2000 ETF)

Leg 1: Buy $202 call

Leg 2: Sell $205 call

Premium: $2.70

Profit/Loss: ($2.70)

2nd Position

Total Premium: (8.40)

Hypothesis: Maybe to regain some of the loss from the previous week, unless Monday is a monster day for retail sales.

Hypothesis Explained: Recent trends reveal a resurgence in inflation and a dip in consumer confidence. Concurrently, significant declines have been observed in both the S&P 500 and Russell 2000, with the S&P 500 experiencing a considerable pullback. Despite a strong bull market persisting for most of the year, technical indicators suggest an overextension to the upside, making it difficult to predict the market’s peak until it has passed.

Trade Management: Initially, the trade was optimistic, anticipating a market recovery following skeptical reactions to Federal Reserve statements on monetary policy direction and the resurgence of inflation. Contrary to expectations, economic data suggested robustness, with inflation climbing and job growth continuing. Reflecting now, these trades seem to have been of low probability from the outset. The markets, particularly the S&P 500 and Russell 2000, appeared excessively bearish initially. However, as the weeks progressed, the markets seemed to recover, negating short-term losses. My strategy relied on certain technical levels for support, which ultimately failed.

On Monday, profits were short-lived due to a retail sales report indicating persistent consumer spending, which unexpectedly impacted the market negatively, dashing hopes of a rate cut in June. Ultimately, the trades did not recuperate, resulting in a total loss on the Russell call spread and nearly all on the S&P 500 call spread. Market sentiment overwhelmed technical indicators, leading to a rapid sell-off.

Trading Review: Experiencing rapid financial losses sometimes necessitates a cessation of trading. Over the past two weeks, I’ve incurred losses nearing $2,000. Despite scaling down, the losses remained impactful. My failure to adhere to set exit points and stop-loss limits suggests a lack of discipline, crucial for trading success. Last week’s trading indicators did not support the highs seen in the market, with several bearish signals, including the negative directional index surpassing the ADX and the positive directional index.

The relative strength index also failed to breach or maintain levels above the overbought territory, contradicting the ongoing bull run. Thankfully, I opted to pause and reassess my approach, which is essential for refining my trading strategy. Moving forward, improving loss management will be crucial in my development as a professional trader.

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