Trade The Journey

Trade The Journey

Trade Review: Week of the May 5th

SPY (5-min Chart)

SPY(Monkey Bars/TPO)

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $508 Call

Leg 2: Sell $517 Call

Premium: $3.50

Profit/Loss: ($1.43)

2nd Position

Strategy: Vertical Spread

2nd Spread

SPY (S&P 500 ETF)

Strategy: Vertical Spread

Leg 1: Buy $502 call

Leg 2: Sell $512 call

Premium: $3.50

Profit/Loss: $2.61

3rd Spread

SPY (S&P 500 ETF)

Strategy: Vertical Spread

Leg 1: Buy $505 call

Leg 2: Sell $513 call

Premium: $3.15

Profit/Loss: $2.41

Total Premium: $3.5

Hypothesis: Tech earnings may be enough to lift the market as it had done so before. The economic data could come into better alignment with cuts sooner rather than later.

Might be able to capitalize on the move up.

Hypothesis Overview: The recent trading in SPY has been marked by high volatility, with significant intraday movements. Last week, I faced losses due to prolonged trades or abrupt reversals. The coming week is crucial with major tech earnings and labor market data that will likely influence the Fed’s monetary policy decisions. Current trends suggest the Fed’s ongoing battle against inflation is becoming increasingly complex.

Trade Management: This past week may have involved excessive trading on my part, starting with a spread that was set to expire on 5/06, the following Monday. The market’s heightened volatility has posed challenges, with swift price changes and slow recoveries. To manage this, I reduced my trade size and strictly followed my stop-loss rules. The market responded negatively to an unexpected rise in employment costs, indicating potential inflation pressures, which is generally unfavorable for the market anticipating rate cuts.

Upon noticing a downturn, I set a stop-loss, which executed before I could cancel it, fortuitously right before a critical Fed announcement. Believing the Fed might not take a strong stance, I re-entered the market the next day. Subsequent reports on job strength and manufacturing appeared weak, but the Fed minutes were not as aggressive as anticipated, prompting a rally that led me to close my position profitably.

Soon after, SPY dropped sharply, mirroring its earlier ascent. Anticipating that the Employment report would be weaker than expected, I re-entered, and the market did rally strongly after the report showed a significant miss from expectations, reaching a weekly high where I exited near the peak. SPY didn’t hit that high again until after the market closed.

Trading Review: The latest market conditions have been notably volatile and challenging, contributing to significant losses over the past weeks. April was particularly tough, with losses each week due to either market instability or my overconfidence. After enjoying two profitable months, complacency set in, and I often neglected thorough analysis. The volatility taught me the importance of adjusting trade sizes and responsiveness based on market conditions. Now, I’m focusing on maintaining smaller positions and adhering to my disciplined use of stop-losses until I can confidently increase my exposure.

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