Trade The Journey

Trade The Journey

Trade Review for the Week of June 30th

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $546 Call

Leg 2: Sell $550 call

Premium: $5

Profit/Loss: ($5.00)Hypothesis: GDP and PCE being released next week, still bullish. 

Hypothesis Explained: Decreasing inflation could lead the markets to expect monetary policy easing sooner than initially projected. The markets seem to be reacting to economic data as the Federal Reserve emphasizes its data-dependent approach. The forthcoming GDP and PCE reports will offer further insight into the potential rate path the Fed might take.

Trade Management: This trade was initiated towards the end of last week with hopes that SPY would reach a new high. My entry was poor, as it turned out to be the high of the day, but I anticipated a brief pullback since SPY made a new ATH in the pre-market. SPY struggled to end the week and remained rangebound the following week.

On the day I entered the trade, SPY fell to 545.44, using it as support as it attempted to break above the 548.30 level but failed. SPY drifted back towards the 547 level and closed well off the pre-market highs. The next day, SPY opened lower, with 545.47 proving to be solid resistance that SPY struggled to break.

It finally broke through on the third day but couldn’t stay above it, dropping back to the 542 level. Over the next couple of days, SPY returned to 545.47 and eventually broke through, closing above it despite a few break attempts. I had high hopes for SPY, expecting the PCE report to show receding inflation. However, the market’s reaction to the Presidential debate, which was disappointing, was unexpected.

One candidate blatantly lied, while the other seemed too old to lead the nation, which was disheartening. SPY hit a new high near the open but plummeted by the end of the day. Midday, I realized I missed my chance to exit with a smaller loss.

Trading Review: This trade was complicated and likely doomed from the start due to a poor entry, influenced by the previous week’s trade. I entered near the day’s high, and SPY never fully recovered. I stayed in the trade, expecting the PCE report to meet expectations, which it did.

I wasn’t prepared for the market’s cautious reaction due to the presidential election. Rising yields towards the end of the week didn’t help. It’s challenging to know when to exit a trade due to uncertainty. Although the VIX remained in the 12-13 range, indicating low market uncertainty, I was uncertain about market direction.

I’ve often questioned the bull market’s strength but learned that predicting a top is futile. Every losing trade teaches me more about the market. However, too many losses can push you out of the market. My inability to cut losses short is what’s hindering my success, a skill that continues to elude me.

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