Trade The Journey

Trade The Journey

Trade Review: 9-01

Trade Review

Trade Asset: DIA ETF (Dow Jones ETF)

Trade Duration: Two weeks

Premium paid: $1.40

Premium Received: $2.43

Strategy: Vertical Call spread

Leg One: $345

Leg Two: $348

Trade Review:

Two weeks ago, I was looking for a trade that had the potential to be profitable based on my hypothesis that the market was oversold. The RSI for most of the index’s ETF were nearing oversold levels and with market moving reports being released, I thought a bullish trade might be successful.

DIA seemed like it had the most potential to rise as it had formed a minor support level around $342. The first week, DIA fell sharply, and I suffered a loss as DIA fell to the $340 level. However, buyers stepped in when DIA hit the low of $340.

I was little concerned about the movement in DIA but with the reports being released the following week on inflation and labor market, I felt that the markets would rise if the reports were positive. Even though I was still optimistic I had to watch the position closely because the markets move fast when an event or report agitates the market.

When the report was released, it showed that the labor market was loosening and that the intended effects of the rate hikes by the Fed were working. The market bounced when the job opening report showed a deceleration in openings and rose further when GDP growth edged down.

Unsure of where DIA would land, I put in a limit order to sell if the premium reached a certain price. During thursday’s pre market, DIA made a new weekly highly so I was confident that DIA would most likely reach the target and my limit order would be executed. It executed within the first few minutes of Thursday’s open.

This trade was an example of how market experience and feel guided my trading. In the past, I would have exited this trade the moment it reached a $77 loss which amounted to over a 50% loss, but I stayed in the trade.

Another reason I stayed in the trade was that I could afford to lose the entire premium and that thought comforted me. Since I was prepared to take a loss, I didn’t fear taking a loss which allowed me to remain objective about the trade. I wasn’t emotionally invested in the trade.

Of course, I didn’t plan on losing the entire premium but if it did happen, I would be alright.

Below is a spreadsheet of the different price points where DIA had the most volume or conviction.

Lesson: Trading is more than the technical story, it’s about the feel you get from watching the market that can provide the best clue on where it might go. To become a good trader, you must become comfortable with uncertainty and use it to your advantage. Because you don’t know where the market might go or what its participants think, you must be open to possibilities.

You can do this by thinking about how the market might interpret the reports, which is hard to do. Over time by learning how the indices, commodities, currencies, and bond yields work in relationship to each other, you get a broader sense of where the market might move.

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