Trade The Journey

Trade The Journey

Trade Review: Week of the 18th

Trading Asset:

SPY (S&P 500 ETF), IWM (Russell 2000 ETF)

Strategy: Vertical Spread

1st Spread: SPY

Leg 1: Buy $501 call

Leg 2: Sell $505 Call

Premium: $1.64

Profit/Loss: (1.14)

2nd Trade: IWM

Leg 1: Buy $195 call

Premium: $552

Profit/Loss: $10.36

1st Spread: SPY

Leg 1: Buy $202 call

Premium: $4.50

Profit/Loss: (3.01)

IWM

SPY

Hypothesis: Through my observations, I’ve noted that the market often recovers from negative reports as the day progresses. This leads me to believe that the Russell index (RUS) could potentially revert to its previous day’s performance. Rather than attempting to counter the prevailing trend, I’ve come to the conclusion that aligning with the upward trend offers a more promising strategy than attempting to predict a market reversal (SPY).

Explanation of Hypothesis: Initially, my instinct was to adopt a contrarian stance and place a bearish trade on the SPY, anticipating that the Consumer Price Index (CPI) report would not meet market expectations. This belief was reinforced by the sharp increase in material costs indicated in the ISM services report from the previous week. Nonetheless, choosing to follow the prevailing market trend, I aimed to capitalize on potential gains, despite my reservations about the sustainability of the bull market.

Trade Management: On the day I initiated the trade, the SPY’s performance was lackluster, culminating in a minor loss as the market awaited the CPI report. The subsequent market reaction to the CPI report was a swift uptick followed by a rapid decline. This turn of events led to significant losses, causing me to question my decision-making process and my failure to heed my initial instincts. Distinguishing between a market’s final downturn and a temporary setback remains a challenging aspect of trading for me.

In response, I conducted a thorough analysis of the indices and their Relative Strength Index (RSI) readings, which suggested an oversold condition. This realization sparked a sense of resilience in me, reflecting the symbolic nature of trading with life itself—sometimes, a shift in perspective is all that is required. I decided to make a strategic move by placing bullish calls on the Russell, anticipating a recovery.

Having purchased the calls near the market’s lows, I closely monitored the market’s performance. The indices showed signs of recuperation in the post-market session from the previous day’s decline, with the pre-market session offering a clearer picture of the market’s opening. My optimism was rewarded when I checked the pre-market session, finding the indices nearly back to their pre-drop levels.

This venture turned into my first trade surpassing the thousand-dollar mark in profit. Despite witnessing further potential gains in the Russell, I chose to secure my earnings upon reaching the thousand-dollar milestone. Although I felt a tinge of regret for not capturing the additional gains, I closed my position in the SPY once it reached a manageable loss level, content with my overall decisions.

The decision to buy calls on the Russell post-PPI report, which had the forecasted negative results, was less judicious. Contrary to my expectations, the index did not recover later in the day as some indices typically do, marking this as a misstep in my trading strategy.

Trading Review: Reflecting on the past week, I acknowledge the importance of adaptability in trading. Despite encountering trades that did not unfold as hoped, I managed to pivot and secure profits. My ability to make quick, informed decisions based on market signals is a testament to my growing understanding of market dynamics. However, the experience taught me the value of restraint, particularly after a highly profitable trade, to avoid eroding my gains through overconfidence.

Looking forward, my objective is to master the art of capitalizing on both downward and upward market movements. Achieving this requires a deep connection with the market’s sentiment. An addition to my trading review process is the analysis of daily options volume and the strategic placements of traders, which offers insights into market trends.

While trading offers no guarantees, it does present opportunities to discern patterns and signals left by informed investors, provided one is willing to observe closely.

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