What’s everyone up to?
This week I finalized a few changes in my exit strategy, and now I’m looking forward to testing it further. I don’t change things often, and I make sure that if I want to change something, it’s not when I’m in a rut or in a drawdown. I worked on it over the course of a month, through different moods, trades, P&Ls, etc.
The hardest part is always getting something written down in black and white, because anything in a strategy or plan has to be spelled out, but it also has to leave room for the reality that no rule will catch everything perfectly. Luckily, a mentor equipped me years ago with this little gem:
What you want to develop is a set of rules you can live with.
It will get you out a little too early sometimes and a little late sometimes, but that's the flaw of that system.
Much of the regret we feel after a trade is not because we made the wrong decision, but because we never fully defined and owned the decision ahead of time. This reminds me of chess, (which I recently picked up as a way to relax and exercise my mind ☺️)…I don’t mind if one of my pieces gets taken when I already saw the possibility and planned for it, but what drives me mad is when I’m caught off guard because I didn’t think far enough ahead.
Recently, someone commented about regretting that they didn’t take a trade off earlier. Sometimes this can mean that rules were broken, but more often than not, it’s usually because the exit strategy has not been fully mapped out yet.
That is why you have to think through so many scenarios before you are in a trade. What will you do if the trade starts working? What will allow you to stay in? Will you scale out, and if so, how much of your position? What if the trade gaps against you? If it gaps against you and you are well ITM, or way past your stop loss level, will you cut it right away or give it time? How much time? Etc. etc. etc.
The questions seem endless, but the more of this you can think through ahead of time, the better. When our money and emotions are involved, it becomes increasingly harder to remain objective, but mapping out all the scenarios can help tremendously. We won’t know exactly what will happen, but we can think through what is probable, what is possible, and what we plan to do in response. The goal is to prepare ourselves well enough that we are caught off guard less and less.
SPX Review and Outlook
Last week, the deeper pullback scenario played out. SPX lost 7,500, moved through the daily 20 EMA, and traded down to 7,368.63 on Friday before closing at 7,383.73.
On the weekly chart, the broader uptrend is still intact, but we saw a clear change of character after almost nine weeks of steady upside from the late March low. That does not mean the trend is rolling over, but it does mean the market is no longer moving with the same clean rhythm we saw through April and May. Friday was a full day of selling, and price closed below the 7,500 area, below the shorter-term moving averages, and just above the 7,336 level I have marked.
SPX Daily Chart
SPX Hourly Chart
Scenarios for the Coming Week
Bounce First
price holds near Friday’s close / current hourly 200 SMA area
buyers step in after Friday’s selloff
7,500 to 7,515 becomes the first area to watch
Then from there:
if price reclaims 7,500 and starts holding above it, the pullback may start to stabilize
if price pushes into 7,500 and stalls, that area may start acting as resistance
a rollover from that area brings 7,336 back into play
No Bounce, Continued Selling First
price continues lower from Friday’s close
7,336 becomes the next level to watch
this was prior support on the hourly chart
Then from there:
if price holds or undercuts 7,336 and recovers, that could start a bounce back toward 7,500
if 7,336 breaks, 7,276 becomes the next level below
below 7,276, the next area would be 7,171
Choppy Digestion Under 7,500
price stays below 7,500
bounces fade before reclaiming that area
dips near 7,336 continue to find buyers
price starts moving more sideways
I think the beginning of the week will be a little messy. After a move like Friday’s, there can be a tug of war between buyers trying to defend the pullback and sellers testing whether the bounce can hold. So for now, I’m taking it day by day, letting the levels guide my next move, and being more selective on which names I trade.
Hope everyone is doing well and making progress on your trading plans. If you haven’t downloaded my guide, you can find it here.
