This year, I’ve been really steady about cutting my losses and keeping my risk under control. That is exactly what got me to a 230% YTD return in July. I had plenty of losing trades along the way, but the losses stayed contained.
Then I started increasing my size and, around the same time, stopped cutting my losses the way I’d been doing all year. That got costly really fast, and I gave back a good bit of profits. I’d love to blame it on sizing up, but that’s not what happened. I changed how I was handling my losses, and the bigger size amplified the cost of those decisions.
So in case you needed a reminder: cut your losses! You will find this golden rule in every serious book about trading. There can be all kinds of psychology behind why we don’t follow our rules. For me, perceived pressure around being at a new high-water mark or getting closer to a new milestone is part of the mechanism that can trigger my impulsive behavior. That’s something I’m aware of and continue to build structure around. But whatever the mechanism is, at the end of the day, we still have to follow our rules, especially when it comes to cutting losses at our defined stops.
The upside, though, is that when I’m in a drawdown, I double down on my work. Losing a battle puts a little extra fire behind figuring out how I got there and how not to end up there again. Although…now that I say this out loud, I should probably be reviewing with this same intensity when I’m winning too. 😅 🧐
So somewhere in all of this reviewing, I found another gap in my process. When I have a trade on and I stop to assess it, I’ve realized I’ve mostly been asking things like: Am I in the money? Is the trade still valid? How close am I to my target or stop? And then I keep watching price. But what I haven’t been doing well is stopping to ask:
What has price actually done since I entered, and (this next part is key!!)
does any of that new information change what I should expect from this trade now?
So I’ve added three questions to my assessment points:
What has price done since I entered? Did it move toward my target, reach a level, stall, reject, flush and recover, or basically go nowhere?
Is anything telling me to change my expectations now? Maybe price is struggling at a level, SRSI is still declining, or the broader market isn’t supporting the move the way I expected.
If I close here, where is the next entry?
This last question also connects to my latest week-to-week focus: define the next entry.
I’ve had a tendency to treat the first entry like it was my only opportunity. If I missed it or closed it, sometimes I would mentally move on from the whole trade even though my thesis was still intact. This is also why I coach people to trade from a very small list of names. The fewer stocks you’re following, the easier it is to stay engaged with the thesis, understand how the stock moves, and recognize the next opportunity instead of constantly moving on to something new.
Defining the next entry lets me stay engaged with my thesis while still moving in and out of the position as needed. I don’t need to hold the original position to participate in the whole idea, and I don’t need to abandon the whole idea because one entry didn’t work.
So far this year, I’ve refined my entries and my exits, and now I feel like I’ve naturally arrived at refining the middle, or trade management. And I’m sssooo excited about this, because it feels like I’m unlocking another part of my trading and getting one step closer to my next milestone! 🥳
Resources and how to work with me:
SPX Review and Outlook
SPX has now spent over a month digesting the August move, and we’re back near the lower end of that larger range.
On the weekly chart, price has come back into the 20 EMA again. We saw something similar at the end of July, when SPX flushed into that area and then pushed higher. The daily is lining up with that possibility too.
Coming into this week, the structure favors another rotation higher, potentially back toward the 7,800 area. That does not mean price has to go straight there. We could spend a few more days consolidating here or come back down and test the lower part of the range again first.
SPX Weekly and Daily Chart
Short-Term Structure
On the hourly, the decline flushed lower on September 16, reversed on the 17th, and price has started building a smaller range between roughly 7,582 and 7,670.
We could continue moving around inside that area before the next move develops. For now, I’m looking to see whether price can continue building from here or whether we get another test of 7,582 first.
SPX Hourly Chart
Levels for the Week Ahead
Around 7,670: This is the upper end of the smaller hourly range. Moving through this area would support a push back into the upper part of the larger range.
7,800–7,812: If price continues higher, this is the larger area I’d expect SPX to work back toward. From there, we’ll see whether price can move into new highs or starts to stall again.
7,582: This is the lower part of the current structure. Another test here can still fit the current setup. If SPX starts breaking below it and staying underneath, I’d reassess the bullish or neutral thesis and start looking at the next levels below.
For now, the structure favors another move higher, but we’ll see if/how we get there.
The countdown to Q4 has started. Eeeeekkk! 😆 How is everyone doing so far?
