MCHI , My worst trade of 2023 , REVIEW and ESTABLISH RULES

So , Recently I longed MCHI and EWG in the same day , the sizing was correct and EWG was a good stage 2 buy, even though it lost with a gap down on the same day as MCHI , it was still a good trade , stage 2 uptrend , 50 SMA TB entry , with a contrarian idea adding to the trades potential but ultimately the other side betting for a move down was victorious on that one but it was still a good trade because it made sense it just simply didn't work.

MCHI on the other hand was not a good trade , I did miss this at the time and I was having a good run so perhaps that led to making the bad call but in any case I have broken down why it was a bad trade and established added guidelines to help me not repeat this in the future and since I think it was my worst trade of the year so far I wanted to air the dirty laundry .

So basically , my strat trades ETFs and Stocks . Stocks will basically be near an ATH and or essentially trading above a GLB which really keeps me on the right side of the trend or helps to most of the time , but I sometimes you see stocks like NFLX which led the initial market recovery this year for example and I wanted a way trade that . So , I added the ability to trade ETFs that were emerging into new Stage 2 uptrends with a specific focus on the ones leading.

When things still looked pretty rough overall I looked through weeklies of all the etfs on the US market and that allowed me to identify some groups/areas that were ahead of everything else , those were BOTZ, XLC , SMH, some others , but using the weekly charts and scanning on finviz was how I found those , oh yea WGMI was another that has not worked quite as nice but was still ahead of the market at the time and seems to be making a bit of a move now . Most of those have worked pretty well though and I am trying to stay focused on them .

That all being said since ETFs is kind of a new part of my swing strat , I guess you could say I got a bit of a clouded judgement on MCHI .

Looking back on it here's what i see now that I think I need to guard against in the future.

1) I was hitting peak equity , this is a bit of an independant warning sign , I was expecting a pullback on equity because it almost always happens after a strong move up , but maybe i was getting a bit " cocky " i suppose you could say

2) The MCHI was actually not in a stage 2

3) The top 60% of its holdings were less than 50% in stage 2

4) There was excessive gap risk very easily observed by looking at the daily , gaps all the time ...

5) I did not place my stop with the gap risk in mind

Comparing to trades on WGMI, SMH, XLC and BOTZ in all those ones we were above the 200 ema or at the 200 ema in BOTZ's case and we for the most part had greater than 50% the top 60% of holdings in Stage 2s already , with the exception of WGMI which had only 50% and just happens to be the laggard of the bunch and has the messiest price action .

So , when I break down all the MCHI trade should have never been taken and until it is in a stage 2 it should not be re entered . It's price action is a bit more confusing than the others , I think , because most stuffs Stage 2 is pretty close to the 200 ema on daily but since MCHI sort of failed its first try to transition that sets the high noted on chart at $55.78 level as where Stage 2 would start , at this point in the chart .

So as a general "cheat" or "filter" rule here , my new rules will be defined as this:

ETF's can only be trade if they are above their 200 EMA on daily chart but ALSO in a confirmed stage two uptrend . The 200 ema is less important than the Stage 2 but I view moving averages as training wheels on a bike an you will most of the time not have a Stage 2 uptrend in a leading ETF without being above the 200 ema , so its a good rule of thumb .

Is the etf above its 200 Ema ? If not it's probably not something you should be trading.\
Still really want to trade it ?
Then ok , is it in a Stage 2 at least , that is then the bear minimum , but if you are not 100 percent certain it's in a stage 2 , its probably NOT. Don't make the same mistake as me here ;)

Will be printing this chart and putting it on the wall where it belongs , its history ;)


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