S&P 500 Reaches a Level of Resistance - Short Trade
SPX500 - Short Position(s)
Entries: $3,784.4 / 3826.8
TP & RR: $3,728.8 (3.29 / 4.12)
Stop Loss Levels: $3,801.3 / $3,850.6
REASONS FOR THE TRADE
I think it's time for the SPX500 to take a break from this bull run. As such, I am expecting that price will reach either of the two levels that I would like to short. The Risk:Reward Ratio is favorable and the Stop Loss is just above the invalidation levels.
Now, you may be wondering why the SL of the first short is not placed higher, somewhere around the second order's SL. The problem is in the Risk:Rewards Ratio. If I am to do that, I will need to adjust my position size to account for the bigger gap between entry and SL. Also, the RRR of 3.29 will fall down to 0.84. So, even if I short from the first level and the setup proves to be valid, I will increase my capital by less than 1%, compared to over 3% if I keep the trade as it is.
Even if the first setup is invalidated, and we open a profitable short on the second level, the profit of 4.12R will compensate for the 1R loss and we will be at a profit of 3.12R. Of course, it would be unpleasant to lose 1% of the account, but that's just how trading works. You either take the risk or you lose the chance.
On a side note, since it's Monday, I am not placing those as limit orders, rather I have set alerts at the levels. When we reach them I will look at the volume, the 1h candle close, and will update the idea. We don't want to blindly place orders and hope for the best.
Entries: $3,784.4 / 3826.8
TP & RR: $3,728.8 (3.29 / 4.12)
Stop Loss Levels: $3,801.3 / $3,850.6
REASONS FOR THE TRADE
I think it's time for the SPX500 to take a break from this bull run. As such, I am expecting that price will reach either of the two levels that I would like to short. The Risk:Reward Ratio is favorable and the Stop Loss is just above the invalidation levels.
Now, you may be wondering why the SL of the first short is not placed higher, somewhere around the second order's SL. The problem is in the Risk:Rewards Ratio. If I am to do that, I will need to adjust my position size to account for the bigger gap between entry and SL. Also, the RRR of 3.29 will fall down to 0.84. So, even if I short from the first level and the setup proves to be valid, I will increase my capital by less than 1%, compared to over 3% if I keep the trade as it is.
Even if the first setup is invalidated, and we open a profitable short on the second level, the profit of 4.12R will compensate for the 1R loss and we will be at a profit of 3.12R. Of course, it would be unpleasant to lose 1% of the account, but that's just how trading works. You either take the risk or you lose the chance.
On a side note, since it's Monday, I am not placing those as limit orders, rather I have set alerts at the levels. When we reach them I will look at the volume, the 1h candle close, and will update the idea. We don't want to blindly place orders and hope for the best.
Trade active:
I was asleep when the alert was triggered, but even if I was awake I wouldn't have taken the trade. The volume in this up move is small, but the hourly close coupled with the big gap in the Market Flow indicator wouldn't have allowed me to open a short.
Now I am observing the 2nd level for a short and will update this idea accordingly.
Now I am observing the 2nd level for a short and will update this idea accordingly.