Today, SPY opened mid-range from the previous day's 1-hour price action. A reaction zone around 589 existed from the prior day, which was also confirmed with a pre-market reaction zone. This was my ideal watch for a reaction zone break to the upside.
On the downside, I watched the previous day's close and a pre-market reaction zone around the 586.50-586.00 range. The price confirmed a 586.50 zone. I anticipated too early, and as soon as I entered, the price reversed completely, messing up my risk management (green circle). I gave it room to breathe and had a few chances to cut losses below my -10% plan, but I did not.
There is no way around this. I failed to manage my losses and paid the price.
To add to my mistake further, I thought, since price won't break and price action seems strong, why not buy and ride it back up to the upper reaction zone. So I got in one more time as price was peaking above VWAP, only for it to chop a little above and fall back below VWAP (blue circle).
The Trades:
Green: Intra-day Reaction Zone Break [Loss -20%]
Blue: VWAP Reclaim [Loss -4%]
My anticipation was warranted on my initial trade. It was just bad luck, as soon as I got it in, it reversed quickly. However, to mitigate against repeating this scenario, I need to consider the environment. It was a clear reaction zone at my entry and a break; however, we had a pre-market reaction close by and a major hourly reaction zone around 585. I needed to be more conservative and patient with entries, especially if other price levels make my entry less clear or less ideal.
Moving forward, I need to allow more time for clarity before entering.
My second trade was emotional, and I was hoping for any gain with a new setup that I have rarely traded.
As I write this, we finally had the reaction zone break I initially wanted, but the pre-market reaction zone served as resistance, and the price bounced right back up. This occurred a bit outside my time zone, so if I had been patient and waited, it would be difficult to know if I would have taken the trade.
If I had not taken my emotional trade, I could have had the opportunity for a second try, and most likely would have reduced my losses today or ended the day breaking even.
What is True is that today was a loss day.
Risk needs to be prioritized at all times.
Focus in and utilize the lessons of today to make tomorrow better.
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