S&P 500 - Anatomy of a Trade

A friend of mine told me that the intraday trade that I posted on July 1 does not clearly show the thought process that went into the trade. There is not much to it really but I thought I would try to elaborate a little more.

The lead up to the trade looked a bit choppy and the ferocity of it felt like a burning of short positions.



I decided to use a 5-minute frame as my directional frame, and do the trade on a one-minute frame

I also decided to take a MACD sell signal on a 1-minute frame as my trade signal. So, the entry was based on some momentum divergence and a MACD cross, with an initial stop being a new high.

Luckily, the trade started going in the right direction. MACD declined nicely below zero. After it first peeked above zero, I started using lower highs to lower my stop. with every lower high, I brought my stop above a previous high.

I also used the first lower stop point for a tentative trend line (black dashed line). It stayed with me for the entire trade.

After a couple of good tests on my black trend line, I drew a parallel red line to get a channel

The blue line was based on some lower lows, and I used it to short a bit more

I had to leave around the time of my green arrow, and I either had to close the trade or hedge it. Since I already had as many hedged shorts as I had planned for this level on the index, I closed the trade and booked the profit.

In hind sight, I had picked a top (if not the top) and I should have stayed. But I do not have hind sight in advance. All I have is a bit of technical knowledge, discipline and a developed ability to not get attached. I had, as I said, as many shorts as I wanted for that level. And I knew there would be other opportunities for other trades -- like the one at 8:30 am on July 2. So, I booked a bit of profit and went for some cold beers and BBQ chicken, not to mention the company of family and friends -- without a worry about what market would or would not do.