Possible Trade Setup in the XLEs...

I am watching the XLEs for a potential short.  If the $74 level breaks and they get to $73 I will short it. 

My stop-out will be $74.  This is a logical level to have it at because it has been support since May.  If it does break to the downside, it will most likely become a resistance level.  A break back above this could mean it is going to rally back up to the $78 level, which was where the top was in January and May.

My target to cover will be $69.  I think that there will be support around $68.75 because it was the top of the range from February through April.

 

 

 

Here are my 7 Trading Rules as applied to this trade:

1)  IT IS MORE IMPORTANT TO KNOW HOW TO SELL THAN TO KNOW WHAT TO BUY.  YOU SHOULD NOT ENTER A POSITION WITHOUT HAVING YOUR TWO SELL STRATEGIES DEFINED.  THE OPPOSITE IS TRUE FOR SHORTING.

My buy to cover target is $69.  My buy-stop is $74.

 

2) ALWAYS THINK ABOUT RISK

If I short it at $73 and cover at $74 it is a one point loss.  If I short it at $73 an cover at $69, it is a four point gain.  4 to 1 Potential Profit / Loss Ratio is appealing.

 

3) UNDERSTAND AND CONSIDER THE POSITION-SIZING DYNAMICS

I am not oversizing this position...I am using no more than 5% of my capital for this trade.  This is my maximum amount to put in any trade.

 

4) LEARN HOW TO DEVELOP YOUR OWN IDEAS

I came up with this idea by analyzing the SPDRs

 

5) HAVE A VALID REASON TO TRADE

Break of a support level

 

6) DON'T BE MARRIED TO AN IDEA

I have a clear stop out strategy

 

7) DON'T OVERTHINK

I have clearly defined all aspects of the trade