After tip-toeing higher at the open the cash S&P500 tripped and fell heavily, making a new low (closing basis) for the decline that started last autumn. This price action led to an uptrending bar with a lower close on the daily chart that leaves the market delicately poised between support (green line on chart) and resistance (red line on chart).Although the downward trend is still in force (as shown by the fact that the ADX continues to rise), there are bullish divergences forming here between price and the technical indicators I use. In fact, if we can rally strongly the next two days the weekly chart would confirm the price action by triggering a bullish technical signal itself. But that is a “what-if” scenario. What does the objectively based plan dictate?
Perhaps surprisingly it says the following:
IF we OPEN at 1240.76 or below go SHORT with a stop at 1273.55.
IF we TRADE at or above 1240.19 go LONG (unless you are already short) with a stop at 1207.41.
Stop loss levels “drive” position size and money management rules allow a risk of no more than 0.5% of account equity. For example, on the theoretical long trade above, the risk is set at 32.78 points. If the account was worth $100,000 we have a situation where $100,000 x 0.005 yields a maximum loss of $500 allowed on the trade. $500.00 / 32.78 stop = 174.3; rounded to 15 share maximum. The practical result is that 18.6% of the account is used to “bet”.
No comments:
Post a Comment