Trading Recap 10/30

-1R today

Context going into today:

ES has been in a straight downtrend over the past week selling off consistently. When market futures opened up Sunday we were starting to rally and by Monday morning, ES had gapped up +0.60%. Given this, I thought structurally we could be in for a squeeze.

The Trade:

At the 9:30am EST open, futures rallied nearly 20 points to the prior day high and I started watching for a pullback into the 50EMA/cusp setup. I took this long around 4175 and utilized a 22 point stop as when we dropped into the 50EMA we were technically 2 points away from the 50EMA/Cusp at 4173.. Sometimes ES drops suddenly right near the cusp and I feel comfortable taking it if it is a point or 2 away, although generally I have a limit order I am adjusting in real time to how the 50 EMA moves/changes. My plan for this trade in terms of targets was to simply let the market run if my bullish thesis were to be correct

Unfortunately this trade simply did not work and ES pulled back past my stop.

Of course I would have preferred the trade to work but many of the key variables were there for me:

-Gap over +0.30%
-Structurally we had been bearish with the likelihood of a short squeeze elevated
-I waited patiently for an entry on the cusp/50 EMA

I was very comfortable taking this trade as it has documented historical statistical edge. Trading is a game of probabilities and sometimes despite your best, the trade does not work out. I am okay accepting this, no emotions. I simply struck out on what was to me a good pitch.

An example I want to paint of taking your edge when it presents itself/game of probabilities is through the game of blackjack. For those who don’t know, the point of the card game BlackJack is to get as close to 21 without going over. If you go over, you lose the bet. At the same time, you must draw a higher number than the card dealer playing against you but again, without going over 21. So in this game, let’s say you draw a 19 or a 20. Pretty close to 21. Regardless of the card dealers hand, that is a strong hand and every basic strategy will say to stand (not draw another card) on this. Yet even following basic strategy you can still lose, why? Because it is a game of probabilities. You did everything right, you might follow your process to a tee but still can lose. It is imperative to be able to accept this.

What you don’t want to be doing is having thoughts like “It stopped me out at the lows, I will re-enter with another 20 point stop” and then before you know it boom you are down another 20 points revenge trading or thinking the market was playing you.

In terms of what I can do better, I know a couple of traders actually don’t trust Monday morning gap ups/price action, so maybe that is something to monitor moving forward.

Comments, questions and critiques are welcome as always.

Take care everyone and thank you to my new subscribers!