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May 26, 2022

Breaking Down The SPX500 Trade

Frank Cabibi

This week, I took a trade on the SPX500 that ended up being a successful one by the time it closed. We caught a 29 point move when it was all said and done, and here is the breakdown behind it.

Reasons For Buying SPX500

SPX500

On May 23, I sent out an alert to the community that I had entered a long trade on the SPX500 at $3959.42 and set a suggested stop loss 152 pips below entry at $3807.29. My analysis behind the trade stemmed from speculation on the FOMC meeting that Wednesday. There were several concerns regarding the current rate of inflation and interest rates along with the Fed's policy going forward.

The main catalyst for taking this trade, however, was due to price action from technical indicators. I saw a nice rejection from the lows and a break to higher highs. My initial goal was to wait for a 100 pip move before I considered taking profit. The RR was not 1:1 as I wanted to give room for the trade to run in a volatile market. I chose to take a .01 size lot to limit the damage of a violent swing to the downside which has been prevalent so far in 2022. I also wanted to have lots of capital to work with in case such a swing occurred again.

What Happened During The Trade

SPX500

During the trade, my position continued to sink lower and lower until I was about 70 pips underwater. Things weren't looking great although I kept in mind that harsh moves were going to be a part of the trade and I would need to keep it open while the market decides where to go.

On the day of the FOMC, we saw the hardest moves in either direction, especially at the open of the New York session. Throughout the day, however, price began to shift back up and brought me back to break even.

SPX500

Finally, fears subsided on nearly as-expected news from the Fed came out and my trade started to move in profit. I sat in the trade for almost the rest of the trading day.

The Result

SPX500

Instead of waiting for the target price, I manually exited the trade after a 29 pip move above my entry. The reason I closed was due to past patterns of quick moves to the upside after a Fed meeting followed by a sell off in the next days. I was happy with the profit, but had I stayed in, profits could have mounted to a 104 pip move (right where I had initially placed my TP). It was difficult to stay in for me after seeing gains fade from false rallies this year, but overall, a profit is profit.

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