Ready to Hedge Out …

Posted on Aug 28 2015 - 8:28am by Sharpe Trade

As the market broached that 1956 level in the stock market yesterday, I bought long positions like a deranged madman.  As you will note in the stocktwits stream, I had a monster winner by going long on risk, unhedged on AUD/JPY.  After that first 75 pip pop, I shread out of 25% of the position profitably, and let the rest ride.  I then closed out that trade late last night.

Why did I close out the trade?  Well, as I mentioned … I had enjoyed a monster win.   Looking at the last 15 trades or so … that one trade took my risk reward ratio up to something stupid like 1 risk to 2.243 reward.  Basic money management.  It was just time to close out the trade, as my risk reward ratio looked incredible.  

We then pressed a short on USD/CAD. 

That one fell apart, almost immediately, and you can note that I closed that trade out early this morning, as alerts began to sound off.  I ended up jumping out quickly.  Because that’s what I do when a trade moves against me.  I’ll jump out of a trade that moves against me from the outset faster than a fart in a windstorm.  So I ended up with a small loss.  Only half, of the full sized loss that I am normally willing to accept.

Once again … basic money management.

So what’s the plan moving forward?

I’m still a believer in the long side on stocks.  I’ve caught a nice pop here in stocks, and the old addage can provide a guide.  ‘Resistence now becomes support’, so I see support down near the 1950 region on the September e-mini S&P 500 Futures contract.   That’s my new level to watch.  I could hedge out immediately.  But I’m not afraid of undergoing a little pain.  Especially consdering the time-frame I am considering. 

And it is Friday.  So we thus head into the weekend, and we can watch to see how the powers that be attempt to beat on my portfolio …

2 Comments so far. Feel free to join this conversation.

  1. Edgar August 28, 2015 at 1:08 pm - Reply

    How do you “know” (I know there is no warranty) the market is not going to pull back again and this is just a rally in a larger downtrend?

    • Dan August 28, 2015 at 2:59 pm - Reply

      Good question.

      I’ll get into this on more detail in the Sunday issue of SR. But it’s the essence of what we are doing lately, and answer that question specifically.


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