SPI – Hold Your Breath

I have had some great feedback this week about last week’s article on the SPI200, outlining the potential bullish indications based upon Pressure Points. Now our Trading Tutors Newsletter hits your ‘Inbox’ early each week and of course the SPI200 spent the first three days of the week heading down! I was starting to wonder about the merits of writing articles on the current market! It’s hard not to pin some degree of ‘ego’ onto an article like that. So I was holding my breath waiting for the bulls to raise their horns once again and toss the market higher. Well Thursday breathed new life in the bulls and Friday they have followed through.

In the end, the 3 days of retracement were sheer perfection, as each formed a potential Point C for a long trade. The Reference Range for this ABC Trade is 113 points. The ranges on the SPI200 have been decreasing over the past months and by current standards that was a large Reference Range. You wouldn’t consider it ‘Overbought’, but its size relative to the small daily ranges on the bar chart, made it easy to enter by 25%. In Chart 1 we have the current market action of the SPI200 displaying the ABC point using the Starter Pack Pro Software. The entry point for the trade was 3331, which as a percentage of the A to B range, meant we entered the trade at around 16%.

A good basic rule of thumb for protecting capital is when your profit on a trade equals the size of your initial risk, move your stops to entry + commission. This rule is not outlined in the Starter Pack directly, however, we are using essentially the same principle as when you move your stops to at least entry + commission after getting into the trade by 25%.

When dealing with a larger relative Reference Range, that provides the opportunity to get in at such a good percentage, it can pay to move your stops to entry + commission when the market crosses the 33% Pressure Point. If we consider here, that we are in by 16%, when the market reached the 33% Pressure Point our unrealised profit equalled the initial risk. The downside of this is that the market may come back and revisit Point C, without breaking it and then turn and head back up. Stopping you out of the trade. The upside is, you are protecting your capital, if the market fails to reach 50% and then ambushes Point C.

This idea is for the trader who is more conservative in their approach and should only be considered when you can enter at an attractive percentage like we have here. In trading there will always be examples, where doing one thing this time proved best and another time it wasn’t so good. It is always a balancing act. The great news about this trade is that either way, the market has moved strongly in our favour and things are looking good. We can now hold our breath, follow the plan and wait and see what this week has to bring.

Until next week......

Noel Campbell