With the SP500 squeezing the December 2007 high of 1527 and running into 1530, the rug was pulled underneath as bids lifted and sellers came in to take profits. This led the market to correct down to 1495.00, testing its 1498 support level it broke out of in January. This setup an aggressive attempt to sell any retracements retesting the 1530 level. On Monday, the retracement was seen. Our signal was offered at 1515 and using the 1530 highs as the exit. The market came close up to 1524.50 before reversing lower to complete target 1 at 1498, locking in 1 times the risk for 17 handles. Target 2 was 2 times risk at 1481, however with the market falling so quickly the same day, we were happy to lock in 1483 for another 32 handles to total 49 locked in. What is left is "running" positions where only profits are risked. The runners should double the 49 handles locked in to turn the trade into a home run. These don't always happen, but this is how we like to position trades for big moves, by scaling out to reduce exposure and leaving only runners to go after big targets. Target on these runners are currently 1420. This is not to say the market will go straight there, however this would be a breach of MAJOR support within 1455-1465 and would fill last year's gap down to 1423. Doing so, will pay 95 handles just on the runner positions.
We are sharing this to give ideas on how to reduce exposure. Trades don't always work out as we know. Having a plan is key to knowing when to get out should the trade go wrong, or right. One of the major questions asked when traders are in a winning trade is if they should get out, and this brings in the emotion of greed. To void out emotion in the trade, targets are used in increments of the original risk. If 17 handles are risked, this is the 1st target. Once completed, portion of trade is taken off. At this point if market turns around to stop out the trade then the risk was reduced. Should market move 2 times the risk (17x2) at 34 handles, then another portion is taken off to reduce majority of exposure. At this point if there is oppurtunity for the market to continue this is where the runners come in. By trading this way, one does not have to consider if they should "get out" and worry about missing more gains. Scaling out, takes out the greed, reduces exposure and setsup oppurtunity for home run plays. Never going all or nothing for a homerun, but setting up positions that can bring them. This may not work for all traders. Always have an exit plan should trade go wrong, and have exit plan should trade go your way.
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RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS. AN INVESTOR COULD LOSE MORE THAN THE INITIAL INVESTMENT.
