Before the market opened yesterday, I identified a solid trade setup.
Too many traders will haphazardly enter positions without a real strategy. And there’s no reason for that.
There is a process for success in the market.
See for yourself…
Let’s review my trade form earlier this week.
Reviewing trades teaches more than any indicator on your screen.
- Take notes.
- Learn from my experience
- And apply these practices to your own trading
A trader is only as good as their trading plan. Without a plan, you’re not much of a trader at all.
It’s a simple idea, but a lot of people get it twisted.
Here’s how I spot the best setups…
The Read Before The Bell
I want the market moving my way before I place a single order.
Yesterday morning, July 30, the iShares Russell 2000 ETF (NYSE: IWM) checked every box.
- Trend strength on a larger time frame.
- Strength right at the open.
- An open above the previous close.
- A pullback that found support instead of slicing straight through it.
That’s a market I trade with, not against.
When I can’t check those boxes, I sit on my hands and let the day pass.
Sitting out costs nothing. But fighting the tape costs plenty.
Why I Marked $290
The setup told me to buy the pullback. But it didn’t tell me where.
That decision belongs to me, and it’s the part most traders rush through. They see a box checker and they instantly throw cash at it, fearing they’ll miss the entry.
Here’s a hint: If FOMO pushes you into a trade, you’ve already lost.
There were three reasons put my line at $290:
- It’s a key psychological level.
- Round numbers pull prices toward them and give the crowd a place to make a stand.
- It acted as previous support.
$290 held as a floor for weeks, and it worked as a breakout level earlier this year on the way up from the March lows near $243. IWM has gained 12.69% over the last six months, and that level anchored a chunk of the climb.
I want my entry near the spot where sellers run out of room, as close to the support level as possible.
Here’s why a tight risk level is so important in this market…
The Bounce Came Lower
The IWM dipped under my entry level, tagged the Average True Range (ATR) support cloud on the 5-minute chart near $289, and launched from there.
I ended up taking a tiny loss on this trade because I didn’t buy contracts close enough to my support level.
Had I used a tighter risk, I would have stuck around for the intraday rally that came next…
Anyone who bought closer to support watched their contracts surge into the afternoon.
I’m not angry that I missed this move, it’s a good lesson. And it will make me a better trader the next time I see this setup forming in the market.
My problem was buying the first level I liked rather than waiting for the level with the least risk attached to it.
Opt For Lower Risk
Run your pre-market checklist first.
Everything we already covered…
- Trend
- Open strength
- Open position
- Pullback behavior
That work tells us which direction to lean.
Then mark your level risk level and wait for the stock to come to you.
Buying as close to real support as possible shrinks the distance between your entry and your stop. A shorter distance between the two could be the difference between a small loss and huge win.
My thesis was right. The market did what it was supposed to do. But my patience ran out.
To an inexperienced trader, a loss like that might send them into a spiral. They might think the market is working against them, but nothing is further from the truth.
When we fail, it gives us an opportunity to work in the right direction. Take that opportunity.
Learn from my small loss this week. And make sure to review your own trades, it’s incredible just how much you can learn from yourself.
Be good (and be good to others),
Ben Sturgill
*Past performance does not indicate future results. Not typical.
