Managing an open trade

We’re going to take a look at the XRT ETF in this issue, which is the retail ETF. Within this ETF, with the recent surge of the market since we’ve had optimism going through the market about positive COVID vaccine results from two big name companies, retail has been moving higher.

The XRT is a tricky ETF though, I’ll warn you in advance…

It’s not a high concentrated weighted ETF. It does have a lot of actively traded stocks.

So the first thing when looking at this ETF is to revisit the top holdings. Now some of the holdings that I’ve liked tend to be in activity/near the top of the list fairly often. These are names like Expedia, Stitch Fix, Boot Barn, GAP.

The one we’ll be looking at today, Gang…

Stitch Fix (SFIX).

We start with the XRT, a sector that’s doing well in this current market environment, and we can see that because on the charts the XRT is a double green sector. Once we’ve picked that sector, we hone in on a double green stock — which like I said is SFIX.

What’s it mean to be a double green stock again?

The organization of the exponential moving averages of the 8, 13, 21, and 34 are indicating that we’re likely to see the path of least resistance going higher.

So in a double green what we want to do is focus on pullbacks to the wave. There are other ways to play a double green. However, one of the most basic ways for a new trend trader to have a clear visual way to engage the market is to wait for price to pull back to the zone between the 34 ema high and the 34 ema low.

You can see SFIX spent about four different sessions at different layers within that zone. That’s the opportunity. Why are we looking at this zone specifically? This zone tends to be very good dynamic support in the context of the trend when the market is double green. That prerequisite is a vital one.

The trade was to simply buy calls (get long SFIX calls) when the market pulled back.

One of the things I like about SFIX? Since it’s part of a larger sector, the options are what’s known as “one wide” meaning there’s only one point between each strike, so you can get pretty granular about the strike that you buy. 3 strikes that I had in mind for this trade were the 35, 34, and 33. So for instance, as the market crosses 35 to the downside, you can buy the 35 strike. The market has crossed over both the 35 and 34 to the downside at this point, so I’m long the January 15th 34 and 35 strike calls. The 33 remains untouched, so my alert is just pending. If that happens, I’ll get an alert, and I’ll buy the 33 strike. 

So that’s SFIX so far.

Ultimately, I’d like to have my first target just in front of 38 which means I’d scale out of some of my calls as we cross through the threshold of 3790. I’ll be a little more cautious about that first target because that allows me to move. I won’t let those calls that I’ve purchased go below what I bought them at.

That’s how you work on continuing to manage a trade as it plays out, Gang.

Keep up with the volatility!

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