QQQ Entry But No Exit?

Hey 5-Star Trader,

“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

This week I want to talk to you about my butterfly entry into the Invesco QQQ (Nasdaq exchange-traded fund).

Due to personal preference, my trading style rarely has me hedging, but every once in a while an opportunity comes up and I have to take it. That is exactly what happened with my trade in the QQQ. So why was this trade so tempting?

The Risk Ratio Was Just Right

When considering if I wanted to hedge the QQQ, I noticed that my risk would be less than $500 to enter, but the payout would be much greater depending on how the trade played out. Risking $500 was right in my sweet spot for tolerance* so I felt like this was a good buy. I always look for trades that have around a 1:4 risk ratio because they allow me to be “conservatively aggressive” with my trading.

*Everyone’s portfolio is different so it’s important for you to run a risk-ratio analysis relative to your own account size. My risk tolerance may not match yours.

I Had Confidence In My Current Positions 

Before hedging the QQQ I also considered what other positions I was in already. At that time I was in several other long trades. I was confident that if this hedge didn’t work out my other (more conservative) trades would “protect” my account from taking too large of a hit**.

**Note that if I was already in another risky trade, I would not have chosen to hedge. You should always consider current positions before entering another trade.

After considering my risk tolerance and current positions, I was ready to enter ─ BUY +2 BUTTERFLY QQQ 100 (Weeklys) 30 JUL 21 360/345/330 PUT @2.41 limit order (LMT). This contract was set to expire at the end of the month and I was targeting a pullback in the Nasdaq.

One day later and we saw the QQQ begin to pull back, with action starting in the overnight move. This would normally be how a big flush occurs, but instead we saw the indexes stabilize after the initial downward move. I decided it was too early to tell if we would see a larger pullback, so my next move was to hold and watch for bounces in strong sectors and industry groups.

Pictured below is a screenshot of the zones I’m watching to determine if the market decided to fall into a deeper pullback.

Where is my closing order?

Typically during my “Tuesday Trade” examples, I show you my entry and exits, but currently, I’m holding all my trades. Why? Right now the market is telling me to sit back and hold.

The market has been extended for a while and it needed a bit of a reset so the slight pullback we got last week wasn’t that surprising.

However, I’m still waiting for it to tell me which way it wants to lean. The key here is to continue watching for stocks to hold at key support zones. Earnings week is almost here and bank reports are up first. This could further determine the market’s behavior, so I’m sitting on this trade until then.

Want to learn how Danielle picks her tickers? Check out her Phoenix Finder tool and strategy. In this class, she teaches you how to find the ‘best in breed’ stocks!

Image by David Mark from Pixabay