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We take a look at SPY on the 5 minute chart in today’s webinar. After discussing the pros and cons of both long and short plans, a majority of traders decide on trading the short side. We can see this has quite a few textbook examples including prior support turning into current resistance and a bear pole. After we set up proper risk versus reward we continue to scroll the chart and see that this trade idea completely failed and SHOULD have stopped everyone out within the first 10 minutes. The undisciplined would have been hosed as it rebounded very strongly.
Later on in the same ticker we set up a second trade plan. Clay identifies a descending triangle so we set up another trade to the downside. We see that this one worked out much better and EASILY wiped out the small disciplined loss of the first trade (assuming you were disciplined). This is how RvR works in our favor if we just wait for setups to occur. Even when they don’t work, as long as we keep our losers small the winners will take care of them.