Friday’s stock market session started off well, but sellers had a completely different idea. Yes, Friday’s session was option expiry an expectation of weird trading is high. The reversal of fortune for bulls was not what they wanted to see from the market. Of course, this could simply be a blip on the radar and nothing more. We are a bit more cautious here as we wind down the month of July and earnings continuing to poor in. More earnings out this week especially within the NASDAQ 100 index and something we need to keep an eye on. Not to mention we still have no Chinese trade deal and a week from Wednesday another FOMC day. We are not foreshadowing doom and gloom but understand there are a few headwinds in the very near term. Our stops are in place, hedges on, and position sizes on point to curb any downside this market wants to throw at us. The key to this week will be to keep an open mind and minimize our downside.
All too often we find traders unable to manage their risk properly. There are few ways you can control risk. Knowing where to get out is paramount and right behind it is a proper position size. A common way is to only risk 1% on each trade. Meaning, your max loss on the position equals 1% of your total equity in the account. If you have 10,000 in your trading account, you are not to risk more than $100 on any one trade. The math is simple, yet so many chose to ignore proper risk management. Know what you are willing to risk on any given trade and work from there. Everyone’s tolerance is different, and you must find what works best for you.
It would not surprise us if we continue to see more downside this week from the market. We are not talking about an all-out collapse, but it is summertime. Seasonality hasn’t played a huge role in the market recently. However, given the current price action and backdrop a little bit more downside should not be a surprise at all. FB reports the 24th, GOOGL reports the 25th along with AMZN will make this week an interesting one. FB has run up a bit into earnings, but Friday’s session left a decent blemish on the stock. Same can be said for both GOOGL and AMZN. GOOGL though has been the weakest out of the bunch and would not surprise us if the stock had more to go on the downside. If you have a holding set to report earnings do you due diligence. No need to get caught in a stock without cushion and a too large of a position size.
We hope you had a great weekend and wish you the best to your trading this week.
