XLE Re-entry - Exit

XLE Daily

XLE 3 minute

At 9:34am ET I Tweeted "Sold our long $XLE #XLE position. Details later.". Here are the details:

We opened gapped down, then filled the gap. Then we started back down, as you can see on the 3 minute chart. I have seen, many, many times, when this price action occurs, you get a continuation to the downside. It seemed very likely that we'd drift back down to the Trend Line and reverse back up.

Since we're using options for this trade, we're losing value daily due to Theta time decay. Plus, options are leveraged instruments, so we'll lose value in our position much faster than the underlying ETF. So, why go for that ride down to the Trend Line, and possibly much further down if we don't bounce off of it. Its better to exit now and wait for the reversal off the the Trend Line. That's why I sold the options.

However, look how we closed on the Daily chart. Today's candle combined with yesterday's forms a Piercing Pattern candlestick pattern. This is a Bullish signal, except its usually actionable when Stochastics are oversold. Currently we're barely out of overbought territory, nowhere near being oversold. 

Still, a Piercing Pattern plus a close above the 8ema, and every other Moving Average we track, as well as the recent Bollinger Bands/Keltner Channel Squeeze Breakout, makes me think it would have been better to wait until the end of the day, as I usually do.

I thought about getting back in long at the end of the day, but its bad to get caught in a sideways thrashing price action. So, I decided being out is probably the best choice. There's still plenty of runway to get back in long if we want to when the setup looks worthwhile.

For now, here's trade result:

XLE Mar 95 Call

Bought at 2.55 1/9/23, sold today 1.64, loss -$91. 

Bought at 1.99 1/9/23, sold today 1.64, loss -$35.

Total -$126/454=-28%.