UYG: 50% Retracement

(Click On Chart To Enlarge)

Going into Thursday's close, the UYG had rallied 30% off its low and my "Greed Demon" told me to grab my 15% gain at the 7.50 close, and reposition Friday on a 50% retracement of Thursday's candle, which was 6.63. That would guarantee me a winning trade if the UYG should continue down below the Wolfe Wave, and stop me out. My "Fear Demon," however, told me not to get too cute, that the reversal was so strong, I might not get a chance at the 6.63 re-entry.

Result: the UYG sold off to 6.61 Friday morning, within TWO CENTS of the 50% Fibonacci retracement! Hey, we ALL "coulda" been a genius, right?! LOL.

When the UYG rallied back to 7.50 late Friday (I think it was 7.49), I figured that it would close near there, or higher. Nope. The UYG slid with everything else, and it now stands at 6.70, just above my 6.52 entry, and just above the bottom of the Wolfe Wave, which comes in on Monday at 6.504. I'm changing this symbol to UGH! ;)

Bottom line for me on this trade: I'll sell any CLOSE below the 6.504 bottom of the Wolfe Wave. If it's "too close to call" going into the close, like BID 6.48...ASK 6.49, I'll hold it. I don't want to get jiggled out of the trade.

Intraday trading is going to be problematic. If, for example, the UYG goes down and tests the .618 retracement of Thursday's candle, which would be 6.419, then rallies back inside the Wolfe Wave, that would be fine. But, if it does test that, I'm not going to know what the close will be, so I'll have to play by ear. If I see prints of 6.42...6.41...6.40...6.39. I'll be thinking, "YUK!"

When I'm in a trade like that, knowing that it's below support (the 6.504 bottom of the Wolfe Wave), and find myself "hoping" that it's going to turn around, I know that I've got a problem, and that I better know what I'm going to do about it.

Some players will use the more arcane .764 as an acceptable retracement level. That would be 6.16. From my 6.52 entry, that would be a loss of about 5.5% if I use that area. That isn't bad, but at that level, I have to ask myself how bullish this Wolfe Wave is and how bullish Thursday's Key Reversal was, if it's going to act that weak?

No, I won't hold it down to 6.16. I'm going to stop it out in the high 6.30's just below the .618 retracement of 6.419. If I get shaken out, that's fine. I always can re-enter at a higher price if this thing really is bullish and gives some convincing evidence of that.

"Shaken out" means that you get out of your position, only to found out later on that you would have been alright holding it. I never mind getting "shaken out." For the times that it has cost me money, there have been many, many more times that getting out of a losing position has saved me a lot of money by not sitting there watching a trade go down 10%...15%...20%...25%... Yeeks.

So, I'm prepared for the downside. But, hey, maybe it will RALLY on Monday ;)