The $110K Trade That Should’ve Failed

Key Concepts

• Breakout Move
• Pullback
• 20 EMA (Exponential Moving Average)
• Inside Day
• Failed Trade
• Systematic Trading

Analysis of a Trading Scenario

The speaker describes a trading situation that they refer to as "temp time," indicating a period of volatility or a specific trading setup. The current scenario is deemed a "perfect entry" due to a confluence of technical indicators.

Technical Indicators and Setup

• Breakout Move: The stock experienced an initial upward price movement, breaking through a resistance level.
• Pullback: Following the breakout, the price retraced or pulled back.
• 20 EMA Shakeout: The price dipped below the 20 Exponential Moving Average (EMA), a common indicator used to identify short-term trends. This dip is described as a "shook out," implying that it tested the support provided by the EMA and potentially triggered stop-loss orders for some traders.
• Tight Inside Day: After the pullback and the shakeout of the 20 EMA, the stock formed an "inside day." This is a candlestick pattern where the trading range (high to low) of the current day is completely contained within the trading range of the previous day. It often signifies a period of consolidation or indecision.

Trade Execution and Outcome

The speaker outlines their actions and the subsequent price action:

• Entry: The setup was considered a "perfect entry" for the speaker.
• Price Action: The stock gapped up (opened significantly higher than the previous day's close), broke out (likely retesting or surpassing the previous high), but then closed below the 20 EMA. This reversal is described as a "painful day" for those who might have entered on the gap up.
• Exit Strategy: Due to the price closing below the 20 EMA, the speaker decided to exit the trade completely.
• Entry Price: The speaker's entry price was approximately 61.60.
• Exit Price: The speaker exited the trade at approximately 65.66.
• Profit Realization: Despite the trade ultimately failing to continue its upward momentum, the speaker managed to book a profit of 50,000 on these sales.

System Performance and "Proof of the Pudding"

The speaker highlights the profitability of their trading system, even on a trade that did not unfold as initially hoped. They state, "So on a failed trade, I made 110K." This implies that previous trades related to this setup or the overall strategy resulted in significant gains, leading to a total profit of 110,000. The speaker concludes by saying, "That's like the proof of the pudding of my system," meaning this outcome serves as strong evidence of the effectiveness and robustness of their trading methodology.

Logical Connections

The narrative flows logically from identifying a specific trading setup ("temp time," "perfect entry") characterized by technical indicators (breakout, pullback, 20 EMA, inside day) to executing a trade based on this setup. The subsequent price action (gap up, close below 20 EMA) triggers a predefined exit strategy. The outcome, a profitable exit on a trade that ultimately reversed, is then presented as validation of the speaker's systematic approach.

Conclusion

The transcript details a specific trading scenario where a seemingly promising setup, indicated by a breakout, pullback, and inside day pattern around the 20 EMA, ultimately reversed. Despite this reversal, the speaker successfully exited the trade with a profit of 50,000, contributing to a total gain of 110,000 on what they term a "failed trade." This outcome is presented as a testament to the efficacy of their systematic trading strategy.