Why Risk Management Wins When Direction Gets Tough

This past week was a key stress test for our Support and Resistance levels. It was a week characterized by a major move where the market finally reversed as anticipated in the Weekly Compass where I noted: “a breach of the $S&P 500(.SPX)$ Central Weekly Level (CWL) is the expectation” and for $NASDAQ 100(NDX)$ it was anticipated: “the 20 weekly average is the likely target”.

We anticipated the bearish direction, with NDX, $Apple(AAPL)$ , and $Alphabet(GOOG)$ all hitting their respective downside targets using the levels for this week (dropping -2.3%, -6.5%, and -2.1%). While the levels were correctly forecasted for these high probability declines, the high velocity of the selloff was unprecedented.

Here are four takeaways from this week on why capital protection allows us to thrive even when the waters get choppy using the S/R levels and high probability setups.

1. The Importance of Specific Targets

We correctly identified the direction for this week in the SPX and NDX based on breadth indicators, tech weakness, and a $Cboe Volatility Index(VIX)$ screaming for a bounce. The price levels modeled acted as precise reaction zones: $24,949 served as the exact bounce zone for the NDX, $325.5 for GOOG, $162 for $Palantir Technologies Inc.(PLTR)$ , and $440 for $Microsoft(MSFT)$ just to mention others marked as bearish last week apart from the ones with higher probability.

Over the last two Wednesdays, I’ve shared educational content on the importance of structured setups and how to navigate them. The purpose of a “Target” is to lock in profits before the tide turns, or to move a stop loss if the target is surpassed with conviction.

• The Math: If a trader locks in a consistent 2% per week, the compounding gains are massive. Even a modest 1% gain per week results in 52% annual growth (of course we seek for more and this week the average gain was +3.2%).

• The Execution: Our bearish levels for SPX and NDX were reached by Tuesday. That afternoon, I issued a note highlighting the overextended VIX and considering a bounce for SPX and $Invesco QQQ(QQQ)$ , providing specific levels for Wednesday so you could validate it: $6,819 (SPX) and $610 (QQQ). Both levels represented just +0.3% recovery from the lows and an initial validation of a potential bounce that materialized.

The Lesson: Targets are not arbitrary when they are corrected modeled; they are your mechanism for banking wins before volatility can erase them. This publication provides professional price targets for 32 securities including futures, stocks, ETFs, Indices, and Crypto; or 44 securities if we add the levels for popular leveraged ETFs like $ProShares UltraPro QQQ(TQQQ)$ $ProShares UltraPro Short QQQ(SQQQ)$ $ProShares UltraPro Russell 2000(URTY)$ $ProShares UltraPro Dow30 ETF(UDOW)$ $Direxion Daily S&P 500 Bear 3X Shares ETF(SPXS)$. Unlock all of those levels upgrading the subscription to paid.

2. The Importance of Invalidation Levels

Protecting capital is Priority #1. In this modeled approach, if the price moves against us, one of two things happens, both of which protect your account:

1. The Trade is Invalidated (Zero Loss): If a setup requires the price to be above our Central Weekly Level / CWL (like a Long setup) and the week opens below it, the trade is in invalidation mode. There is zero capital loss. (It happened AVGO).

2. The Stop/Invalidation is Triggered (Marginal Loss): If a position is open, we cut it using the invalidation level as reference. This week, the Crypto rally vanished. Our setups for BTC and ETH were breached. However, because we respect levels, the pullback resulted in a loss of -1.1%. (For people who uses IBIT or ETH etf the losses were zero, since by Tuesday (when they could be traded) their prices were below the central weekly level (CWL), invalidating the bullish thesis.

3. The Power of “Runners” (Strong Setups)

Even in a sea of red, quality setups shine. $Costco(COST)$ has been on our radar for weeks. Its high probability bullish setup was outstanding on Tuesday, ignoring the broader market weakness to rally through its target for a >2% gain during the week.

This is the essence of our strategy: We let the winners (like COST, AAPL, GOOG, and NDX) run to their targets, while we cut the losers (like Crypto) at the knees, and the invalidated ones are never triggered (like AVGO).

4. The Intrinsic Message of the Watchlist

We learned that the watchlist itself is a market indicator. Out of 30+ securities analyzed last week, 13 were bearish setups (15 if we include inverse ETFs). When nearly half of a diverse watchlist including heavyweights like $Berkshire Hathaway(BRK.B)$ $Netflix(NFLX)$ $Eli Lilly(LLY)$ $Amazon.com(AMZN)$ $JPMorgan Chase(JPM)$ MSFT, GOOG, TSLA, AAPL flags bearish, the market is sending a message regarding breadth and sentiment (All of them reached bearish levels modeled a week ago).

Summary

Despite the difficulty of the week, the math speaks for itself:

• Average Gain of Winning Setups: >3.2%

• Average Loss of Failed Setups: -0.7% (-0.4% if using IBIT or ETH ETF since they started the week invalidating the setup, below their CWLs)

For SG users only, Welcome to open a CBA today and enjoy access to a trading limit of up to SGD 20,000 with unlimited trading on SG, HK, and US stocks, as well as ETFs.

🎉Cash Boost Account Now Supports 35,000+ Stocks & ETFs – Greater Flexibility Now

Find out more here.

Complete your first Cash Boost Account trade with a trade amount of ≥ SGD1000* to get SGD 688 stock vouchers*! The trade can be executed using any payment type available under the Cash Boost Account: Cash, CPF, SRS, or CDP.

Click to access the activity

Other helpful links:

• 💰Join the TB Contra Telegram Group to Get $10 Trading Vouchers Now🎉

• How to open a CBA. How to link your CDP account. Other FAQs on CBA. Cash Boost Account Website.