Monthly Bearish Divergences Showing Up On a 5 Wave Impulse Move
Just like the 5 wave impulse for 2021's top, we have now entered into a 5th wave on the monthly chart. The issue is that we also have a monthly bearish divergence present on the chart. 2021 also had a monthly bearish divergence present. The first one that we saw was in January. We got a 30% correction off of that one. Now we have another monthly bearish divergence present on May's close today with a large selling wick.
This is not what you want to see. Of course, the market could just continue going up anyway, but these setups appearing on the monthly chart take a long time to happen. Even if we do go up a little bit more, it would be unwise to ignore this setup appearing on the chart. I am not recommending everyone take short positions, but I am currently short targeting first the 51-54k(wherever weekly 200 SMA will be when heading down) area with a likely retracement into the 80k area after that. Then heading towards a bear market low in 2026. I think we will see the 30k area, but that target is a bit less important than the current setup signaling down on the charts.
My short is on 2x leverage with 10% of my total capital even in the trade at a 98,446 average entry. I was an early bear so my entry reflects that. It won't matter at all if the 54k target hits. If we do go up from here, I will average the position once more after which it either liquidates or hits the 54k target. If we do begin playing down aggressively over the next few months, I will begin adding into the short on the way down. This is how you obtain a very favorable RR by being position sized small in a trade that is in drawdown, and then getting more aggressive with size as the position is winning with price 10-20k+ in your favor. At which point you can also set a stop loss at breakeven. Time in the market beats timing the market works in both directions.
Let's go over advanced position management techniques as we don't tend to see that discussed here very often. Most people simply have a stop loss and take profit as their primary risk management strategy. A 2x leveraged trade with scaled entries( 1%, double to 2%, double to 4%, and double to 8%) with liquidation as the stop loss really allows you to take advantage of time in the market as well as the market moving against you being an even better opportunity than you started with. You are controlling your maximum risk with the total capital ever allowed in the trade on isolated margin. You must decide what that % is before ever taking a position in the market. Treat every trade as if the entire position can go to 0. Black swans can blow past stop losses.
The larger your account perhaps you may want to use no leverage and even less capital %. Pretty much anyone trading above 200-300k would fall into that camp. Anyone trading above $1 million probably wants to scale in at 0.75%, 1.5% and then 3% max capital in the trade. Remember you can always add capital into a winning position, but you cannot take capital out of a losing trade without realizing the loss. A stop loss is not necessary if you position size to lose 100%. A great average monthly return target is 10%. Some months will make nothing, some will be in drawdown or a loss, and some will be very large gains if you add to winning positions. Some years will be much better than others as well. Of course buying bear market lows sets one up to have really good years in peak bull run years.
You just want to average 10% per month(3-5% per month for anyone already above $1 million) over the course of decades(Yes I know liquidity becomes an issue at some point it will be obvious to anyone when they have reached that level). It doesn't matter what every single month is individually. Simply reinvesting 20-30% over the course of 10 years, 20 years, and even 30 years is amazing compounded gains. This trading career is a marathon and not a sprint. Don't think how can I get rich off of one trade and change my life today. Think how can I make a consistent % return in the market that compounds to generational wealth over the course of my entire lifetime that changes the lives of all those who come after me.
