See that headline about Trump's $1.5 trillion defense budget for FY2027? Most people see politics. I see a setup. This isn't about red or blue; it's about green. A firehose of government money is about to be pointed directly at the defense sector, and that means volatility, volume, and opportunity for anyone who knows how to read a chart.

While Alex Volkov is probably mapping out the long-term geopolitical implications, I'm already marking up levels on my defense watchlist: $LMT, $NOC, $RTX. This kind of guaranteed, multi-year spending creates a powerful tailwind. It doesn't mean these stocks only go up, but it does mean dips are likely to get bought. And I have a favorite setup for catching those exact turning points.

When a sector has this much fundamental support, I start hunting for bullish divergences on pullbacks. This is a classic RSI divergence strategy example that signals weakening bearish momentum. Price makes a new low, but the Relative Strength Index (RSI) indicator makes a higher low. This tells you the sellers are getting exhausted, and the bulls are quietly stepping in.

Let's make this real. Pretend $LMT is pulling back on the 4-hour chart. It drops to $450, bounces a bit, then wicks down to $448. That's a lower low in price. But on your RSI(14) indicator, the first low registered a reading of 29, and the second low only hit 35. That's your higher low on the indicator. The divergence is confirmed.

This is the moment of truth. My entry is on the close of the first strong bullish candle after that second low. Let's say I get in at $451. My stop-loss goes right below the wick of the low, at $447.50. My target? The prior swing high, maybe $460. I'm risking $3.50 to make $9. That's a 2.5R trade, and it's my bread and butter.

A setup is useless if you don't manage your risk. I learned that the hard way blowing up my first two accounts. Now, my rules are non-negotiable. This is the difference between gambling and running a business.

• The 1% Rule: I never, ever risk more than 1% of my trading capital on a single idea. If my stop gets hit, the loss is just a business expense.
• Stop-Loss First: My stop-loss is placed the second I enter the trade. No mental stops. No 'I'll let it breathe' nonsense. The level is the level.
• The Three-Strike Rule: If I take three consecutive losses, I shut it down for the day. This is my circuit breaker to stop revenge trading, which is still my biggest demon.
• Journal Everything: Every entry, exit, stop, and my psychological state is logged. You can't improve what you don't measure.

This approach is all about surgical precision. It's not about having long-term conviction like Marcus Cole showed when VanEck was buying BTC. It's about finding a high-probability setup, defining your risk to the penny, and executing. Whether the trade works or not, the process was sound.

The number one error is jumping the gun. Seeing a divergence form is not the signal. It's the alert that a signal *might* be coming. You must wait for price action to confirm the divergence. I want to see a bullish engulfing candle, a hammer, or a break of a small, local trendline. Without that confirmation, you're just trying to catch a falling knife.

This defense spending news is a theme that will likely play out for months, if not years. The money is essentially guaranteed. That doesn't mean you can blindly buy these stocks, but it gives you a fundamental reason to be looking for bullish setups on the charts. Now you have one to watch for. So, I'll ask you: with this kind of guaranteed government spending as a backstop, is trying to short the defense sector even a logical trade anymore?