iBankCoin
Full-time stock trader. Follow me here and on 12631
Joined Apr 1, 2010
8,861 Blog Posts

The “Easy” Trade Setup

One of the nuanced aspects about trading is spotting an “easy” setup, but never actually following through and buying or selling the security. What you are looking to see is a clearly defined line in the sand (or on the chart) where you see a discernible edge for a trade. At the time same time, if price falls below a specific level, then you take a pass and move on.

Many novice traders, and in fact even some experienced but overly aggressive ones, mistakenly think that an “easy” trading setup is one where you simply buy immediately and are virtually guaranteed to profit immensely. In reality, the easy setup comes from knowing what you want to get out of the market, and only deploying capital ┬áif and when you actually get it.

I have been discussing the enticing setups in many of the coal names for the past few days. The daily chart of Alpha Natural Resources, below, offers a pretty good example of the kind of easy setup to which I am referring. The stock could easily be working through a bull flag here before moving higher. However, a break and hold below $58, and I will take a pass, since the presumption that the prior level of resistance has now turned into support will be undermined. Sure, the chart would be far from crippled with a move below $58, but that does not mean it represents a high probability long trade either. Thus, the essence of disciplined swing trading is a more complex version of identifying and monitoring “easy” setups.

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9 comments

  1. FIeldofdreams

    Thanks Chess, always learn a lot from your posts. Just curious, where would you enter this trade?

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  2. yo

    @fieldofdreams

    i can answer that, but i’m going to be busy for a couple of weeks. when i get time in a couple of weeks, i’ll tell you where i got in at, or if i got in.

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  3. yogikeung

    Great post!, Mr ChessNWine,…have u considered publishing your own book?

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  4. Alamin Kassam

    “On strength above recent highs” is something I only learnt last year from @chess and @RC in PPT. Totally new concept that has helped my trading greatly.

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  5. Joe

    What would be the more defining factor of “strength?”
    High volume?
    Break of most recent high?

    I would enter on both of those together since theres such a gap to fill… But I usually find myself timid if only one of those occur and I miss out on some great trades.

    Could strength at this point just be solid consolidation over the next week … ?

    anyone with insight … Thanks!

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