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 if 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.