Over a year ago, I wrote a post discussing what I consider to be an “easy” trade setup. The use of quotation marks is crucial.
As I wrote back then:
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.
Thus, an easy trade setup may never materialize into an actual trade, and therein lies the discipline. First and foremost, you are looking for a well-defined level to trade against, or to strategically place your stop-loss.
In the case of the Canadian benchmark TSX, we clearly see a market that has lagged the U.S. major averages. The temptation has been to call the big bottom for a while now, but there has not been much to go with…until now. Not only did the weekly chart confirm a bullish MACD divergence higher, but the daily timeframe on the first chart below indicates a breakout from major short-term resistance. Recently, the throwback or retrace to the breakout point provides a “easy” setup on that timeframe, provided you have the discipline to stop out below 11,800 if proven incorrect.
The second chart below is the monthly timeframe of the TSX. Below that 11,800 daily level is the multi-decade 11,300 zone, marking the highs back in 2000 for the following six years. True, the 2008 crash took us below there, but you can see by the V-shaped recovery just how ferociously the market rejected the notion of holding below there for very long. Beyond that, the 2011 summer swoon saw a quick shakeout below, followed by another sharp recovery.
With that backdrop, I would argue that going long Canada, and by extension the major Canadian stocks, is an “easy” trade setup.