Day 13 – The Stop Loss Commodity

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What I like about this chart is the bounce and repels cleanly off the support and resistance levels. The first couple of lines will clean up a lot of the noise.

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Bouncing cleanly off the support level

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Let’s start with the support level from early 2019. Firstly, even though this was the lowest point of the bottoming formation, none of the following lows ever went back down to the same low. That tells me that I should redraw the support level to be more of a trendline, one that captures more of the bottoming prices.

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I would redefine my support to more of a trendline support

The resistance level, on the other hand, is an easy one to draw in based on the high of November 2018. The tricky part here is the topping prices (before price reverses) don’t cleanly touch the resistance. But overall, I’m comfortable with this because price adheres to this approximate area, generally speaking.

I’ve circled the topping prices in the chart below.

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What does strike me as odd is the strong bullish candlestick that penetrates the resistance level. The breakout, while a significant price move, is accompanied by scarce volume. Sure, the volume spike on this particular candle, but overall, volume decreases as the price gets closer to the breakout point. I would consider the volume as a red flag because, to me, it just means that the bulls aren’t ready to jump in as yet.

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Look at the breakout candle!

Perhaps I would have missed opportunity because, after the strong breakout, the volume goes back downwards. However, during the same time, price retraces back and bounces off the former resistance level (which now acts as suport).

Even if we missed the original breakout, and the bounce off the tested former resistance, a third signal that the bulls were in this trade (despite the volume, still, not showing any signs), was how price climbs to higher levels.  

I trust volume in most of my stock market investments; thus, I would have skipped this trade altogether. The breakout on this setup would have been tough to watch because price action is clearly showing signs of a new bullish trend.

But, fortunately, I find opportunities like this all the time, so even though I may have missed this trade, I am ok with that because I’ll find another setup waiting to breakout.  

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