Day 6: What you see is not what you get

The fluidity of technical analysis requires you to be open (and willing) to quickly change your mind. What you may have initially considered support and resistance, may need to be modified.

When I initially saw this setup, my support and resistance analysis was straightforward. I saw a wide range that was showing signs of breaking out in early 2011 (I’ve put a green box around the breakout area). Being naturally conservative, I was satisfied that the price was able to breakout, hold, and sustain above the $35 resistance for a few months.

Wide range, strong breakout.

But then I had to take a step back: what is going on with this low back in April? There has to be something more than this sideways trend between mid-2009 to early 2011.

Up till now, I saw a sideways trend stock on the cusp of a bullish breakout. Right? But what if redrew the trendlines to capture the April 2009 low. Now I see something very different. With the highs getting smaller but lows still chugging along higher, we can see a triangle formation here. What’s more, is the strong bearish candlestick as the price is breaking down, through the apex. Breakdown? What a different conclusion to what we drew earlier. What is even more convincing is that the bearish activity is matched by an even stronger volume to go with it!

I had to reframe my position after taking a look at new technical evidence

The critical learning lesson here is: take time to review all the details.

A sideways range on the cusp of a breakout may have been too quick of a conclusion. I had initially overlooked the April low, the overall lower highs, or even the higher lows, which changed the story for me. But, the tipoff was the strong correlation between the bursts of volume to the price pullbacks (and not the breakouts). The evidence favoured the bearish case, so I had to pivot my initial analysis of a bullish breakout.

We’ve seen textbook setups before, but many times we have setups like this when we have to piece together the technical evidence.

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