Day 7: Noise in a Cautiously Bullish Trend

I find these types of charts particularly tricky. I like clean and simple setups. But, what starts as clean and simple can quickly turn noisy and mucky. Part of my evening review requires watching for the noise and muck and deciding if there is an impending bearish on the horizon. Part of that watch requires looking for bearish reversals.

In the chart below, I see a lot of bearish activity in a cautiously bullish trend. What I mean by “cautiously bullish trend” is that price is overall moving upwards, but the move is met by considerable bearish headwind. For every 2 or 3 bullish candles, the bears come back strong, causing all the zig-zag noise.

Lots of bearish headwind in a cautiously bullish trend.
Watch for highs and lows within a noisy range

How do we clean up the noise and make sense of this move? Well, with trendlines and support/resistance levels, of course! I’ve drawn a basic trendline that tries to capture most of the lows. After we have a trendline we can work with (and feel comfortable with), we can see the bounces off the trendline, and I can draw the support levels to accentuate the lows.

There’s subjectivity with technical analysis

Since the lows don’t perfectly align with the trendline or the support levels for that matter, there’s a certain level of uncertainty or subjectivity that accompanies noisy charts like this one. While guessing trendlines, support or resistance levels can be costly, sometimes, that’s the best we can do. If our risk tolerance allows it, either we can be comfortable with the subjectivity, or exit the position altogether and find another opportunity.

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