Taking a look at CMG ($296.50, down $3.68) I have TWO trade setups on the same chart. Now that sounds crazy, but guess what….The setup that you would consider for a trade has everything to do with what TIME FRAME you are trading!!! Each setup has DIFFERENT parameters. Both of them are valid at this point in time. That’s what makes a market right??
First let’s look at the parameters for those who might want to consider the short side. If you look at the prior major rally swing it was $74.54. Now the most recent swing off the October lows is $72.91. The 100% projection of this prior swing overlaps a .618 retracement very nicely giving us a resistance decision/sell setup at the $306.73 – $308.36 area. Bottom line, if you are interested in the sell side, then your risk could be defined above the 306-308 area. This zone has already been tested and has held.
Now on the flip side, there is a key support decision at the $285.87 – $290.41 area. This zone is defined via a couple of price retracements that overlap an important symmetry (100% price projection) of a prior decline. IF this zone is tested and HOLDS, you can then dial it down to a lower time frame chart and see if it triggers a buy entry. If the buy side setup fires off, you could do a couple of things, you can cover any shorts taken against the resistance decision and you can also just consider the buy side with your risk defined below the $285.87 area.
Bottom line on BOTH of these setups, the risk is extremely well defined on each of them. One of the most important things to know when you consider taking any trade, is that you KNOW what your risk is!!
For guidelines in how to use these key support and resistance decisions, please refer to my guidelines.
Remember, you don’t have to know exactly where a market is going to make money. You just need a TRADE SETUP and a trigger!!