Why It’s Important For Simple Traders To See The Forest AND The Trees

Have you ever made a selection before seeing all of the options?

Ever chosen a seat in a movie before realizing there were far better seats in another part of the theatre?

Ever taken a parking space without surveying the entire lot on a rainy day only to realize (after you park of course) that there was a free space just steps from the entry to your destination?

TPX seems to be offering just such an opportunity.

TPX W 16 May 2014 Close 2 Yrs Back

At first glance, TPX appears structurally sound.  The stock is in a strong uptrend.  The December 2012 low was a good bottom and the reversal into 2013 ran through the entire First Quarter.  Price pulled back approximately 50% of that move, then resumed its march higher and, in textbook fashion, exceeded the high of the previous run.

TPX now looks poised to make a strong break through the resistance level just inside $55 on its way to “who knows how high.”

Looks like a good setup correct?

Not so fast…


simple trading

If you step back and view TPX from a vantage point that brings an additional 2 years into view, the current move is placed into sharper perspective.  It’s much easier to see that the stock’s price is indeed bumping up against the $55 level, but that that level is 1) the bottom of what was support back in 2011, but became resistance after price crashed through that area in 2012.  It is also one side of a Resistance Zone I like a lot as a place to get short (see TAOST Magnet Setup).  Combine that with the angle of the rising trendline just under the swing lows of the move off the actual 2012 low, and TPX starts to look a lot more like price has retraced 50% of the high to low move in 2012 and is now setting up to head lower.

Quite a different opinion.

To be clear, I’m not declaring TPX a short any more than I was suggesting the stock is bound higher (although see this).

What then am I saying?

It’s simple really… put things into the proper context before making a decision, especially as a trader.  In fact, make contextualization (a former client of mine would call that a $.50 word) an integral part of your trading process.  Used effectively, it can’t help but improve your overall profitability.

So next time, take a quick look around the theatre and/or a quick spin around the parking lot.  It may help you enjoy the movie more and you’re likely to stay far more dry.  In the case of stock charts, take a moment to place the current price action within the broader context of a longer time period. Doing so may not tell you very much… Then again, it may tell you everything.