Looking at setups in context

We often emphasize the importance of looking at setups in context. We have also said that analyzing context is something the human brain does pretty well, much better than computers (just think of computers' inability to enter text into a captcha, something humans can do with ease).  Now, as we always point out, the larger chart must be supporting our setup on our trading chart (in this case the 5:1) or at least not be against it. Well, the 6E this morning presents a good opportunity to demonstrate what we mean.

As you can see, we have a good looking 5:1 with a pullback into our 'area of business', so we're starting to look for a long entry if price continues to come down and then turns at support. (We'd be using either Remek!'s AUTO or LONG dropdowns to get us into the trade.) If it turns, we'll be long. Unless the 8:2 and/or the 12:3 tell us 'watch out'. And in this case, they do.

We already don't like the look of the 8:2. While it may break through to the long side, that would take a lot of effort. When we start looking at the 12:3, we'll realize taking a long trade on the 5:1 may not be such a good idea after all. The 12:3 is just about to collapse.

Now what will happen, we don't know.* That long trade may still work. What we do know is that we've seen a million better looking long setups on the 5:1 before with convincing larger-chart support. So why take this shaky one? We'll skip it either by disabling Raven or just selecting NONE (no trade) from our dropdown, and wait to see how events unfold.  Mindful trading today!

* 1pm. Now we know. We missed some excellent longs :) No more early lunches!

6E 2015 08 10 1pm