In recent reports, I have been writing about how not all signals are equal and how buying supports is more effective than buying highs in strong markets. There are exceptions, and usually they are based on how well defined the setup is, what kind of obstacles the trade is facing, and how clear the momentum is. In other words, context strongly defines whether or not it is worth taking the risk, in conjunction with how aggressive you choose to be.
In this case, there is an that has appeared, supported by a previous higher low formation and clearly positive sloping . Chances are a break out from this will lead price to the 9225 level which is a historical level that has affected price previously (see chart). Since buyers are in control, it is not unreasonable to expect an attempt toward the 9861 level which is the reversal zone boundary relative to the 9225 high.
If the stays intact, and price breaks the 9048 trigger, you can risk about 300 points to potentially make 600 to 700 points based on a conservative target. The reward/risk is attractive and the current price structure (mini consolidation) is typically a trend continuation pattern. What makes this trade setup riskier is the fact that price has not retraced to a reasonable support (which doesn't always happen in strong markets).
That is the aggressive trade idea while the more conservative idea is to wait for a retrace back to the 8108 level which is the .382 of the current structure. The immediate would be compromised, but as long as price maintains this level and establishes a reversal pattern off of it, often the next move is at least a retest of the previous high. It is more conservative because you are buying at a more attractive price along with a higher probability of retesting a predetermined level (previous peak).
In summary. buying near resistance levels is often a bad idea but occasionally there are exceptions. Experience and understanding context along with your capacity to undertake the associated risk determine if this type of setup fits into your trading plan. A shallow retrace such as this are common in strong market environments and can offer a structured way to participate even at less attractive levels. Make sure to check out our regular updates on S.C. about this potential swing trade and how we decide to participate if it triggers a long.
Questions and comments welcome.