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All setups have context. As an example a flag is a continuation move, so something the looks like a flag shape isn't a flag if there wasn't a substantial move proceeding it. So the context of the bull flag set-up is a substantial up move. Similarly and Head and shoulders is a reversal setup but there move to reverse, that is a substantial move to be reversed.
Today many of my "switches" (which are formula giving signals such as RTH to be upwards = +1) gave an upwards push for today, but a few showed down (q61:q62 = -11 and FE to SE =-1). Because of the context I "knew" it would be down not up. The reason why I felt the up switches were not in play, were:
the large proceeding move of +19pt into the pre-opening high, and
the disappointing capital goods number released at 7:30 within the nothing news context of the last two days summing to negative tone.)
Many thanks @aquarian1. Yes, I am aware of the importance of context, which I take it is only acquired with experience.
Also, the pattern formations like flags, etc. I studied them but I never practiced to learn to recognize them. Perhaps I should add that to my to-do list.
Of course, I'm not recommending or not recommending classical formations. Once I read that there are many ways to trade and it is a matter of picking one that suits your personality.
The reason I used it as an example is that I see many traders post that they see a head and shoulders and then on their chart they have something that looks like that shape, but they are not aware that the shape alone does not make a H&S. If there isn't a large proceeding up move it isn't one. So the incoming to the pattern is important.
So they can categorize that as a head and shoulders setup, and then grade it as a failed setup, but their categorization was faulty.
Each oracle reading has an action set:
So if it is un-tradeable then you close your books and work on something else.
If is it clear uptrend you are going to buy at or near the open and hold for the est range (or until you see a significant pullback).
etc.
I think that's what a good analysis combined with sufficient experience turn you into: somebody that has a plan based on a range of hypotheses on how the market is going to unfold...
