When to Freak Out About a Chart and When Not To

Mark asked me on air yesterday what levels I'm watching.

Everybody asks that. What's your number, where's support, what's the line. And I get it, because a number feels like a plan.

But I don't really look at levels, and I told him that on live TV. I look at where we are in the chart. Not what price we're at, where we are.

That's the difference between a trader who panics every time the market dips and a trader who knows which dips matter.

There's one question I ask about any chart before I decide whether to worry, and it isn't a price.

It's the reason I didn't panic on Monday and the reason I'm not chasing this week, and once you have it, you stop freaking out on the days you shouldn't and start paying attention on the days you should.

Here's the question. Where is price sitting relative to the last place it consolidated?

Take the Qs. Before we broke out to all-time highs we spent weeks squeezing into a pennant, then we broke out of it, then we gapped, then we gapped again, and that's bullish follow-through, and we're holding above that pennant right now.

Now listen, it's not the strongest breakout I've ever seen, I wish the moves were bigger, we've had way more significant blue sky breakouts than this one, but the placement is stronger than it looks, and placement is what matters.

We're above the box. You hold, you don't chase, and you don't freak out.

If terrible news hits and knocks the Qs back inside that consolidation, I still wouldn't be calling for a meltdown.

I'd be watching, because the longer price sits inside a box it already broke out of, the more likely it eventually drops, but that's a lean, not a freakout.

The freakout is when price is sitting in the lower end of that box. Not on a red day, not when the Qs give back a gap, not when somebody on TV says correction.

When we're in the bottom of the last consolidation, the bulls who defended it are losing, and that's the day the chart is actually telling you something. Until then, I'm not looking at a level. I'm looking at where we are.

And the same idea works inside a single day. The SPY yesterday afternoon was stuck between VWAP underneath it and the 40-period moving average on top, and it went nowhere for an hour.

That's not you doing something wrong. When there's a moving average in the way, it creates friction, and the trade stalls. I know people who trade VWAP every single day.

It breaks, they make money. It doesn't, they lose. That's just part of trading. The difference is they knew where they were standing before they got in.

If you’re feeling frisky I have a homework assignment for you.

Pull up the Qs on a daily, draw the box around the last consolidation, and tell me whether we're above it, inside it, or in the bottom of it.

Then do it on the SPY, which is still inside its box and hasn't earned a breakout yet.

If you can answer that for both, you know more than most people arguing about levels.

Rock On,

Voz

P.S. I’m going live today at 4 PM ET with Gabe to break down this week’s QQQ zones, one at a time, and you can ask questions as we go. Want to come early? At 3 PM ET you can catch me and Mark in real action on The Close, our paid live show. It’s the same room for both: