Hey Trader,
On Monday morning, David Erickson emailed me about a Golden Setup trade that stopped him out.
He’d bought the 26 on the NQ as price came down from the 50. It was a first test.
On paper, it checked every box. David had made the mistake of buying the first pullback after a vertical move.
I pulled his chart up in the Golden Setup room and walked everyone through it.
“It is technically a setup… It failed.”
Then I told the room why I thought it failed.
“If you want my opinion as to why it failed, it’s because of where it came from.”
The warning was sitting on David’s chart a few bars before his entry. He just didn’t know to look there yet.
A volatile tape sets that trap almost every morning. On Monday, the NQ ran 1,300 points off its 26,750 overnight low with the VIX at 20.
When price goes vertical, buying the first pullback into a level looks like a gift. I showed the room what happens when you take it.
“So when something does go straight up… and we start buying the first pullbacks. This is what happens.”
You take a full stop on a trade that looked perfect. On the full NQ contract, that’s about $600.
Then you start doubting a setup that works. That’s usually when I get the email saying it isn’t doing what I said it would do.
A setup can check every box and still be a bad trade when price sprinted to get there.
You can spot that sprint before buying the first pullback. I’ll show you the two bars on David’s chart that should’ve kept him out.
I’ll also show you a quick measurement I make with a tool that’s already on your platform. It shows me where a better entry sits.
Then I’ll walk you through the only entry the NQ offered during Monday’s rally and why I let it go. I’ll finish with what I do when I still want in after a vertical move.
The Two Bars That Gave It Away
Quick refresher first. My levels repeat inside every 100-point block on the NQ.
A Golden Setup long buys the 26 when price pulls back to it from the 50. The 33 and the 77 sit higher in that same block.
Right before David’s 26, the NQ printed a 70-handle bar and a 50-handle bar. I told the room the ATR had to be pretty spicy with bars that size.
“This is run up way too far for me to just to buy this.”
Price had climbed roughly 150 points in a hurry. Then it pulled back only a sliver before tagging our level.
That shallow dip was all David was buying.
His chart held a useful comparison too. An earlier 26 on the same chart paid.
The one that failed came straight off the sprint.
“Big run up and then it rolls. Big run up and then it rolls.”
Both trades used the same level. Only the climb into it was different.
Oversized bars right before your level mean buyers just spent a lot of energy. Buying the first pullback after that push leaves you a crowded entry with no room to breathe.
The Halfway Check Before Buying the First Pullback
When I see a big impulse bar, I want to know how much of it price has given back. So I draw a Fibonacci retracement on the bar itself.
“Whenever you see these big impulses like this, try to get a bead on it.”
On one of the breakout bars I measured for the room, the halfway point landed on a level we already use.
“It’s a halfway back. And it coincides with a 77 right there.”
I ran the same measurement on David’s chart. The 26 that worked came after a halfway pullback.
The 26 that failed came off a much shallower dip.
“This pulls back halfway as opposed to just pulling back here… this is your better entry than that.”
The halfway check doesn’t replace the Golden Setup. It tells you whether price has reset enough to justify buying the first pullback.
The One Entry I Passed On Monday
Monday’s rally offered exactly one entry on my stuff. It was a bar close above the 77.
I didn’t take it.
“The reason that I didn’t do it is because of how far it ran up. I wanted a halfway back on this bar.”
Volatility wasn’t the reason. I told the room that even with a 20 ATR, I still wouldn’t have bought that 77 because price had climbed too far.
We had a saying for this in the pit.
“Price is too high to buy and too firm to sell.”
A tape like Monday’s is too strong to short and too stretched to buy. I wasn’t going to risk $600 buying the top of a 1,300-point move.
“We’re not doing price discovery with our money.”
I made that call while price was still climbing, so the room heard my reasoning before the trade played out.
Wednesday’s chart showed the cost of buying the first pullback again. Price ran hard into a Golden Setup, tagged the 33 and slammed back down.
“So I don’t like buying the Golden Setup like this.”
When You Still Want In
Sometimes you still want a piece of a vertical tape. Instead of buying the first pullback, I use the back through.
With a back through, I wait for price to push through the level. Then I enter as it comes back through.
“I would do this on a back through.”
A back through makes price prove the level still matters before I commit. It doesn’t make the trade a sure thing.
“A back through doesn’t mean it’s absolutely going to work. It just puts our best foot forward.”
I also set a clear cancel point. If price runs to the 26 and then to the 33 without filling me, I let it go.
“That’s just a trade that worked without us.”
How to Stop Buying the First Pullback Too Soon
I told the room I don’t expect anyone to draw these live right away. Start in your homework instead.
When you review a session, mark the biggest impulse bars. Then note which setups came right off them.
When Lynn asked about tracking ATR on Monday, I suggested making a note of it in your journal. I’d add the oversized bars to that same note.
Once you’re comfortable, check the bars leading into your level before each live entry. A stack of big bars and a shallow pullback is your cue to draw a Fibonacci on the impulse bar.
If halfway lines up with a Golden Setup level, that’s your better entry. If price never gets there, skip the trade or wait for a back through.
David’s 26 was a fine level at the wrong point in the move. Two bars on his chart said so.
The NQ ended the week pressing against its 200-day moving average after a nearly 100-handle drop on Friday. Next week could bring more vertical moves in both directions.
Check the move into your level before buying the first pullback.
The levels, the GSI and the live room where I walked through David’s chart all come with the Golden Setup.
Trade smart,
Tony Rago
Creator of the Golden Setup
