Above is a daily chart of NVDA, and in the lower pane I have a ratio line of NVDA versus SPY. This setup offers a great lesson on why waiting for confirmation is just as important as identifying a potential setup. Spotting relative weakness is one thing, but acting on it too early can quickly turn a good idea into a bad trade.
About six days ago, I posted about the relative weakness I was seeing in NVDA. The ratio line was making a new low ahead of price, which is often an early clue that a stock may continue to trend lower. This kind of divergence gets my attention because it can act as a leading indicator, showing weakness that isn’t always obvious on the price chart. At the time, the setup made sense, and a bearish outcome seemed possible.
However, I was very clear with myself about one thing: I was not going to act without confirmation. For me, that confirmation was a break of key support at 169.55. That level had been defended a couple of weeks earlier and until it gave way, any short position would have been based on anticipation rather than evidence. Anticipation can be expensive in this business.
As you can see now, NVDA never broke that support level. Instead of rolling over, price held above 169.55 and has started to show a bit of strength. The relative weakness I initially observed did not follow through, and the market resolved the situation by moving higher instead. Because I waited for price to confirm the idea, I stayed on the sidelines and avoided what would have turned into a losing trade.
This is a perfect example of how discipline pays. The ratio line gave me an early warning, but price had the final say. By waiting for confirmation, in this case a clean break of support that never happened, I protected my capital and my mindset. Not losing money is often just as important as making it, and patience is what made the difference here.
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