The Perfect Trade Set Up...
I thought the title would catch your attention as a trader. I suppose it should as a journey person to any trade. Sort of like a brick layer giving you the secret to laying marble, spiral, staircases I suppose. A hard skill to learn but once learned is worth it's weight in gold because it separates you from the majority of masonry professionals who will never know how to do this.
The very firs thing that I want you to realize is, "there really is no perfect set up". As a result of the myriad of constantly changing conditions in the market place and the variety of different traders out there it is really difficult to hit on one particular set up that will take all variables into account.
It really doesn't matter how good you or your system is, at some point in time it will stop working. It is inevitable. Now that doesn't mean that you should desert it and immediately try something else because this is the mistake that most traders make. You look for something that will not lose. I can tell you that this simply doesn't exist and nor will it ever likely. Most people don't have the millions that it takes to set up your server at the exchange and link it to the fastest connections available in technological terms. This cost hundreds of millions and simply isn't realistic for most traders.
So what do I do?
Considering I don't fall into that camp of having that kind of money at my disposal I tend to use a variety of leading indicators that will tell me when price is likely to either change direction or continue on.
These are order flow, volume areas (past and present) and where I perceive that stops have been run where price will reverse.
I have placed a chart below to show you how you can look at any financial instrument to see the areas where you should try a trade.
With the spot market there is really no way to determine order flow and so I must look at the futures data for daily orders executed which is on any futures platform (the Euro usually is between 275 to 350,000 contracts per day). I think that this is the best you can do in order to get all the variables into place.
Pattern recognition is good but not if it is too obvious. In that case do the opposite.
When these three variables line up for me I execute.
I must see the stop area. I must know where the major volume area is for the day and I must know where the major volume areas are for the past measured in weeks. Then I check order flow on the futures markets to see if there is a correlation at that point. In other words are executed orders beginning to flow into the market. If one of these variables are out I do not enter.
Does it mean I am right all the time?
No. Which means that you trade as if you might be wrong. Not as if you are right. This forces you to use proper risk and leverage.
Get it?
Good.
The very firs thing that I want you to realize is, "there really is no perfect set up". As a result of the myriad of constantly changing conditions in the market place and the variety of different traders out there it is really difficult to hit on one particular set up that will take all variables into account.
It really doesn't matter how good you or your system is, at some point in time it will stop working. It is inevitable. Now that doesn't mean that you should desert it and immediately try something else because this is the mistake that most traders make. You look for something that will not lose. I can tell you that this simply doesn't exist and nor will it ever likely. Most people don't have the millions that it takes to set up your server at the exchange and link it to the fastest connections available in technological terms. This cost hundreds of millions and simply isn't realistic for most traders.
So what do I do?
Considering I don't fall into that camp of having that kind of money at my disposal I tend to use a variety of leading indicators that will tell me when price is likely to either change direction or continue on.
These are order flow, volume areas (past and present) and where I perceive that stops have been run where price will reverse.
I have placed a chart below to show you how you can look at any financial instrument to see the areas where you should try a trade.
With the spot market there is really no way to determine order flow and so I must look at the futures data for daily orders executed which is on any futures platform (the Euro usually is between 275 to 350,000 contracts per day). I think that this is the best you can do in order to get all the variables into place.
Pattern recognition is good but not if it is too obvious. In that case do the opposite.
When these three variables line up for me I execute.
I must see the stop area. I must know where the major volume area is for the day and I must know where the major volume areas are for the past measured in weeks. Then I check order flow on the futures markets to see if there is a correlation at that point. In other words are executed orders beginning to flow into the market. If one of these variables are out I do not enter.
Does it mean I am right all the time?
No. Which means that you trade as if you might be wrong. Not as if you are right. This forces you to use proper risk and leverage.
Get it?
Good.
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