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#218: How to Identify High Probability Trade Setups


How to Identify High Probability Trade Setups

In this weekly video:
00:24 – Looking for trades that will work in your favour
01:03 – Most traders rely on an indicator
01:23 – You need to understand how to read the charts
02:12 – Putting multiple factors in your favour
04:05 – Look at the actual price of the currency and use round numbers
05:20 – Adding the daily strength and weakness
05:38 – Client makes +7% in 2 months trading the H4 charts

I'm gonna share with you some tips and ideas about looking for high-probability trade setups. So let's get into that right now.

Hi traders, Andrew Mitchem here, the owner of The Forex Trading Coach, and today is video and podcast number 218.

Looking for trades that will work in your favour

And I'm gonna be discussing with you, and sharing some tips and ideas of helping you to look for higher-probability trade setups. Trade setups that are gonna work in your favour far more often than they're not going to. You see, the problem is with a lot of traders, is they don't have a strategy, and they don't really understand the market.

And when I look around at different systems and different ideas that people tell me they're currently trading … And by the way, they're not making money on, otherwise they wouldn't be coming to me … And what they're doing, it kind of just doesn't add up to me.

Most traders rely on an indicator

Most people are relying on a indicator. They're looking for a line to cross over and another line on their charts. They're looking for a dot to appear on their charts or for a line to change colour, or all these type of things. And that really is not true technical trading.

You need to understand how to read the charts

You see, to understand trading properly, you have to understand the charts and look at the price. You have to understand what's happening in the market right now. And when you clutter your charts with too many lines and graphs and dots and stars, and all these things that people tend to, for whatever reason, think it's a really good idea to clutter their charts with … What you end up doing is not being able to see what's actually happening in the price, and understanding what's happening.

Someone sent me a screenshot the other day and said, “Hey Andrew, can you give me some advice on my strategy.” And I actually couldn't see the candle patterns underneath all this congestion of this big mess of spaghetti and lines and things on the chart. So it was horrible. And no wonder this person was confused, because there was just so much stuff going on.

Putting multiple factors in your favour

And I said to him, “Look. Strip that off, and start again.” And it was something that I discussed on my webinar with my clients last night, and it was all about putting factors in your favour to give yourself a high-probability chance of success. But what is it about this trade setup right now? Even when you understand candle patterns and price analysis, you still need more than just that.

You see, I'm a big believer in candle patternss and candle shapes, and where they occur. But you can't just say every bullish engulfing in candles means that price is gonna reverse and start moving up. You cannot do that. Likewise, if you use … Let's say Bollinger Bands. You can't say every time that the prices hit the upper Bollinger Band, it's now gonna start coming down again. Because it won't. It's like if you use divergence. Every time you see positive divergence, it doesn't mean to say the price is gonna suddenly reverse and start going up again, because it won't. You have to put a combination of different factors together.

And when I was sharing with my clients, just on the webinar last night … I was sharing with clients some of the trades that I've taken, and some that I hadn't taken, but some that I'd seen. Now, with the benefit of hindsight … Because at times I wasn't here, or I was sleeping … But I shared a lot of trades with clients. And when we had five or six different factors all showing at the same time, backing the trade up, all showing the same thing, the same confirmation … On most of those trades, we had outstanding, high reward-to-risk trades that went to their profit target, without hardly getting into any draw down at all.

And it's remarkable how consistent that happened. So it is all about putting those things together. You can't just rely on one indicator. You cannot rely on just one or two things. You have to start to look at the price.

Look at the actual price of the currency and use round numbers

Look at the price number. What is the number of the price right now? Like the level of the price. Just because your indicator paints a little star or dot to say, “Buy here,” you might be buying straight into a strong round number.

And there's some great examples on the charts. If you go and look at your charts, of where the price stalls or reverses, more often than not, it will happen at a round number. Now, what I mean by that is a number ending in zero-zero or five-zero. Now, go and have a look. Just try and … After you finish watching this video, listening to this podcast, just go and do that. Have a look at your charts. Scale down to the shorter time frame charts, like an hour chart or something, and see every time the price gets to a level and then comes back. More than likely, it's gonna be stalling at a round number.

So if you can start to add different factors, and confluence events together with the same technical strategy, and look at the price, and forget most of the indicators and wiggly lines on your charts … Forget most of that. Get back to true price. Where is the price coming to? Where is it bouncing? Why has it bounced at that level in the past? Is there a suitable candle patterns? Are there a few other things I look at and teach?

Adding the daily strength and weakness

Does it have the backup of the daily strength or weakness analysis to … Let's say, a bullish on the daily chart? On the Euro, U.S. dollar, let's say. On a 1 hour chart when I see a bullish pattern, and it's in the same direction as the daily chart, it just adds more and more probability of your charts of success.

Client makes +7% in 2 months trading the H4 charts

Now, I have an email here from a client called Alex. And Alex said, “I've been doing exceptionally well over the past two months, trading only the four at a time frame charts. I have a win-loss ratio of 75%, and my accounts up over 7%.” So that backs up everything I've just said. A high win rate, a higher time frame chart. It's not doing too much trading, not watching the charts all day. A 7% gain on live account in two months, from someone who's relatively new to trading. You could do that, too. If you'd like to know more, drop me an email. [email protected], or leave a comment below this video, and I would be more than happy to help you out.

So once again, this is Andrew Mitchem, The Forex Trading Coach. Have a great weekend. I'll see you this time next week.