How To Find Trading Setups That Work
If you have been trading for a while, you would have some setups or trading strategies that you employ. However, sometimes they work and sometimes they don't. In this article, you will learn why some setups are more successful than others. A person who have been trading for a long time tend to have a sense of when their pattern work and when they do not work. That is why I highly recommend that you specialize in 1-3 strategies and really master it. Avoid going into other strategies until you profit and master from your selected trading strategies.
Anyway, I will try to explain why some trading setups work at certain times and why they do not work at other times.
Anyway, I will try to explain why some trading setups work at certain times and why they do not work at other times.
1. The state of the major indexes will affect your pattern's success
If you do not know that 75% of stocks in the market follow the direction of the major indexes that comprises the S&P 500, the DJIA and the Nasdaq Composite, then you now know why your pattern does not work. If you found a bullish trading pattern which happens on a bearish market day then the odds of success will be minimal.
You may have a perfect bullish trading setup that seems to yell at you that it will give you $10,000 profits. But if the S&P 500 opened 1% lower or even 0.5% lower and trends down, then your perfect bullish trading setup is not going to be that perfect anymore.
- Major indexes that are falling does not support a bullish trading pattern
- Major indexes that are rising does not support a bearish trading pattern
You may have a perfect bullish trading setup that seems to yell at you that it will give you $10,000 profits. But if the S&P 500 opened 1% lower or even 0.5% lower and trends down, then your perfect bullish trading setup is not going to be that perfect anymore.
The charts above show you an example where JPM set up a 200 MA support trade and a 200 MA resistance trade in a short period of time. Both setups were not successful. Normally stocks tend to halt and reverse direction when it hits the 200 MA. However, in both cases, it did not work because the general market were either too bearish or too bullish at the time the setup appeared.
The 200 MA support setup on JPM did not work because after the day of the BREXIT vote, the whole market collapse and along with it brought JPM down with it. The 200 MA resistance setup on JPM which appeared 2 weeks later did not work because the major indexes were staging once of the most furious rally in recent stock market history. The rally lifted all kind of sinking boats which included JPM. When I say sinking I mean stocks that are lagging. S&P 500 made a new all time high but JPM barely surpassed its most recent highs.
So there you have it.
Setups and patterns will only work when the conditions of the major indexes like S&P 500, DJIA and Nasdaq Composite is favorable. The lesson you need to learn here is this: You need to analyze what the major indexes are doing whether on a daily chart, a weekly chart and even smaller time frames.
The 200 MA support setup on JPM did not work because after the day of the BREXIT vote, the whole market collapse and along with it brought JPM down with it. The 200 MA resistance setup on JPM which appeared 2 weeks later did not work because the major indexes were staging once of the most furious rally in recent stock market history. The rally lifted all kind of sinking boats which included JPM. When I say sinking I mean stocks that are lagging. S&P 500 made a new all time high but JPM barely surpassed its most recent highs.
So there you have it.
Setups and patterns will only work when the conditions of the major indexes like S&P 500, DJIA and Nasdaq Composite is favorable. The lesson you need to learn here is this: You need to analyze what the major indexes are doing whether on a daily chart, a weekly chart and even smaller time frames.