Quote from macattack:
The setup business kind of confuses me. Everyone talks about mastering & testing setups, but whenever I look at one of NoDoji's or DBPhoenix's charts for example they are just following price & taking "every obvious setup" that occurs. I see almost no discrimination when it comes to entering a trade.
If it's going up NoDoji usually waits for a retracement & enters during the retracement or as it turns to continue up.
If it's breaking out she may enter on a stop or get in just as it's about to breakout.
If it's near a support or resistance area she may enter at that area or wait until price actually turns & indicates it's actually reversing.
If you go thru a chart after-the-fact (when it's easy) & mark all of the obvious turning points NoDoji has most likely taken all of those trades.
I see DBPhoenix always going with whichever side is winning the supply/demand game at the moment (which often works out to be the same trades NoDoji takes).
People say to take every signal because you have no idea which ones will work & which won't work.
What's the point of mastering a setup or testing setups when the people who seem to be good at this game are pretty much taking "every" setup? Why even use the word "setup"? Price is either trending or chopping. It's either breaking out of something, or testing something, or reversing, or chopping away.
Seems like all of the setups people mention really come down to just following price, following supply & demand.
Since you appear not to have read this, I'll copy and paste this section here. If you're interested, then make use of the links that have been provided to you.
The third step is to develop your system.
A system consists of (a) a set of rules that you use to select profitable positions and (b) a set of rules that you use to manage the trade once you're in it (again, whether you call it a system, a method, a strategy, a plan, a scheme, an approach, a procedure, or a modus operandi is not as important as sitting down and doing it).
- Developing a system begins with deciding just what it is you're looking for. Therefore, begin by studying price movement in real time (or at the end of the day through "replay", if your charting program offers it). By "study", I mean to observe it with intent, not just read about it or listen to somebody talk about it. You have to understand what you're looking at before you know what to look for. Note the conditions under which price rises, falls, drifts. Make every effort to avoid imposing your biases onto what you observe. You may see trading as a war, a competition, a game, or a puzzle. You may think you're out to kill somebody, outwit somebody, or are out only to detect the flow and slip into it, riding the waves as if you were sailing. None of this should be allowed to affect what you observe
Develop a set of preliminary hypotheses which exploit the profit opportunities presented by these movements, e.g. price began trending "here". Price broke out "there". Price reversed "there". What can I do to take advantage of that? What do I have to look for?
Decide what strategy will best take advantage of what you think you've found. Are you looking to catch a reversal in the hopes that it will become a trend? Or are you looking to trade series of reversals within the day's or week's range? Or do you prefer to wait for a breakout and trade what may become a trend? Or would you rather wait for a retracement in what may be shaping up to be a trend? Limit yourself to only one strategy at the beginning.
Carefully define the setup (the set of circumstances which you define which triggers an entry) which implements this strategy, preferably using old charts (attempting to define the setup by studying realtime charts is inefficient since you don't yet know what it is that you're looking for). This is called "backtesting". All else flows from this. Unless you know what you're looking for, you cannot test it, much less screen for it. If you have not tested it, you have no idea of the probability of its success. With no idea of the probability of success, any trades made are essentially guesses.
Therefore, focus on the setup. One setup. Determine its characteristics, find the markers of buying and selling interest, buying and selling pressure, buying and selling exhaustion. Define it so specifically and so thoroughly that you can recognize it without any doubt whatsoever in real time. Decide provisionally where best to enter, what the target ought to be, where the stop should be placed, and so on. Only after the setup is defined and tested (and it can't, ipso facto, be tested until it's been defined) can one even begin to think about trading it with real money, much less trading multiple setups. Attempting to shortcut this process merely expands the amount of time it will take to develop the necessary skills. Nothing is gained by painting the house before scraping it, cleaning it, and priming it since you'll have to do it all over again sooner rather than later.
You are free to create your own based on whatever jingles your bells. You may, for example, focus on divergence. Or higher swing lows and lower swing highs. Or candlesticks of one sort or another. Or trendline breaks. Or base breakouts. Doesn't really matter. What matters is that you keep four concepts in mind: demand/supply, support/resistance, price/volume, and trend. In this way, you can create your own setups which hundreds of thousands of other traders won't be watching along with you. You must understand, however, that what determines the success of the trade is the trader, not the setup. If you're looking for something that "works", you may as well save yourself a lot of time and stop right here. What will âworkâ â or wonât, as the case may be â will be you.
