High Probability Setups

[jjf]

Oddly enough, I thought that this thread might grow wings and fly, but doesn't seem to be in the general flight path of the ET herd.

 

[Gabfly1]

Quote from bearmountain:

This is more so directed at discretionary traders, how do you differentiate between a High Probability Setup from one that is not? Can you please give examples.

As a mechanical trader, we take pride in taking 100% of the signals. In fact, it is deemed as a lack of discipline if we don't take a signal.

The following are some of the common comments I hear from discretionary traders, but I don't fully understand how they implement this in their trading:

"IMO you should really stick to the highest probability signals and not waste your time with the lower ones. They're just not worth it. "

"This is probably one of the most valuable lessons of years of trading. The patience to wait for a high probability setup."

Interesting thread, BM. We all have our own take on the matter. Here's mine. My own trading is largely mechanical in that unless price action meets certain minimum criteria, I won't even consider a trade no matter how good the price action appears. The preconditional criteria reflect my understanding, based on observation and personal experience, of what normally precedes at least a bit of imminent directional movement of an unknowable amount. There is no "probability" per se. Rather, there is only a balance of probability, which is not nearly as refined. On balance, and based solely on my own approach, some setups are better than others.

For example, some setups barely meet my predefined criteria whereas others comfortably exceed the minimum of what I am looking for in a setup. Also, and especially during erratic price action, some setups meet the letter of the predefined setup requirements but not the spirit. Often, the best setups are fairly obvious. But not always. And so, for better or worse, I tend to pick and choose, especially when it comes to marginal setups that barely meet my requirements during erratic price action or after a losing spell.

 

[jjf]

Quote from Gabfly1:

Interesting thread, BM. We all have our own take on the matter. Here's mine. My own trading is largely mechanical in that unless price action meets certain minimum criteria, I won't even consider a trade no matter how good the price action appears. The preconditional criteria reflect my understanding, based on observation and personal experience, of what normally precedes at least a bit of imminent directional movement of an unknowable amount. There is no "probability" per se. Rather, there is only a balance of probability, which is not nearly as refined. On balance, and based solely on my own approach, some setups are better than others.

For example, some setups barely meet my predefined criteria whereas others comfortably exceed the minimum of what I am looking for in a setup. Also, and especially during erratic price action, some setups meet the letter of the predefined setup requirements but not the spirit. Often, the best setups are fairly obvious. But not always. And so, for better or worse, I tend to pick and choose, especially when it comes to marginal setups that barely meet my requirements during erratic price action or after a losing spell.

Do you know Gabfly, I have absolutely no idea what you are talking about

 

[athlonmank8]

Quote from Redneck:

BM,

I applaud your chipping away at the PA puzzle


Imho – when discretionary trading there are no “high probability" set ups.

They are all 50/50

Are there set ups that work more times than others – sure…..



But if you allow yourself the luxury of that mindset (thinking high probability setups exist) – then the one you think is a "high probability” set up will inevitably fail – and you’ll be sitting in the position – losing money – while thinking it is a high probability set up


You want an example – a failed failure works more than it fails – but it still fails


Successful Journey Sir

RN

hmmm. 50/50? Am I missing something? There's always a stop point for high probability setups too.

 

[Gabfly1]

Quote from jjf:

Do you know Gabfly, I have absolutely no idea what you are talking about

I'm okay with that.

 

[jjf]

Quote from athlonmank8:

hmmm. 50/50? Am I missing something? There's always a stop point for high probability setups too.

RN makes a great deal more sense than you do right now.
You will need to expand your post into greater detail

 

[jjf]

Quote from Gabfly1:

I'm okay with that.

That is a pity really, as I imagined you would welcome the opportunity to expand on your knowledge, particularly since you had gone to all the trouble of posting some it in the first instance.

 

[candletrader]

Quote from Redneck:

BM,

I applaud your chipping away at the PA puzzle


Imho – when discretionary trading there are no “high probability" set ups.

They are all 50/50

Are there set ups that work more times than others – sure…..



But if you allow yourself the luxury of that mindset (thinking high probability setups exist) – then the one you think is a "high probability” set up will inevitably fail – and you’ll be sitting in the position – losing money – while thinking it is a high probability set up


You want an example – a failed failure works more than it fails – but it still fails


Successful Journey Sir

RN

RN

Stop telling the newbies the truth.

Let them continue searching for high probability stuff

CT

 

[sponge]

Quote from jjf:

For example the Setup Alarm might be coded as .....

2 ... price falling for < z bars from HH ....

As you may have guessed, this is a part of the code for first pullback of a certain size from a prescribed High.

What part does the size of the pullback play to indicate a potential setup? It appears from what you have described that you're looking for a smaller sized pullback (< z bars) that then fails to make a HH as a potential reversal?

 

[Gabfly1]

Quote from Redneck:

...They are all 50/50

Are there set ups that work more times than others – sure…..

Then they are not all "50/50" after all, are they? Not that I am suggesting placing a number on the "probability" of it, but some setups are better than others a priori. The outcome, as always, is another matter.

Quote from Redneck:

...if you allow yourself the luxury of that mindset (thinking high probability setups exist) – then the one you think is a "high probability” set up will inevitably fail – and you’ll be sitting in the position – losing money – while thinking it is a high probability set up...

I think you are unnecessarily combining two issues here. I personally don't like the term "high probability setup" because I don't believe you can really attach a numeric probability to a setup with any real accuracy or reliability. However, that does not diminish the fact that some setups are better than others (a priori) irrespective of what the outcome of the trade may actually be. However, just because a setup comfortably exceeds minimum setup criteria, thereby rendering it, however erroneously, a "high probability setup," doesn't automatically mean that the trader will or should hold onto it if the trade moves against him beyond whatever exit point he had (pre)determined. Once a trade is in play it more or less lives and dies by its own merit.

Just my two cents in an ongoing and friendly discourse.