High Probability Setups
Hello, traders. Welcome to the Pro Trader Course and the second module, a pro trader mindset. In this lesson we’re going to talk about high probability setups, and as a professional trader, these are the setups that you are going to be looking for on the instruments that you normally trade. And the reason we are going to look only for high probability set ups is because we are going to choose quality over quantity. Now, what is a high probability set up? A key element in trading is identifying situations in the financial markets that can produce a profitable trade. Now, this can be a breakout of balance over support or resistance or a continuation trade. Now, those are normal set ups. In this course, you are going to learn how to spot the setups that have the highest probability of being profitable. A high probability set up is not only a situation that is profitable to trade but a situation that will have a higher probability of being profitable in the long term.
All right, so not only we are looking for profitable situations to trade, but we are looking for the situations that have the higher probability of being profitable in the long term to trade. Because we are always going to be looking for the same set ups in every instrument and that is what this game is all about. As you know traders look for the same set of over and over on different instruments; this is why we have different styles in trading, some…some are action…I am sorry price action traders, others trade fundamentals or the strace news, other traders are short-term traders, other traders are long term traders, and this is because every single one of them has their own set ups that they look for. And in this course we are going to teach you how to look for those setups yourself.
These set ups are confirmed by not only price action but multiple indications that the trader has chosen to make part of his system or style. And of course we are going to rely abundantly on price action, but we can also confirm the set ups with the support or resistance, daily pivots, monthly pivots, Fibonacci levels or even oscillators. And further on this course, we are going to teach you how to put a system together. They are extremely profitable in the long term. Not all trades are 50-50, and this course will teach you how to find trace that have a probability of success higher than seventy percent.
Now let’s look at a high probability set ups versus unknown high probability set up. Let’s say that we are looking at price action at this moment right here and there we have spotted a very strong level of resistance that price tested ones, twice and now could be testing a third time.
So a normal set up would be to wait for price to hit this level and then go short. But we only have as confirmation this level of resistance, and as you know, price can easily break this level of resistance. If we are professional traders, we are going to look for confirmation that this level is going to find a lot of sellers, and we draw Fibonacci from the high to the low of the move and we realize that this aligns perfectly with the fifth Fibonacci level from the entire move to the downside.
That has been tested once and twice. Not only that we realize that it also…that it’s also the daily pivot. So basically what I’m saying here, is that this zone is going to be watched a lot by sellers. And when price hits this level, this set up is going to have a higher probability to run in our favor that if we only had the level of resistance. So high probability set ups, maximizing your win rate of profitability, in the long run, is not only about risk and money management.
After all, you have to trade the markets in order to make money. Professional traders look only to trade high probability set ups. They are disciplined and wait for price to hit their entry zones to get the best possible risk to reward ratio on them. But why is it so important to focus only on high probability setups? Why can’t you trade every single set up that you spot on the charts? It’s simple, your win rate. Less trades but more winners equal exponential equity growth. Now you have to burn this in your brain. Less trade but more winners equal exponential growth. We are not looking to trade often. We’re looking to trade good. And here is an example of the importance of high probability set ups. And of course, this is 100,000 equity account with a 1% risk and let’s say that you are trading 22% win ratio set ups. After twenty setups, you could have 4.2% growth in your account.
When I say you could have is because we’re assuming that all of these trades were winners. Remember that not all of them are winners and if you only choose to trade high probability set ups and in this case 79% win rate in only nine trades you have 6.4% growth in your account.
So after nine trades, you have made $2000 more than trading mediocre setups twenty times. And if you decide to look at what happens after 20 trades on a high win ratio set up, you can see that…the growth in your account has more than tripled.