On Probability, Trading and Current Market

What do I mean by high probability?  In trading, I define a high probability setup as one that gives me a significant edge over an average trade.  For instance, in my back tests, when stochastics hit 90 (extremely overbought) in a bear market, coupled with a few specific trading setups, the success rate of shorting is above 75 percent.  This is a very high probability setup.  Obviously, it doesn’t occur often.  When it does, I usually get very aggressive with the trade.  
Adding volume and paying attention to accumulation and distribution patterns can add or subtract to the probability of a pattern setup.  For instance, in the bottoming price pattern, strong accumulation (positive volume pattern) underlying the price pattern increases the probability that the trade will be a winner.
Currently their are no high probability setups.  However, if the market pulls back to support, or ramps higher toward resistance levels and become extremely overbought, well see high probability setups emerge.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: