Most full-time traders have a basket of “goto” setups that they trade repeatedly. Some do so mindlessly, irrespective of market conditions. You can make money this way, but you will not become wealthy.
The best traders optimize their trading by deploying the right setup for the right market. For instance, a “trading range” setup is highly profitable in choppy, rangebound markets. Just don’t expect it to make you money in a parabolic momentum market.
Here are some of my favorite setups and the best conditions to trade that setup:
- Trend pullback: trending markets that successfully tag key moving average support
- Bottoming formation: downtrending markets forming a base
- Rubber band short: parabolic markets nearing resistance showing signs of weakening
- Rubber band bounce: parabolic downtrending markets near major support levels
- RSI divergence shorts: market near highs but showing weakening overall breadth
- RSI divergence longs: markets near lows but showing strengthening overall breadth
- Breakouts: earnings season in an up trending market
- Breakout pullbacks: trending and rangebound markets, avoid downtrending markets
- Breakdown shorts: downtrending, rangebound and stalling trending markets
- Trading range bounce: rangebound and trending markets
- Trading range short: rangebound and downtrending markets.
- Breakout failure: Downtrending markets that are bouncing, or stalling at highs.
- Breakdown failure: momentum markets
- Remounts: any market
- Earnings Breakouts: Any market
- Head and shoulders short: Extending markets showing negative volume patterns
- Double Top short: Extended markets showing negative volume patterns
- Earnings Breakdowns: Downtrending markets
- Moving average bounce: any market for small bounces, trending markets for sustained bounces
- Pre (anticipatory) breakouts: Trending markets
- Dead cat bounce: down trending markets, rangebound markets