Do you know the difference between a good setup and a great setup? If not, then you’re leaving money on the table.
If you’re like me, most of your profits are made from a few big trades. Don’t get me wrong…I can grind out a few bucks on a daily basis— but the majority of my profits this year came from just a handful of trades.
You see, there are a number of factors that I analyze before placing a trade. The more boxes I check off, the higher my conviction rate is. And if I have conviction, well… let’s just say I’m not scared to push it.
Just the other week I found a setup that I knew would pay out big. This setup jumped out at me flashing in big loud letters “Take this money!”
That’s $71,000 for my Total Alpha Portfolio
Of course, anyone can analyze a trade after the fact and say— I wish I had more contracts than just ___ on. Or If only I had triple the size on because this trade was such a layup.
Playing woulda, coulda, shoulda is like mental masturbation. No one has time for that.
You want to know when it’s time to get aggressive and capitalize on your best ideas?
Pick out your highest probability setups
Do you have a setup that you consider your bread and butter..your go to trade? We all have one that makes us feel more confident than any other trade. It comes from past success or intuition.
I’ve talked about my money pattern before. What you may not realize is that it actually is several setups put together at once. It combines some of the best indicators and techniques I learned over the years.
First, I look for stocks retracing within a larger trend. It’s no secret that it’s much easier to trade with the flow than against it. Think of how many people blow up accounts trying to short the market vs those that build a retirement off long funds.
Next, I want to identify the spots that I’m likely to see the reversal. There are several ways you can find these:
- Chart consolidation – These are spots where price spent a lot of time in a defined range.
- Fibonacci retracements – Many traders use Fibonacci retracement tools to find significant levels between two major swing points.
- Swing points – Pivot highs and pivot lows often indicate important prices that stocks can find support or resistance.
Last, I want to find an indication the reversal is really at hand. I like to use a cross of the 13-period moving average over the 30-period moving average. These shouldn’t have touched anytime recently. That gives me a clean sense price is changing trend.
Look for where they meet
Now that you know my secrets, I want to find where they all converge.
Think of it this way. Each of these has its own probability of success. When they work in concert they create setups that amplify those odds.
That’s where I want to put more money to work. It’s like getting pocket Aces in Texas No-Limit Hold’Em. It won’t work out every time. But you can’t get any better hands.
However, risk management shouldn’t be thrown out the window. You don’t want to ever risk more than you can afford to lose. And even with my big bet that turned $71,000 in an afternoon, I wasn’t reckless.
Pushing your edge means taking calculated risks. That means putting more at stake when you have higher odds and less when they aren’t as good.
Let’s say you follow the 5% rule, putting no more than 5% of your account at risk. That means your average trade should be 2%-3%. This leaves you room to scale up when you find your big setups.
Let your journal guide your way
You have no better resource than your journal to pick out the best trades. It will tell you exactly which setups work the most often.
Every successful trader I know learned their craft from journals. After analyzing multiple trades, they saw which indicators, setups, and market conditions were ideal.
That is why your trade journal should note this information and include charts where possible. You should be able to look back and clearly identify which elements lead to your success.
How I used this to score big in DIS
I put these very tools to work for my Bullseye Trades that deliver my best pick for the week to subscribers.
If I can only deliver one pick a week, I want my highest probability setup.
Here’s the breakdown I sent to Bullseye subscribers:
Notice how it contained multiple elements within the setup: moving average crossover, clear uptrend, news catalysts, and
The results speak for themselves.
You can follow along with me as I make these trades in real-time. Pretty soon you’ll be making some killer profits.