There are two high probability trading set ups and two trading set ups that offer low chances of success, although all of them can be traded. We strongly suggest trading only in high probability set ups. In low probability set ups we must take only short term positions and be alert to exit immediately. The logic is the same for day or swing trading.

High probability trading set ups

1. In the context of an up trending market, we open a long position in an up trending stock, when price visits for the first time a horizontal or trendline support (below). After the detection of the uptrend by spotting two consecutive higher highs and higher lows (points 1, 2, 3, 4), we can enter at points 5 or 7.

 

2. In the context of a down trending market, we open a short position in a down trending stock, when price visits for the first time a horizontal or trendline resistance (below). After the detection of the downtrend by spotting two consecutive lower highs and lower lows (points 1, 2, 3, 4), we can enter at points 5 or 7.

 

Low probability trading set ups

1. In the context of an up trending market, we open a short position in a stock, when price visits for the first time a horizontal resistance (below). After the detection of the uptrend by spotting two consecutive higher highs and higher lows (points 1, 2, 3, 4), we can enter at point 6.

 

2. In the context of a down trending market, we open a long position in a down trending stock, when price visits for the first time a horizontal support (below). After the detection of the downtrend by spotting two consecutive lower highs and lower lows (points 1, 2, 3, 4), we can enter at point 8.