Strong Trade Setups Gauge
Those of you who have been following us for a while, know that we always emphasize on taking the strong and high odd trade setups and ignoring the weak and questionable ones. The reason is clear. There is a higher probability that strong and high odd trade setups make money for us.
Now the question is what is a strong trade setup from our point of view? What are the differences of a strong and high odd trade setup with a weak and bad trade setup?
So far, we have been trying to describe the strong trade setups and compare them with the weak ones through different articles and examples. A picture is worth a thousand words. If you refer to LuckScout archive and read the articles, you will see too many examples of strong and weak trade setups that we reported. In one of the articles, I tried to collect some of the strongest trade setups that I could see on some of the currency pairs daily charts: What Are the Strongest Candlestick Patterns?
Later on, I had a test for you to make you see if you can distinguish the strong setups from the weak ones here: What Do I Mean By “Strong Trade Setup”?
And the test result was posted here: Our August 11th Test Result
Those examples and practices were good, but the problem was that the trade setups we exampled and practised, were related to the past, and they had not been reported by us right when they formed. It is very easy to check the back data on the charts, and locate the strong setups that moved the price accordingly. That doesn’t mean that a trader is able to locate the strong trade setups right when they form on the charts, to enter the markets on time. Those trade setups are good examples, but here we need some “live” examples that show how the strong trade setups form lively, and whether we are able to locate them on time or not.
Fortunately, we were lucky enough to report two literally “strong” trade setups (a short and a long trade setup) when they formed on the charts. And, fortunately those trade setups worked very well and made the price move accordingly, before our eyes. This is what we needed to compare all the other trade setups we located. Several days later, when I was explaining about the Hammer Candlestick formed on USD/CAD daily chart, I inadvertently considered the strength of those two trade setups as 100, and used it to gauge the strength of the USD/CAD Hammer and long trade setup that was just formed. Then, I came to this conclusion that it was exactly what I was looking for, to give you a clue about the strength of each of the trade setups that I reported. And this is what we will do in future too.
What Are Those Strong Trade Setups?
If you want to keep on following us on LuckScout.com, you need to study those two strong trade setups, and learn why they were strong. It helps you locate the similar strong trade setups that will form in future. It also helps you understand what we mean when we compare a newly formed trade setup’s strength with those setups.
1. The first setup, was a short trade setup formed on GBP/CAD daily chart: Typical Example of a Strong Dark Cloud Cover Pattern Formed on GBP/CAD Daily Chart
2. The second setup was a long position formed on AUD/JPY daily chart: Strong Dragonfly Doji or Pin Bar Candlestick on AUD/JPY Daily Chart
That was also such a strong trade setup that moved the AUD/JPY price for over 400 pips: Our AUD/JPY Dragonfly Doji Is Still Flying
Please read all the articles related to these two trade setups. It will become much easier for you to follow us here on LuckScout, and understand what we mean when we say “strong trade setup.”
I gave a 100 score to the strength of these two trade setups. We will use this to “gauge” the strength of the other trade setups we will locate in future. For example when we say that the USD/CAD long trade setup’s strength is 70 to 80 compared to the GBD/CAD and AUD/JPY trade setups, it means 70-80% is possible that USD/CAD goes up strongly the way AUD/JPY did. 20-30% is possible that USD/CAD goes down, or goes up but not as strong as what AUD/JPY did.
When the strength of a trade setup is 100, does it mean that it will move toward our take profit order very strongly, and it will never go against us?
Absolutely not. When we “gauge” a trade setup, it is based on nothing but what is already formed on the chart. What will happen in future, and whether our position will hit the stop loss or target is what we never know. Sometimes even the strongest trade setups hit the stop loss. “Trading” is all about taking risks. You take a risk when you enter the market. The difference is that it can have a lower risk when you enter the market based on a strong setup, and a higher risk when you enter based on a weak trade setup. What you should never forget is that you must always limit your risk through setting a reasonable stop loss.
Please use the below form to submit a comment only if you have any questions about the GBD/CAD and AUD/JPY trade setups, and the way we use them to “gauge” the other setups. Off-topic comments and questions will be deleted. Thank you for your cooperation.
1. After publishing the above article on Sep 13, 2014, we wrote a series of articles and “gauged” some of the sample strong trade setups, to help our followers understand how to gauge the trade setups properly. To complete your knowledge and experience in locating and gauging the strong trade setups, read those articles carefully:
- Learn to Gauge the Trade Setups
- Forex Trading Couldn’t Be Easier
- How to Choose a Strong Trade Setup
- When a Butterfly Pattern Supports a Candlestick Pattern
- To Trade or Not to Trade, That Is the Question
- Make Your First $100,000 Trading Forex
- Strong Doji on a Strong Bull Market
- Typical and Atypical Trade Setups
- Candlestick’s Shadow versus Candlestick’s Body
- How Chart and Candlestick Patterns Support Each Other
- When a Trade Setup Confirms Another Trade Setup
- What Have You Learned So Far?
- A Reversal Signal that Is The Beginning of a Continuation
- The Trade Setups that Have to be Ignored
2. Then we published another article that outlines all the important points that we need to watch for, on every trade: Our Trading System Checklist
3. As the first item of our check list is locating of a too strong candlestick pattern, I started writing a separate article about each candlestick pattern, and the way it has to form to be known as a “too strong” pattern:
- Features of a Strong Dark Cloud Cover Candlestick Pattern
- Features of a Strong Bearish Engulfing Candlestick Pattern
- Analysis Of Strong Piercing Line And Bullish Engulfing Candlestick Patterns
4. After the above articles, I introduced another strategy to trade the long time frames’ (daily, weekly and monthly) setups on the short time frames like 4hrs and 1hr. That is just a solution for those who want to enter the market with a smaller stop loss, and those who want to have more trading opportunities:
- Trade The Daily and Weekly Candlesticks’ Signals On The Short Time Frames
- Wait Sufficiently Trade Efficiently
However, if you like to follow the above strategy and use the shorter time frames, you have to be aware of the risks and challenges that referring to the shorter time frames has. My personal recommendation to you is that you just stick to the long time frames (daily, weekly and monthly), and trade the setups that can be found on them. It will have much better results in long term, higher number of successful trades, less challenges and problems.
5. I wrote two other articles on holding the positions and taking the new positions when a new strong trade setup forms: