The highest probability trade possible?

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1

Hey everyone. Pretty new to this forum but there is a lot of info here. I am not new to trading but I am new to the Forex market. I am wondering if anyone else takes this approach to their entries in their favorite setups or systems. If so, is there a name for it?

I am somewhere between a day and a swing trader. It all depends on the location of the nearest support and resistance. If I am approaching it during the day and in a winning or losing trade, I am going to exit if I am going against key S & R. If I am pretty far from it and in a trade not moving a whole lot, I will hold on for longer longer but I digress.

When it comes to entering a trade, I would think that it makes sense to do the following:

  1. Look at the daily chart to make a determination which direction you are going to trade. If a currency is trending up or just recently left a support level, you only have a “long” mindset. Of course, it can reverse but you are still thinking long. If a pair reverses, you maybe stay out of the market for a day or two to see what happens.

  2. You look at the 4 hour chart and again do the exact same thing, check for support and resistance. If all looks good for a long trade…

  3. You look at the 1 hour chart and do it again.

  4. Finally, you look for a dip in the 5 minute chart where there has been some support at a certain price. You would be in the middle of a possible super high probability entry when the daily, 4 hour, 1 hour and 5 minute chart are all screaming “go long.”

The closest I have seen to this kind of “system” is the 3 duck system but I have to say my eyes glaze over like a zombie when I read any system that says “when this ema crosses over that ema, enter” because lagging indicators are not my thing. I am not knocking the system itself or anyone who trades it but you can win despite thinking those lagging indicators are helpful. You can win with a good or bad system if you have good money management, exit and target strategies. I don’t know why anyone cannot look at a chart and tell if a stock, future or currency is trending up or down just by a quick visual. How many times have I read a trading system where someone mentions that the price “bounced off of the 25 day ema.” I laugh every time I read something like that. That is a classic case of putting the cart before the horse. That is like saying that the shoes walk the man. Again, I digress and getting off topic.

Anyone know of a price action system that uses 3 or 4 time frames for entry? Happy trading.

2

This is perhaps the “key” word in your methodogy. If you are drawing S&R horizontals successively on such a series of TF’s through Daily, 4H, 1H down to 5min then the likelihood is that you will end up with a chart that is too full of lines to permit a clear decision which ones to act on for entry and which for exit - and which also allow sufficient distance in between to make a trade worthwhile.

However, there will be [I]some [/I]lines on the various TF’s which closely coincide and which form a zone which [I]might [/I]be more significant than other, more isolated lines. It is worth noting that TF’s in themselves are arbitrary segmentations of a continual price development and that S&R levels on a lower TF will often disappear when viewed on a higher TF.

There is a lot of merit in using multiple TFs whether one uses indicators or Price Action methods, but it may be a bit impractical to compare 5m at one extreme with Daily at the other. Whatever the daily trend may be there will still be good moves on a 5m chart in either direction. Also, whilst a trend on the daily chart is starting to turn, the 5m moves may often be greater in the opposing direction. Maybe it would be better to focus on closer TF combinations like 1H/15m, 4H/1H, D/4H etc.

It is worth remembering when talking of “lagging” that both PA [I]and [/I]indicators rely on comparing current price with its previous price movement. One can [I]only [/I]create a support or resistance level by having previous points of reference which in some cases go back days or even months.

These are not “right” or “wrong” approaches. Whichever method of price movement analysis one uses it is important to remember that its purpose is to identify what is a significant movement/level and what is just erratic price noise. They are both only sifting or filtering methods that help identify the underlying, or core, direction or possible change of direction.

Naturally, it is easy to spot a current trend purely with one’s eyes when it is already existing, but it is not possible to spot the start of a new trend, nor whether a reversal is a temporary retracement or the end of the current trend.

Technical analysis, whether PA or indicators, is an approach to assist in identifying what is actually taking place in the market and in optimising the selection of appropriate entry and exit levels.

Many PA traders will still use indicators like MAs to help identify an underlying trend direction and its strength. Similarly a method based on indicators may usefully incorporate PA in identifying levels.

There is no right or wrong technique, one just has to use these as tools to help in identifying and projecting the most likely future evolvement of price movement. The real processor that puts it all together is one’s brain.

3

Exactly so.

Manxx and I are on different sides of the fence when it comes to the practical techniques we use to select our trade entries, in that he uses indicators for this purpose and I don’t, at all … but we still agree [U]entirely[/U] about every word in his excellent post just above.

I also think it’s worth mentioning, under the heading of “highest probability trades” - which is, after all, the thread title, here - that “overall [I]reliability[/I]” (taking only the highest probability trades) and “overall [I]profitability[/I]” are two [U]very[/U] different parameters.

In my own trading (whether using indicators or not - and I used to use them in the past), taking only the highest probability trades, attractive though it always seems from the risk-management perspective, has never produced the highest overall profits.

The main reason for this relates to trade-frequency (always a significant parameter for overall results): with appropriate position-sizing and money-management. For example, it’s [B]far[/B] more profitable to make an average of 8 pips, an average of six times per day, than it is to make an average of 16 pips, an average of twice per day.

Slightly [I]lower[/I]-probability trades have always, collectively, been more profitable for me.

4

This is true! :slight_smile:
But I would add that I only use a handful of MA’s, nothing more. Mainly to confirm (or counter) my own thoughts on price movement observations, and to assist in entry and exit timings and levels. :slight_smile:

5

Both of you make good points. I will agree that there will be less trading opportunities using 4 timeframes so that might be a little overkill. Yes, trendlines and S/R will contradict or coincide so if you have a daily trend line that looks good, a 4 hour and a 5 minute, that would seem to be a good opportunity. Lexys, I am interested in your ideas about a lower probability trade resulting in higher profitability. I am a big believer in the highest of both but profitability rules the roost. Now, off to do some more research on momentum. I like continuing education at nearly every free moment! thanks

6

I am what has to be called a swing trader as I never aim to close out any trade in the same day as it is opened.

I trade off the daily charts only, so for me the only support level worth noting in relation to a long position in an uptrend, is the last daily swing low. If price falls below that, the uptrend can be said to be broken: if it stays above, the uptrend is intact. Where price drops to on the 4 hourlies or hourlies etc. is irrelevant - for me. The converse goes for the high of the swing low day: its the daily high that serves as a trigger level to go long, the rest is out of consideration.