There is a famous quote by the Warren Buffet that we love that
“When it rains gold, put out the bucket, not the thimble”
The reason for mentioning this quote at the beginning of the article is that is quite relevant to the topic. Moreover, this article unfolds the message that Mr. Buffet wanted to convey through his famous quote. Today, approximately every trader is struggling with the thoughts of learning about high probability trading. There a large number of questions about high probability trading like What is a high probability? How does it work?
Moreover, we will be discussing what type of strategies and plans a trader can implement into the market to make the consistent and long lasting profits. We all are aware of the fact that anyone can be the trader and the only skill you need is learning how to open the position into the market. So, if you have little knowledge of price action, basics of analytical skills and how to manage the risk, you may qualify to become a successful trader into the market. On the other hand it’s a reality there are only few successful traders in the world. By successful meaning a trader earning continuous profit and is taking maximum benefits out of the situation of the market and prevailing opportunities. This measured by how much profit a trader has made over a year into a specific market. We have a promising objective of creating very successful traders with remarkable success. We would be able to develop a community of high profit earning traders and will make them able to update with the passage of time. Consequently, they would be able to keep control over their success for entire of their lives.
Deep Understanding a Success Tool
High probability trading is achievable with the help of low risk and high-profit ratios. Most of the successful traders’ only target in the market is not to open as many positions as their capital allows, but to trade the markets with the odds in their favor and taking benefit out of the odds. Would you believe that if I say that you only need two trades for a month to become a trader earning consistent profit? Similarly, doing three to four trades per month is enough to become a distinguishing trader in the market. This is the main theme of the article and now we will look at the warren buffet’s quote as we discussed at the beginning. The quote we stated clearly depicts that the opportunities with great profit probabilities are rare to occur in the market. This means such huge profit-making opportunities do not occur frequently in the market. So, there are only limited opportunities in the forex market enabling you to earn a remarkable and huge amount of profit. So, if you are after big and high probability trading opportunities, you have to be patient and you have to reserve your capital until a very high probability opportunity arrives there for you. It means your goal should be to do nothing this time and keeping your eyes on market movements very closely and keep waiting for the right time for you. I assume you have got my point of view very well.
Best Rewarding Strategy
As per my opinion and experience, one of the best ways to identify the high probability opportunity is to use the price action strategies. It means you have t0o study the charts, patterns, trends, channels, and relevant points and stats. It is worth mentioning that most of the time you would find high probability opportunities within the trending markets. However, reverse trend dips may help you a little bit but you would lose the opportunity just in try of catching the big fish. This means you should make the decision on time and optimize your trading decisions with available stats and figures. DO not trap yourself on the basis of assumption otherwise, you would miss the big opportunities just for the sake of even bigger opportunities. So, this is the right way and time to make big profits in the market. Moreover, I must say that the best thing about trend trading is that it allows a trader to go risk-free and earn profits through trading. This is the absolute goal of every trader trading into a market.
Learning Is Earning
However, you need to learn mandatory skills for your success story into the trading. All you need to learn is to keep patience and wait for the right time for the right investment. You have to able reserve your capital until big players are involved into the market resulting into high probability trading opportunities for you. Doubtlessly, this set of skills requires you to invest o education and learning. You can find a comprehensive training course by the successful and reputable traders with iconic track record of success. Consequently, you will make yourself a trader having tremendous set of skills. When you will commence your journey as a trader you will collect a lot of success and fortune.
High Probability Trading Guide for Beginners
High Probability Trades is a very common term and well known and acknowledged amongst the traders into the market. But as per my opinion, if you are a beginner and just made your entry into trading, this term is not for you. This is because this term is meaningless for the new traders into the market. Making sales of credit spreads 10 miles out of the money is a high probability of trading. This is evident that you will make money 19 times out of 20. However, your first loss will wipe out a year of steady winners and gainers. So, it is to keep in your mind that a high probability of success and profit is not enough to become a successful trader. It works only when joined with suitable risk/reward numbers will “high probability” do you any good.
However, there is also a secret for you that
This is the secret that traders often learn for $20,000 or too late. But I am going to share it with you for your better understanding and learning.
That secret is “confluence.”
Basically, Confluence is a junction means a combination of several things altogether. Things are indicators, chart patterns and fundamentals as you have already learnt about. So, learning of these terms and how to use them is inevitably important for you. The more that lines up, the higher the probability of a trade’s success and profit. However, particular tools will differ from trader to trader, but waiting for confluence is a strategy that is crucial for your trading decisions. And any trader worth his salt will tell you the same. I am going to share and explain 3 of my favorite indicators. These three indicators are best and practice as per my experience and opinion. Doubtlessly, when these three most prominent indicators converge they altogether convey a strong high probability trade especially when they all are pointing in a same direction. They all are counter-trend indicators and I have chosen them because possible profit is always higher than the risk of the trading.
Here is the NZD/USD forex pair daily chart. You can easily witness from the chart that uptrend is clear but I will not make buying decision at this stage before I have high probability trading setups. This is because; I need a very clear sign that indicates the best buying time. So, all I need is to see for the confluence.
No. 1 Indicator: Value Zones
In order to keep risk at the lowest point, I go for trading from value. In an up-trending market, this means buying pullbacks. I indicated the strongest pullback with a black X in the given chart. This was the ideal buy place and to perform the trade we’ll be focusing on these indicators.
Moreover it is mandatory to mention that they are two major and most prominent tools to indicate the value zones: support/resistance and Fibonacci retracements. You can say that trading support and resistance levels are known as areas of value. However, they will turn into resistance levels on next attempt if buyers could not penetrate a specific price. Once broken, that resistance level will turn into support level. Doubtlessly, support and resistance levels are open fighting fields for the traders where bulls and bears fought a war.
Have a look at the support and resistance levels as shown above.
You can easily notice that early in the year, bulls took a month trying to cross the area. It was a sign of clear resistance.
However, after breaking above it, the same level turned support.
On the other hand buying on the June pullback support level would have been an ideal entry decision into the NZD/USD pair.
We cannot depend only on support and resistance level trading to ensure high probability trading.
We will look for the confluence with the help of other indicators.
So, we are going to use our secondary tool to identify the value zones that is Fibonacci Retracement. We have already discussed these tools in our previous article so I won’t be wasting your valuable time by repeating them. But it indicates key retracing zones with the highest possibility of reversing.
It clearly tells you where a pullback is likely to stop. This is very important for making decisions about the buying retracements. It becomes more crucial when you are committed to reduce your risk.
Moreover, from swing low to swing high of the previous higher move, the Fib Retracement buy zone (between the 50% and 61.8% retracement levels) indicate a perfect entry at the pullback as we have discussed earlier. You can see things are starting to line up when we overlap the previous support and resistance levels. So, for confluence indicator #1, there are two value zone indicators lining up at the same price, strengthening our resolve to consider a long entry here.
No. 2 Indicator – Moving Averages
It is quite obvious that moving averages are not much enough important to make trading decisions. However, they are other strong tools to help us with the confluence puzzle. So, in order to keep it simple, I will use only two – the 50 and 200-day moving averages. Far too many hours have been dedicated to studying these simple lines, the only thing you should learn about is
- If price is above them, you’re witnessing an uptrend.
- If price is below them, you are witnessing downtrend.
However, when it is overlaid onto our daily NZD/USD chart, they indicate a highly crucial area. During the same week that this market tested support and touched the Fibonacci Retracement buy zone, there are two most important thing occurred:
- The moving averages crossed
- Price broke above them both, indicating a move higher.
In addition to this, the 200-day EMA will often act as support as you can see above the blue line. Add in the value zone indicators, and we started to develop a strong situation and conditions for a high probability trade.
No. 3 Indicator – Stochastic
Basically, a stochastic oscillator is a momentum indicator used to highlight the overbought and oversold conditions in the market. There is a high probability of the reversal because these conditions are not sustainable in the market for a longer period of time. It is a very strong tool to indicate short-term highs and lows; however, it cannot be used alone.
As a confluence indicator, it checks one more box in the “high probability” column and makes your result more realistic and precise. You can witness on our NZD/USD chart that stochastic gives a clear oversold signal at the same entry point under examination throughout.
In addition to our other bullish signals, we now have a confluence to support a long entry. This looks messy? But there is no need to be worried about it because when you will move step by step you will find it much easier than it looks. On the other hand, some of the successful traders take these complex graphs as pride and staple for active traders into the market. Now you know why they are looking for CONFLUENCE. Maybe you have a different checklist from mine but it sounds okay.
Every indicator has its pros and cons and all you need to learn is how to use it at what places to fetch what type of results. But we can confidently say that when a number of varying signals all are in the same direction, the odds of success are remarkably high and the probability of your success is increased. This is the only reason to look for the high probability trading into the market. When you have joined the right indicators in the right manner, there is nothing to keep you away from your remarkable success.
Five Step Test for Making a Trade Decision
Each trading market is providing tremendous scope for success with remarkable success stories. Irrespective of trading markets i-e stocks, forex, or futures there are hell of trading opportunities for traders. However, every market does not provide you an opportunity for high probability trading. There are tens of thousands of trading opportunities into the trading markets but you should test your each trading strategy before making any trading decision. Here we are going to explain five step tests to evaluate your trading strategy. So, if you apply this 5 step test on your strategy prior of making a trading decision, you are going create a distinction onto the market for sure. It is worth mentioning that these all strategies are practice and actionable whether you are a day trader, swing traders or investor. You have to do practice at first, but once you become known to the process, it takes only a few seconds to see if a trade passes the test. Consequently, you would be able to decide whether trade is profitable or not.
Things to keep in your mind
- Success mainly depends on being disciplined, knowledgeable irrespective of your trading strategy.
- We will look at the five step tests to evaluate the trading strategy before making any decision.
- It will help you in learning that what are the best time to enter or to exit the market. Moreover, it would help you in assessing big opportunities into the market.
Step 1: Evaluate The Trade Setup
The setup is the basic conditions that need to be present in order to even think about a trade. For instance, you’re a trader that does trading on the basis of the trend, there must be a strong trend and a profitable trend needs to be present for your trading. Your trading strategy should tell you about what a tradable trend is and where it is going into the market. Definitely, this will help you in saving your time and money by avoiding you from trading when a trend is not suitable for your strategy and there is no sign of help out there. Think of the “setup” as your main cause for trading.
The figure indicates an example of this in action. The stock price is moving higher overall and indicating a strong action, as represented by the higher swing highs and lows in the chart you see. Similarly, the price is showing being above a 200-day moving average. Your trade setup may be different from the shown setup, but you have to make it sure that conditions are favorable for the strategy being used for trading into a market on a specific given time.
Figure shows Stock in Upward trend, signaling Possible Trade Setups for Trend Traders. If your reason for trading isn’t available here, you should not trade. However, if your strategy is aligned with the strategy you should make a decision about trading and you have to move on next step.
Step2: The Trade Trigger
If your reason for trading is present, you continue to need a particular event that tells you now’s the time to trade. In Figure 1, the stock was occupation an uptrend for the whole time, but some moments within that uptrend provide better trade opportunities than others.
Some traders wish to buy on new highs after the worth has ranged or pulled back. During this case, a trade trigger might be when the worth rallies above the $122 resistance area in August.
Other traders wish to buy during a pullback. during this case, when the worth pulls back to support near $115, await the worth to make a bullish engulfing pattern or to consolidate for several price bars then break above the consolidation. Both of those are precise events that separate trading opportunities from all the opposite price movements (which you do not have a technique for).
The figure shows Possible Trade Triggers in Up trending Stock
The figure shows three possible trade triggers that occur during this stock uptrend. What your exact trade trigger depends on the trading strategy you’re using. The primary may be a consolidation near support: The trade is triggered when the worth moves above the high of the consolidation. Another possible trade trigger may be a bullish engulfing pattern near support: an extended is triggered when the bullish candle forms. The third trigger to shop for maybe a rally to a replacement high price following a pullback or range.
Before a trade is taken though, check to form sure the trade is worth taking. With a trade trigger, you usually know where your entry point is beforehand. For instance, throughout July, a trader would know that a possible trade trigger may be a rally above the June high. That gives time to see the trade for validity, with steps three through five, before the trade is really taken.
Step 3: The Stop Loss
Having the proper conditions for entry and knowing your trade trigger isn’t enough to supply an honest trade. the danger thereon trade must even be managed with a stop order . There are multiple ways to put a stop loss. For long trades, a stop loss is usually placed just slightly below a recent swing low and for a brief trade just slightly above a recent swing high.
Another method is named the typical True Range (ATR) stop loss; it involves placing the stop order a particular distance from the entry price, supported volatility.
Figure shows Long Trade Example with Stop Loss Placement
Establish where your stop loss is going to be. Once you recognize the entry and stop-loss price, you’ll calculate the position size for the trade.
Step 4: The Price Target
You now know that conditions are favorable for a trade, also as where the entry point and stop loss will go. Next, consider the profit potential.
A profit target is predicated on something measurable and not just randomly chosen. Chart patterns, for instance , provide targets supported the dimensions of the pattern. Trend channels show where the worth has had a bent to reverse; if buying near rock bottom of the channel, set a price target near the highest of the channel.
In Figure, the EUR/USD triangle pattern is roughly 600 pips at its widest point. Added to Triangulum breakout price, that gives a target of 1.1650. If trading a triangle breakout strategy, that’s where the target to exit the trade (at a profit) is placed.
Establish where your profit target are going to be supported the tendencies of the market you’re trading. A trailing stop loss also can be wont to exit profitable trades. If employing a trailing stop loss, you will not know your profit potential beforehand . that’s fine though, because the trailing stop loss allows you to extract profits from the market during a systematic (not random) manner.
Step 5: The Reward-to-Risk
Strive to require trades only where the profit potential is bigger than 1.5 times the danger. For instance, losing $100 if the worth reaches your stop loss means you ought to be making $150 or more if the target price is reached.
In Figure, the danger is 210 pips (difference between entry price and stop loss), but the profit potential is 600 pips. That’s a reward-to-risk ratio of two .86:1 (or 600/210).
If employing a trailing stop loss, you will not be ready to calculate the reward-to-risk on the trade. However, when taking a trade, you ought to still consider if the profit potential is probably going to outweigh the danger .
If the profit potential is analogous to or less than the danger , avoid the trade. which will mean doing all this work only to understand you should not take the trade. Avoiding bad trades is simply as important to success as participating in favorable ones.
The five-step test acts as a filter in order that you’re only taking trades that align together with your strategy, ensuring that these trades provide good profit potential relative to the danger. Add in other steps to fit your trading style. For instance, day traders might need to avoid taking positions right before major economic numbers or a company’s earnings are released. during this case, to require a trade, check the economic calendar and confirm no such events are scheduled for while you’re likely to be within the trade.
Make sure conditions are suitable for trading a specific strategy. Set a trigger that tells you now’s the time to act. Set a stop loss and target, then determine if the reward outweighs the danger . If it does, take the trade; if it doesn’t, search for a far better opportunity. Consider other factors which will affect your trading, and implement additional steps if required.
This may appear to be a tedious process, yet once you recognize your strategy and obtain wont to the steps, it should take only a couple of seconds to run through the whole list. ensuring each trade taken passes the five-step test is well worth the effort.
How You Can Use Volume for High Probability Trading – 3 Effective Ways
I have to admit that I have a little bit softer spot for the volume. You may learn about it through my website earlier than this. It is the indicator mostly used by the future and stock traders. This is why it is used by the stock traders as compared to the forex traders and there are some specific reasons behind it.
Traders like Jesse Livermore and Charles Dow (fellow benefactor of both the Dow Jones organization and furthermore the Wall Street Journal) utilized volume to make a huge number of dollars in the mid 1900’s back when PCs were only an illusion of the creative mind.
What’s more, despite the fact that their strategies may appear to be obsolete I think the old-clocks really held a bit of leeway over advanced traders…
They had to utilize just the most flawless components of examination in their trading choices: the paper feed detailed costs and amounts (volume) exchanged – it came spooling out of an incredible glass-domed machine on a slight portion of paper – and I surmise they needed to take a gander at the clock on the divider to monitor the occasions. That was all they needed to work with!
On the off chance that you read about their strategies you’ll see they depended intensely on the connection among cost and volume to settle on their decisions. It’s the manner by which they’d figure out the streaming ebbs and flows of the market…
On the off chance that the cost was moving upwards and greater and greater squares of volume were hitting the market to get, it revealed to them the up-move had some veritable load behind it. It was a decent an ideal opportunity to get included.
However, on the off chance that the stock was moving upwards in cost and the volume coming into the market was volatile, it revealed to them the move was conceivably hanging on by a thread and an inversion could be not too far off. So, they had a method of utilizing volume to guide them into high-likelihood trading choices. Utilizing volume adequately is a smidgen more unobtrusive than having a major green bolt blazing on the screen disclosing to you it’s an ideal opportunity to purchase.
It will be there in a jiffy accessible for you to utilize even on the most fundamental outline bundles. However, you do have to give a bit of thought to the connection between the developments in cost, and the measure of volume driving them.
Volume is the thing that will show you the force or direness behind developments in cost. Watch out for it and you can check the purchasing or selling pressure behind the move – it’s about who’s in effect generally forceful, the purchasers or the merchants – and that can help you see underneath the outside of value development. It can help you measure the tops and bottoms of reach bound business sectors, and it can likewise provide you some insight that a possible breakout is certifiable or if it’s probably going to come up short. In any case, I’ve heard Forex doesn’t have volume! Believe it or not, on the grounds that Forex is a de-concentrated market there is no authoritative record of amounts exchanged. In any case, most information suppliers do offer ‘tick’ volume. It’s a record of the quantity of exchanges occurring as opposed to the real amount of cash evolving hands. So a brief bar on a graph of EUR/USD may show a volume of 300… that implies 300 unique exchanges occurred during that minute. It’s not awesome, one exchange may have been multiple times bigger than the following, yet it’s sufficient to give you an edge to your dynamic.
Indeed, contemplates have finished up tick volume gives as much as a 90% relationship to real volume. What’s more, recollect, it’s about the connection among cost and volume in any case. You’re observing how expanding or declining cost is sponsored up by relating vacillations in volume as opposed to considering volume alone. So precisely how would you approach utilizing volume in your trading?
There’s somewhat of a craftsmanship to it. It will take a touch of study and examination before you become a specialist. In any case, this is an ideal pursuit on the off chance that you do appreciate a touch of insightful reasoning and getting compensated incredibly for doing it. Below we are going to mention the three basic utilizations of the moving averages to identify the high probability trading into the market.
- A Reversal Bar on the High Volume
This in all likelihood recommends a momentary finish to the down-move. The long wick on the candle shows purchasers have just moved the cost against the traders, and you can see the high volume affirming their quality.
- A Breakout on the Increasing Volume
Here you can witness price breaking out through the top of the last trading range on moving up the volume. This indicates traders are attracted to the move and causing its momentum into the market.
You can be confident that breakout is genuine. You should look at trade in the direction of the breakout.
- Reversal On Decreasing Volume
You can easily witness a potential reversal on high volume at the lower side of a developed trading range but the spontaneous reversal in price doesn’t guarantee further buying decisions. The decreasing volume shows buyers are no longer really interested in buying the asset.
This conveys a constant push to the downtrend and has a higher probability chance of playing into the market. Enter a short trade looking for price to continue lower into the specific market.
With the help o volume with small amount of logical thinking can result into a whole new perspective to your market analysis. Moreover, little bit learning may result into miracles results and you can see marvelous results. It can provide you with greater affirmed tone in your trading decisions and give you ways to get involved even when the markets are wheeling sideways.
Moreover, when you add the commonly ignored ‘4th Dimension’ to your analysis it’s like penetrating and understanding the inner workings of the market. This is a miraculous advantage and you will get amazing results in your trading and will be called a successful trader with consistent profits.