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What makes a good trading setup?

Let’s puzzle it out. At any given point a market has three things it can do… Trend up, trend down, or chop around.

Now take a look at this chart of the AUDUSD right now

 

 

So which is it? Is it trending up, down, or chopping around?

To be honest you can probably make a strong case for it chopping around, a reasonable case for it trending down, and if you squint a bit you might be able to see a potential upward reversal.

Unhelpful.

But think about it. If we are in a downtrend then we ought to start going down very soon.

And if we are in a trading range (from the Price Action Masterclass a triangle isn’t magic, it’s just a decreasing volatility trading range, making smaller and smaller candles until that is unsustainable) then we should be shorting somewhere near the top of the trading range.

 

So let’s get this straight. If it’s a downtrend it should drop hard from here. If it’s a trading range it shouldn’t go back above the recent highs.

If it’s the start of a brand new uptrend there’s nothing we can do about that, but WE WILL KNOW VERY QUICKLY.

And that’s key. Instead of wasting an hour trying to work out if the AUDUSD will squeeze up or not, we have two out of the three possibilities covered. We have a low risk entry, meaning that if we are wrong we find out very quickly.

And THAT, my friends is what makes a good setup. Not that it will play out the way you think it might… just that you have the bases covered in a way that the odds are tilted in your favour.

And one more thing.

When you are going counter trend it is always safer to WAIT FOR THE RETEST. (Get the Price Action Masterclass if you don’t know what that means)

Here is the setup in AUDUSD right now (I know that’s all you really wanted)

 

 

Enjoy the rest of your Easter

Scott

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Scott Phillips

Scott Phillips

A professional futures trader, Scott makes his living from the currency and futures markets as a systematic trader. Living in Brisbane, Queensland, Australia, Scott provides coaching services through his website - www.scottphillipstrading.com

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