Do You Trade Every Enticing Setup? by David S Adams

Most traders look for certain configurations of price action, oscillators, or indicators to determine when they will initiate a trade. The problem is that these trading opportunities can come at a variety of different times, some opportune and others less than opportune. The question then becomes do you trade a near perfect setup at an inopportune time? Inevitably you find yourself wondering if this setup is strong enough to overcome the poor market timing in which this setup occurred.

The answer is a simple one, and doesn’t take long to answer. Market timing far outweighs any setup, no matter how good this setup is. The market is always right, and will generally devastate even the best setups.

So the secret is a bit of self-discipline in choosing a trades. For example, if you have absolutely gorgeous set up against the trend a wise trader passes on the opportunity to trade. This is probably the most oft broken rule in trading. I will never understand why traders insist on bucking a trend, especially a strong trend. While there may be an odd winner from time to time, the vast majority of these trades end in utter disaster. Once the market establishes a trend, especially an upward trend, it will generally stay in that trend for quite some time. Most traders know this fact. Just the same, they see this setup that looks too good to pass up and they take it. When they are finally stopped out for a loss, most are scratching their heads wondering what went wrong. The setup looks great. Unfortunately, the trend didn’t look so great and hence, they had a negative result.

Another time to avoid great setups is in and around resistance and support. It should be noted that the market does not always honor resistance and support. On the other hand, some days it honors resistance and support to the exact resistance or support number. After trading for hour so, it is usually apparent to a trader whether or not the market is going to honor resistance and support and the trader must adjust his trading accordingly. For example, a trader may get a great set up for a long trade one point below the R2 line of resistance. This trade is a tough call, especially if the price action has been stopping dead on the R2 line all day. Obviously taking this trade would be a bit hazardous as the potential profit might only be one point, and the potential loss (if the price action hits the R2 line and bounces to the negative side) could be substantial. In this instance I would probably decline to take this trade, and wait and see if the price action breaks through the line of resistance in what is called a breakout. However, I would be hesitant to take the trade below the resistance line.

Another area of concern is when the market is going through the daily operation of backing and filling, otherwise known as market noise. In my trading, I explicitly avoid trading anything resembling market noise as the results are often unpredictable. However, some interesting setups can form during this period of market noise and many traders may be tempted to enter these trades. I should point out that there are traders who are very adept at trading market noise. My hat is off to them. As for me, my skills do not extend to trading market noise very effectively. To be sure, I would go so far as to say I stink when I trade the market noise. I can be a stubborn person but once I get consistently burned I eventually learned to avoid hot places. Market noise is a hot place for me, and I suspect most people struggle trading in market noise. Just the same, I havewill him observed hundreds of traders initiate trades in the market noise and the results are fairly uniform.  Not good.

My advice is to take trades at a time and place of your choosing. Choose market setups that are conducive to positive results and resist taking trades where certain variables may preclude you from succeeding. Of course, this takes some experience to recognize potentially dangerous trades. But in time, you will come to recognize beautiful setups that occur in less than optimal conditions and learn to avoid them.

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