The High Probability Trading Strategy Guide

Contents
Do You Want To Find High Probability Trading Setups? ............................................................... 3

The Trend Gives You The Biggest Bang For Your Buck .................................................................. 4

How To Identify Areas Of Value On Your Chart ............................................................................... 6

Support & Resistance ..................................................................................................................................................6

Dynamic Support & Resistance ..............................................................................................................................7

High Probability Trading Using Stochastic To Identify Areas Of Value .......................................8

How To Enter Your Trades .................................................................................................................... 11

Pullback............................................................................................................................................................................. 11

Breakout .......................................................................................................................................................................... 12

Failure Test ..................................................................................................................................................................... 14

How To Set Your Stop Loss .................................................................................................................. 16

Volatility Stop ............................................................................................................................................................... 16

Time Stop ........................................................................................................................................................................ 17

Structure Stop ............................................................................................................................................................... 18

What Is Confluence And How It Impacts Your Trading ............................................................... 20

1. Not More Than Four Confluence Factors .................................................................................................... 20

2. Do Not Have More Than One Confluence Factor In The Same Category ................................. 20

A High Probability Trading Strategy That Lets You Profit In Bull & Bear Markets ............... 21

Here It Goes... ................................................................................................................................................................. 21

How To Develop A High Probability Trading Strategy (A Template You Can Use) ...............24

So, What's Next? ..................................................................................................................................... 25

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 The High Probability Trading Strategy Guide

Do you want to find high probability trading setups?

Im sure you do, right? (Or you wont be reading this right now)
But the thing is
youre not sure how.
Instead of looking at price, youre looking at indicators (without understanding the
purpose of it).
Instead of following trends, youre trying to predict market reversals.
Instead of proper risk management, you put on a huge bet because this trade feels
good.
Now
If youre doing any of the above, then it will be difficult to identify high probability
trading setups.
But dont worry.
Ive got good news for you.
Because in this post, Ill teach you step-by-step on how to find high probability trading
setups.
Heres what youll learn:

Why trading with the trend increase your returns and reduce your risk

How to identify the best areas to trade on your chart

How to trade pullback, breakouts, and the failure test pattern

How to set a proper trading stop loss so you dont get stopped out too early

A high probability trading strategy that lets you profit in bull & bear markets
Are you ready?
Then let's begin...

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The trend gives you the biggest bang for your buck
The definition of the trend is this...
Uptrend - consists of higher highs and lows
Downtrend - consists of lower highs and lows
If you want to know where's the path of least resistance, look left (and follow the
trend).
When the price is in an uptrend, you should stay long. When the price is in a
downtrend, you should stay short.
By trading with the trend, you can see that the impulse move (green) goes much
more in your favour, compared to the corrective move (red).
Here are a couple of examples...

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Now you're probably wondering:

Rayner, identifying a trend looks easy. But how do I enter an existing trend?
And this is what we're covering next...

Trade in the direction of the general market. If it's

rising you should be long, if it's falling you should
be short.

- Jesse Livermore

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How to identify areas of value on your chart

You'd probably heard of the saying, "buy low sell high".
But the question nobody asks is...
...what's low and what's high, right?
This is where Support & Resistance comes into the picture.

Support & Resistance

And this is the definition of it:
Support - an area with potential buying pressure to push price higher (area of value
in an uptrend)
Resistance - an area with potential selling pressure to push price lower (area of value
in a downtrend)
Here's what I mean...

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Dynamic Support & Resistance

What you've seen earlier is what I call, classical Support & Resistance (horizontal lines)
Alternatively, it can come in the form of moving average. This is known as dynamic
Support & Resistance (and I use the 20 & 50 EMA).
This is what I mean...

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Not only does support & resistance allows you to trade from an area of value, it
improves your risk to reward and winning rate as well.
Now, another "trick" you can use is to use overbought/oversold indicators.

High probability trading using Stochastic to identify areas of value

A big mistake most traders make is, going short just because the price is overbought,
or oversold.
Because in a strong trending market, the market can be overbought/oversold for a
sustained period of time (and if you're trading without stops, you risk losing your
entire account).
Here's what I mean:

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Now you're wondering:

How do I use Stochastic to identify areas of value?
Here's the secret...
Are you ready?
In an uptrend, you only look for longs, when the price is oversold.
In a downtrend, you only look for shorts, when the price is overbought.
Here're some examples:

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If you follow this simple rule, you can "predict" when a pullback will usually end.
So, you've learned how to identify areas of value on your chart.
Now...
...you'll learn how to better time your entries.

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How to enter your trades

There're 3 ways you can enter a trade:
1. Pullback
2. Breakout
3. Failure test

Pullback
A pullback is when price temporarily moves against the underlying trend.
In an uptrend, a pullback would be a move a lower.
Here's an example:

And...
In a downtrend, a pullback would be a move higher.

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An example:

You may wonder:

What are the pros and cons of trading pullbacks?
Advantages of trading pullbacks:

You get a good trade location as you're buying into an area of value. This gives
you a better risk to reward profile.

Disadvantages of trading pullbacks:

You may potentially miss a move if the price doesn't come into your identified
area.

You'll be trading against the underlying momentum.

Breakout
A breakout is when price moves outside of a defined boundary.
The boundary can be defined using classical support & resistance.
Breakout to the upside:

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Breakout to the downside:

You're wondering:
What are the pros and cons of trading breakouts?
Advantages of trading breakouts:

You will always capture the move.

You are trading with the underlying momentum.

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Disadvantages of trading breakouts:

You get a poor trade location as you're paying a premium.

You may encounter a lot of false breakouts.

For a more in-depth explanation, go read The Definitive Guide to Trading Pullbacks
and Breakouts.

Failure test
This technique possibly originated from Victor Sperandeo, and the works of Adam
Grimes shows that it has a statistical edge in the markets.
It works like this...
You're entering your trade when the price does a false breakout of
Support/Resistance. Thus taking advantage of traders who are trapped from trading
the breakout.
This entry can be applied in a trending or range market.
Here're a few examples:

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Now, the next thing you're going to learn is...

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How to set your stop loss

Place your stops at a point that, if reached, will reasonably indicate that the trade is
wrong, not at a point determined by the maximum dollar amount you are willing to
lose. - Bruce Kovner
Im going to share with you 3 ways to do it:
1. Volatility stop
2. Time stop
3. Structure stop

Volatility stop
A volatility stop takes into account the volatility of the market.
An indicator that measure volatility is the Average True Range (ATR), which can help
set your stop loss.
You need to identify the current ATR value and multiply it by a factor of your choice.
2ATR, 3ATR, 4ATR etc.

In the example above, the ATR is 71 pips.

So if you were to place a stop loss of 2ATR, take 2*71 = 142 pips

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Your stop loss is 142 pips from your entry.

Pros:

Your stop loss is based on the volatility of the market

An objective way to define how much buffer you need from your entry

Cons:

It's a lagging indicator because it is based on past prices

Time stop
A time stop determines when you exit your trades based on time.
Instead of exiting your trades based on price, you exit your trades after X amount of
time has passed.
You need to define how much time you will allow before exiting it.
An example:
You took a short trade at resistance area. But after 5 days its not going anywhere, so
you exit your trade.

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Pros:

You reduce losses

If you have trading records, you can identify optimal amount of time to give
your trades

Cons:

You may exit prematurely only to see price move in your favour

Structure stop
A structure stop takes into account the structure of the market and set your stop loss
accordingly.
An example
Support is an area where price may potentially trade higher from. In other words, it's
a barrier that prevents further price decline.
Thus, it makes sense to have your stop loss below Support. Vice versa for Resistance.
Heres what I mean:

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You want to place your stop loss where there is a structure in the market that can act
as a barrier for you.
Pros:

You know exactly when youre wrong because market structure has broken

Youre using barriers in the market to prevent price from hitting your stops

Cons:

You need wider stop loss if the structure of the market is large (this results in
smaller position size to keep your risk constant)
If you want to learn more, go read The Advanced Guide to Setting Your Stop loss.
Now, let's move on...

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What is confluence and how it impacts your trading

Here's the thing:
You're not going to enter a long trade just because Stochastic is oversold, or the
market is in an uptrend.
You'd need additional "supporting evidence" to give you the signal, to enter the
trade. And this "supporting evidence" is known as, confluence.
Confluence is when two or more factors give the same trading signal. E.g. The market
is in an uptrend, and price retraces to an area of support.
Here're two guidelines for you:

1. Not more than four confluence factors

The more confluence you have, the higher probability of your trade working out. But...
In the real world, your trading strategy should have anywhere between 2 - 4
confluence factors.
Anything more, chances are you're going to get very little trading setups. And it'll take
you forever before your edge can play out.
You can take mediocre trading setups, and still make money in the long run.

2. Do not have more than one confluence factor in the same category
If you're going to use indicators (oscillators) to identify overbought/oversold areas,
then use that only.
Don't add Stochastic, RSI and CCI because it'll leave you with analysis
paralysis. Similarly...
...adding simple, exponential and weighted moving average on your charts, doesn't
make any sense.
If you're still reading at the point, you're in for a treat. Because here comes the exciting
part...

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A high probability trading strategy that lets you

profit in bull & bear markets
And here's my secret (which is what you've just learned)...

Trade with the trend

Trade at areas of value

Find an entry

Set my stop loss

Plan my exit
If a trade meets these 5 criteria, then its a good trade to me.
Now, let's learn a new trading strategy, that gives you high probability trading setups.
Are you ready?

Here it goes...
If 200ma is pointing higher and the price is above it, then its an uptrend (trading with the
trend).
If its an uptrend, then wait for the price to pullback to an area of support (trading at an
area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger).
If there's failure test entry, then go long on next candle's open (my entry trigger).
If a trade is entered, then place a stop loss below the low of the candle, and take profit
at nearest swing high (my exit and profit target).
Vice versa for downtrend
**Disclaimer: I will not be responsible for any profit or loss resulting from using
this trading strategy. Past performance is not an indication of future performance. Please
do your own due diligence before risking your hard earned money.
Here're a few trading examples:

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Here's the thing:

You may not be comfortable using my trading strategy because it may not suit you.
So, what you need to do is, "tweak" it into something that fits you. And this is what we'll
cover next...

I don't think traders can follow rules for very long

unless they reflect their own trading style.

- Ed Seykota

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How to develop a high probability trading

strategy (a template you can use)
You can "mix and match" different trading techniques I've shared with you earlier.
But ultimately, your trading strategy needs to answer these 7 questions:
1. How are you going to define a trend?
You can consider moving average, trendline, structure etc.

2. How are you going to define an area of value?

You can consider dynamic Support & Resistance, weekly highs/lows, Stochastic etc.

3. How are you going to enter your trade?

You can consider pullbacks, breakouts, failure test, moving average crossover etc.

4. How are you going to exit your trade?

There're many ways to exit a trade. Go read The Advanced Guide to Setting Your Stop
loss to learn more.

5. How much are you going to risk on each trade?

I would suggest risking no more than 1% of your account on each trade, to avoid the
risk of ruin.

6. How are you going to manage your trade?

Will you scale out or scale in your trades? If so, how much?

7. Which markets will you be trading?

Are you focusing on one market or many markets?

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If you trade a variety of markets, you want to be aware of the correlation between
markets.

So, what's next?

You've just learned how to identify high probability trading setups, and how to
develop your own high probability trading strategy.
If you still want more, go download The Ultimate Guide to Trend Following.
Youll learn how to ride massive trends in the markets and grow your wealth steadily
even during a recession.
You can get it here for free.

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