T2W Trading Community

Figure 3

In the chart, above, this is a price action or price pattern setup. One setup (in pink) is a bottom, creating a long setup, while a top is formed, creating a short setup.

It’s possible to assign one setup to a single pattern or a single movement of the market, either a downtrend or an uptrend. Basically a trader can decide that a market top for him is a setup and there will be no other setup until another market top appears. For pattern traders, a triangle breakout is a setup and there will no other setups until another triangle (or another pattern) and prices break out of it. Figure 4 shows a pattern setup.

Figure 4

By identifying one setup from the next, the trader can evaluate how many trades there are in a setup or how many setups there are in a day. This would provide an idea how many trades he should be making per day in order to avoiding overtrading. In addition, if he can identify the maximum number of trade he’s going to take, this should eliminate taking too many trades from just one setup. By spreading out his trades, he has more opportunities to profit from a setup that will possibly bring him back into black.