High-Probability Trade Setups is about chart setups and how they can make you a more proﬁtable trader. I have been involved in trading for a quarter-century, and during almost that entire time, I have used charts and technical analysis as the basis of my investing decisions. This book endeavors to show you meaningful, clear examples of the most powerful chart patterns so that you can commit them, and their importance, to memory.
Technical analysis is the study of past price movement for the purpose of predicting future price movement, which, if done correctly, can lead to substantial trading proﬁts. The prices studied are typically those of ﬁnancial instruments such as stocks, commodi-ties, and foreign currencies. But no matter what market is being studied, the underlying principles are the same. Speciﬁcally:
- A price chart is the most perfect representation of the balance of buyers and sellers for any given entity.
- Prices tend to move in trends and patterns which, based on historical analysis, can lead to statistically meaningful probabilities of future price movement.
- The skilled examination of a price chart can guide a trader as to how long he should remain in a trade and when he should exit.
No matter what you trade, technical analysis can make you a better and more prof-itable trader. Price charts will consistently provide the most truthful picture that can be had of a tradable object, because everything that can be publicly known or speculated is already built into the graph. You will never get the same pure representation of a stock (or anything else) from a broker, a newsletter writer, or an analyst. A chart is as good as it gets. How much good that chart can do for you depends on your own skill and objective analysis.
This book has three principal purposes. First, it is intended as a solid introduction to the principals and philosophy of tech-nical analysis. This chapter was a big step in that direction, and throughout the book you will ﬁnd a lot of background about the why behind the patterns shown.Second, it is organized to be a teaching tool, presenting all the important patterns of technical analysis so that you can identify, interpret, and discuss with some familiarity any of the important graph types contained herein. The order in which you read these sections isn’t important, because each one stands on its own as an overview of the given pattern.
And third, it is meant to be an ongoing reference for you, long after you’ve completed reading it. If you think you spot a certain pattern on a chart, grab this book and refer to the appropriate section. Look at past examples and discern the similarities and differ-ences to the pattern you are considering. Having reviewed this history, you can then decide if it still makes sense to take action.
- A Primer on Chart Setups
- My Personal Trading Journey
- Ascending Triangles and Wedges
- Cup with Handle
- Descending Triangles and Wedges
- Fibonacci Fans
- Fibonacci Retracements
- Head and Shoulders
- Multiple Tops and Bottoms
- Rounded Bottoms and Tops
- Support Failure
- Automatic Patterns
- Setting Stops
- On Being a Bear
- A Guide to Real-Life Trading