This blog post dives into the world of trading terminology, clearing up confusion around Signals, Patterns, Setups, and Strategies. We’ll explain how they differ and why having your own personalized and profitable trading strategy is crucial for achieving consistent success.
Signals, Patterns, and Setups: Stepping Stones, Not Destinations
The Importance of a Trading Strategy: Your Roadmap to Success
However, the most important part is your strategy, which is the blueprint for your entire journey. It’s not just about starting the car and hitting the gas. It’s about knowing where you’re going, how to get there safely, and what to do when the road gets rough!
Just like driving, trading comes with many risks. So, you have to first understand and master the safe driving skills, master your vehicle, know your instruments and software, and the market you’re trading. You need to understand the true nature of trading and journey on this unpredictable road that is constantly changing. You also need to apply proper risk management based on your level of skill and risk tolerance.
Without mastering a personalized trading plan that incorporates all these elements, you’re going to end up like other drivers here that never reached their goal of consistently making money in the market.
Popular Signals and Their Pitfalls
Let’s talk about popular signals that are often claimed to be very profitable by just recognizing them on the chart! You might see some bullish signals that are claimed to be suitable to enter a long trade.
However, as you can see on this chart, they all failed because the market pattern here is a downtrend, and the wrong signals were used for the downtrend market condition, which leads to major losses.
That doesn’t mean the entry signal is not good. We’re using that and discuss it in the advanced PAAT and provide five different ways for final confirmation to enter a trade based on tick charts, smaller time frames, trend line breakout, Candlestick patterns, and also Volume and Order flow entries. But again, it’s the last step of our entry. Before that, we have to make sure that the pattern and the setup is ready and mature to enter a trade in order to have a high win rate and chance of success.
Pattern Trading and Its Limitations
You have probably seen a famous ABC pattern, which is also named 1, 2, 3 pattern. It is claimed that if you find a bullish move, you can enter a long position at this point and put your stop-loss here with the target above this area to successfully trade any market condition. However, this also often fails if the trader doesn’t have a 360 view of the larger time frames and macro market conditions and is taking the trades when the momentum is lost. The trade is at the end of the trend and is likely reversing. There are many reasons that the pattern alone doesn’t work and it’s not a full complete setup.
In our major trend-following setup, which we call Setup T, we use a higher time frame to ensure that the trend is not at the end of its move and close to the static or dynamic resistance line. We take the trade in the middle of the higher time frames and make sure the two charts are uptrend and aligned. This satisfies three conditions of the setup.
Setup: The Decision-Making Algorithm
This slide shows the decision-making algorithm following Setup T, which is a trend-following setup. The first two conditions ensure that the pattern of the structural higher time frame is trendy and the smaller trading chart is also trendy in the same direction. The price has completed its pullback and is in the right area with a good risk to reward ratio. Then comes the entry signals that confirm the pullback is completed and the buyers are back, for example in an uptrend. Only under all these conditions, one needs to master each part separately and combine it gradually to be able to execute it in a live market. One can successfully identify this setup in a trendy market and take advantage of that.
The Importance of a Dynamic Trendline Trading Strategy
As we discussed in the above video, knowing a setup alone is not enough for success in trading. One has to turn it into a dynamic Trendline Trading Strategy by considering several more factors. Also, personalize it with the help of an experienced coach to a trading plan that fits the Trader’s Experience, Trader’s Personality, Trader’s Patience and Time Frames, and also the Trader’s Risk Tolerance. For better understanding, we will use Setup T and go through all of these in detail.
A comprehensive trading strategy, ideally crafted with a coach, should consider:
1. Macro Market Risks
Beside the two Structural and Trading charts that we use for setup T, we have to look at the Macro Chart structure and condition. All these charts are usually 3 to 10 times higher than the previous one. By looking at Macro chart trendiness and also the area of static and dynamic support and resistance, we can have a better understanding of the price location and behavior that institutional and market makers make decisions.
2. The Role of Macro Charts
By applying the macro chart pattern and conditions, beside the two structural and trading charts of the setup T, now we have a strategy that helps us to find high-quality setup T trends, when the macro chart is in an uptrend, the structural is also in an uptrend, and the trading chart is also in an uptrend. We consider this as a very low-risk area. In terms of money and risk management, we can trade them aggressively, expect their Runners.
3. The Trader’s Experience
The Macro chart also defines the risk of Trades. We categorize Traders based on their experience to novice, intermediate, and advanced Traders and monitor their progress. If the macro chart is in Sideways, the novice Trader should not trade at all! And if the macro chart is in an uptrend or downtrend, the novice and intermediate Trader is allowed to trade in the same direction of the macro chart uptrend or downtrend. Only Advanced Traders are allowed to go against the macro major trend.
We have a comprehensive trading plan that during the coaching session, we define and customize it for the Traders. They have to learn and repeatedly practice to develop good habits to follow before and during the market and complete their trading journals to be reviewed.
4. The Trader’s Personality
In case of setup T strategy, a suitable Trader’s personality is those that are Rule Followers and don’t have Warrior personality. Their selected time frames need to be customized in a way that they have enough signals, so they don’t get bored or miss any opportunities or over trade.
5. Time Frames, Risk Tolerance and Many Other Variables
Trader’s Time Frame depends on the Mind processing speed of the trader and also a style of trading and also available time to focus for trading. And also in terms of risk tolerance, many novice traders are highly risk averse and the setup T is suitable for them, because it provides a very high win rate and low account drawdown. So this setup is not suitable for Risk-Seeking aggressive individuals! And when all these factors are incorporated into a trading plan customized and suitable for Traders, we see that a person with a good personality and risk tolerance and proper time frame can successfully identify setup T opportunities that provide a high win rate and low number of consecutive loss and also account drawdown.
Beyond Prop Challenges: Building Long-Term Consistency
We hope this blog post is useful for you to recognize the differences between Signals, Patterns, Setups, and Strategies! And also to understand that you need a “Personalized Profitable Trading Strategy” to reach your goal of consistency in trading! By incorporating macro analysis, risk management considerations, and an understanding of your own personality and experience, you can build a dynamic strategy that gives you an edge in the market. Thank you for your attention and please do not hesitate to contact us if you have any questions about building your personalized trading strategy.
Master Consistency: Build Your Personalized Trading Strategy (Beat Signals, Patterns, Setups) https://www.youtube.com/watch?v=b6kVakvsl2k&list=PLNdkLl_SbhT0q9xpFhLkKbjQ0LiowjCYD&index=3 This blog post dives into the world of trading terminology, clearing up confusion
Master Prop Trading: The Successful Prop Trader’s Insider Secrets For Consistent Profits and Payouts Master Prop Trading: The Successful Prop Trader's Insider Secrets For Consistent
The Three Essential Trendline Trading Strategies that You Need to Consistently Trade Any Market https://www.youtube.com/watch?v=t9kbHfS_Aao&t=155s In this video I’m going to go through the three
Human-Market Psychology Conflicts and Cognitive Emotional Mismatches – Loss Aversion https://www.youtube.com/watch?v=i_n6cbyyfJ4&list=PLNdkLl_SbhT0q9xpFhLkKbjQ0LiowjCYD We continue our discussion on the topic of Human-Market Psychology Conflicts and address the
Trading Signals vs. Patterns vs. Setups vs. Strategies: Why a Personalized, Profitable Trading Strategy Is All You Need for Consistency https://youtu.be/b6kVakvsl2k We’re going to break
Introduction to Trading Personalization: Understanding its Crucial Role in a Trader’s Success https://youtu.be/c1-0XvoJeLc This lesson of module 12, workshop 34, I will discuss the topic
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