THE IDEAL SETUP

“The two most important requirements for major success are: first, being in the right place at the right time, and second, doing something about it.”
— Ray Kroc

Trading well really comes down to two things:

1) Perception

2) Positioning

I’m going to refer specifically to short term trading (intraday to under one week) with options, in regards to finding an ideal setup.

Most traders who try to use price action-only methods such as The Strat take on a slightly irrational purist view of markets, where patterns are simply a matter of fact, must play out as described or taught and when those patterns fail to work to the tick, a lot of confusion and mistakes occur.

The answer to this is in defining an ideal setup.

Let’s talk about Perception.

I often get asked about timeframes and which one is best.

That doesn’t make any sense.

The range (from high to low) and continuity of a daily or weekly move in price is the same, regardless of which timeframe you view it on.

The timeframe is simply a visual distribution of that range in X amount of candles.

That’s only useful if it enables you to perceive a move, or part of the move, that you want to take action on.

So, perception is about finding the moves you like to trade.

Could be a 30min reversal to the next candles pivot, or the previous day’s high or low.

It doesn’t matter really. There are no hard and fast rules in trading - you see what you need to see in order to do what you know you can do that makes repeatable and predictable amounts of profit.

Having a Preference enables your perception.

It’s a waste of energy to try and figure out the entire market.

Just have an idea that sets up on a timeframe you can work with and a range you like to get paid with.

Range, by the way, is the difference between the entry price and the target price in your setup. Do not fixate on candle patterns and numbers as a law unto themselves. Profitability is in the range (or “magnitude”) of the move, so the only reason to qualify an idea as worth trading is that it has the minimum range you would risk capital against.

Figuring this out for yourself helps massively with two of the biggest issues for struggling traders - risk management and patience.

It’s hard to be patient when everything’s moving and hard to manage risk when you don’t know where things are going.

But having an ideal setup clears that up. You now have a reason to wait to do business your way when the market makes that available to you.

Moving onto Positioning…

Think about the market moves like a structure, and your trade position as a structure placed upon the market.

You take a position to profit from a move that has probability (your perception tells you when this is setting up).

Figuring out your position size, risk level, which options you will take in the trade and how much profit you can make allows you to do the most essential thing in the mindset of a winning trader: ignore the money.

If you’ve prepared to take the trade, the money is no longer a factor. You’re speculating on the move and the trade is either going to work or not work.

So, planning enables positioning.

If you’re not sure which timeframes to use and what kind of trades you should be taking, then you’re still in the preparation phase.

You need to experiment with the smallest size trades to find that preference and positioning that you are comfortable with and can grow your results over time.

Most traders want to be perfect, and never prosper.

Have a preference, sharpen your perception and then plan to take your positions.

Everything else is a matter of scale once you know you have an edge in the market.

More money in, more money out.

Preference leads to Perception.

Planning leads to Positioning.

Perfectionism leads to poverty.

If you want to learn more to figure out your ideal setup, check out these videos:

How to draw broadening formations: https://youtu.be/nvdo3De2j3s

Continuity levels and probability: https://youtu.be/14-25foH71k

How I use the 4hr timeframe: https://youtu.be/JE7JBOAYNrU

P.