There is something that drives me absolutely crazy, maybe more than anything else, and that is an annoying habit of many brand-new traders…
In fact it’s more of an attitude than a habit.
And that is the newbie fixation on win rates.
I have one thing to say about win rates and I mentioned it in my Premarket Prep yesterday: They are absolutely meaningless.
Yet so many green traders still believe their win rate should be astronomical, like close to 90%.
Let’s put this into perspective: The best, most seasoned traders out there have win rates of 50 to 60%.
It completely defies logic to think that as someone who is brand new at something, you’re going to win a greater percentage of the time than someone who’s been at it for years. That’s just silly!
Look at Paul Tudor Jones, a legendary billionaire hedge fund manager…
His win rate is rumored to be around 60%, and that’s considered relatively high!
So why are new traders so often laser-focused on win rates?
When you’re just starting out in trading, it’s natural to think that success is all about how often you win. I get it – winning feels good.
But here’s the kicker: win rates don’t really tell the whole story…
Think about it… You could be winning 70% of your trades, but if your average loss is significantly larger than your average win, you will still end up in the red.
It’s like being on a treadmill – you feel like you’re moving forward, but in reality, you’re going nowhere.
Trading is all about managing risk and maximizing your reward-to-risk ratio.
Back to billionaire hedge fund manager, Paul Tudor Jones… His mantra is, The most important rule of trading is to play great defense, not great offense.
By the way, every trader needs to know his or her own risk tolerance and how to manage it.
Watch my video on how to manage risk.
All traders, new or veteran, need to ask themselves this question: Would you rather win 7 out of 10 trades and break even, or win 4 out of 10 trades and double your account?
If you choose to win 4 out of 10 trades and double your account, you’ll want to know what you should really focus on… It has nothing to do with your win rate…
Instead of fixating on their win rate, newbies to day trading need to learn and memorize day trading setups.
A solid day trading setup helps you spot trading opportunities, trends, and optimal entry points.
Here are four of my favorite setups that anyone can learn and use…
Table of Contents
1. Trading the Breakout Setup
Price breakouts can help you monitor potential losses because you can often see immediately when things start to go south.
And one of my number one rules in day trading is to cut losses quickly!
A breakout strategy relies heavily on technical analysis, particularly support and resistance.
If you’re unfamiliar with support and resistance, watch my video which explains how they work:
With this approach, traders aim to buy when a stock breaks above a failed resistance level and sell when the market breaks below a failed support level.
2. Trading Ranges Setup
A range-bound trading strategy focuses on stocks with sideways price movements between two prices, known as “range-bound” stocks.
This strategy takes advantage of the non-trending portion of the market. If the market trends only 30% of the time, that leaves 70% to experiment with range trading.
First, confirm the price range by looking for at least two similar highs and lows to establish a range-bound setup.
The easiest way to do this is to buy near support and sell at resistance. Just be sure to keep an eye out to avoid being on the wrong side of a breakout.
You must also track trading volume as range trading relies on the assumption that price will fluctuate between certain highs and lows. Paying attention to volume is just as important as watching support and resistance.
3. Trading the Flag Setup
Flag patterns, such as bullish flags and bearish flags, are great for new traders since they can be easy to spot and trade.
So, what is a bullish or bearish flag?
The bullish/bearish flag formation starts with a stock making a strong upward/downward move on high volume, forming the pole. It then consolidates at the top on lighter volume and forms the flag. This trend continues when the stock breaks out of consolidation.
To identify a strong flag that can be potentially traded on, look for patterns with less than 23.6% retracements. In the case of a bullish flag, you buy the stock on the breakout of the high.
Flag trading often follows a momentum trading strategy and is usually done on two- and five-minute time frames. Using a scanner can help find stocks that are surging then consolidating to form a flag pattern.
Do you have a way to scan for stocks that could potentially form a flag pattern?
StocksToTrade has all the scanners, trading indicators, dynamic charts, and stock screening capabilities you need.
4. Trading the Triangles Setup
There are three types of triangles: symmetric, ascending, and descending. You can trade all of them using the same breakout strategy.
To begin, be sure strong movement and volatility precede the triangle formation. Then draw the trendline once you see the triangle pattern forming.
Source
With the triangle setup it’s pretty simple…You buy below the most recent swing low and sell above the most recent swing high.
So forget about your win rate…Throw that thought out the window…
I urge you to memorize, focus on, and practice the trade setups outlined above. They are the true keys to success.
And if you’re looking for more tools to help you spot news, trends, and price patterns, StockstoTrade has a whole arsenal…
From BreakingNewsChat, our trading chatroom run by a team of Wall Street veterans…
To Oracle, our algorithmic system that scans the entire stock market every morning and delivers signals to inform your trading and deliver big winners…
To XGPT, our AI tool based on the aspects of human psychology to try to predict price movements and how to profit from them.
We have it all!
Have a great day everyone. See you back here on Monday..
Tim Bohen
Lead Trainer, StocksToTrade