Smart Charting to Increase Your Odds

Where to enter a position in the markets is key. If you can’t get your entry correct, meaning low risk, high reward and high probability, the other components to your trades such as the protective stop and target will not work. Since so many of my article deal with properly entering positions, I want to focus on a simple yet powerful technique related to how you exit positions that should help you increase your winning percentage. To explain this, let’s look at a trading opportunity I took in the NASDAQ Futures.

Profit Zone

In short, your profit zone is the distance from your entry point, which will either be demand or supply, to the opposing demand or supply level. So, in the trade below, the profit zone is the distance from the demand zone (yellow box) to the pivot high (red circle) as that was the highest price could rally prior to buying at demand below. Many would mistakenly take that supply area (red circle) as their target thinking, supply is where price stops rising so you should sell at that price.

NASDAQ 9/15/17


Think Easy Money

Supply as we know is a price level where there is competition to sell. So, if we sell where others are looking to sell we are going to have to compete with them at that level which makes getting filled for our profit difficult. So, if we know there is competition to sell at supply, that is not where we want to sell. The trading opportunity that makes it much easier to get our sell order filled is to sell before price reaches the area of supply (red circle). Instead of selling our position at the red circle (supply), selling at the blue line will give us a much easier and better chance at getting filled, dramatically increasing our odds. Another way to say this… Instead of selling when there is competition to sell, sell for your profit when there is still competition to buy, this is what I always do.

Profitable Thinking

If you have been reading my articles for a while, nothing I have said so far is brand new information; so let’s get to that now. For all our short term and long term trading opportunities, one component that must be present is an ideal risk/reward. No matter how many Odds Enhancers are present, the risk/reward must be there. To help define this for the purposes of this article, when we say 3:1 we mean risking 1 to potentially make 3. Furthermore, the 1 is the distance from entry to your protective stop and the 3 is the distance from your supply/demand level to the nearest opposing supply/demand level. However, given the information we discussed above on competition and how it relates to the probability of getting filled, we have an opportunity to increase our odds of a profitable trade.

  • If you are looking for trading opportunities that offer you an actual 3:1, make sure the chart is offering you at least 4:1. If you are looking for 4:1, make sure the chart is offering you at least 5:1 and so on. If you want to increase your winning percentage even more, try this… If you are looking for 3:1, make sure the chart is offering 5:1.

I employ this concept on almost every trading opportunity I find and take. Most people who find 3:1 on a chart, set the trade up there to take action at 3:1, I don’t. Instead, I would make sure the chart was offering at least 4:1 and then take profit at 3:1.

Of course, to do this objectively you must be able to qualify and quantify real demand and supply in any and all markets with a very high degree of accuracy. All the information you need to do this is clearly seen on a price chart if you know what you’re looking for.

Hope this was helpful, have a great day.

Learn to Trade Now

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from click here for Terms of Use: