loanme5 asked the following in comments:
"X, What is your process for putting together or finding set ups that you test? I've watched you make adjustments over the years and always wondered what was going on underneath those patterns that I don't seem to grasp. I guess I am asking what are the basic fundamentals of all set ups that you feel make up a quality set up and trigger? You often say, "trade what works best for you", but sometimes I struggle with even knowing where to start and knowing what works best for me. Hence, I still find myself "chasing success" every now and then.
And if I have not said it in awhile, thanks for everything that you do. If not for you, I would have been out of this business long ago."
My process is simple - I look at a lot of charts five days a week (outside of my normal trading hours). I can't stress enough the importance of establishing (and maintaining!) this discipline. I look at charts, I take screen shots, and I make notes. I study several different timeframes, I experiment with plotting my Fibonacci lines in different ways, I segment my watchlist by price, I segment my watchlist by gap (size of gap, gap inside the previous day's range vs. outside the previous day's range), and I study!
I have several dozen solid setups that I study, but in the end I only trade a few because I believe in less trades with higher win rates. But, I still study everything else. And I am always on the lookout for new setups, or variations of existing setups.
As regular readers know, my trading has evolved over the years. Today, I am normally done trading within two hours of the open; sometimes I am done within one hour of the open. As a result, I trade faster timeframes. I have migrated from 30, 15, and 10-minute timframes to 5 and 2-minute timeframes. But throughout my trading career, these characteristics remain constant:
1.) I trade gaps.
2.) I use Fibonacci lines.
3.) I use candlestick charts and analysis.
Along with these "constants", I have these "almost constants":
1.) I use moving averages to help me tell if price is extended too far.
2.) I sometimes watch the previous day's high/low for support/resistance/targets.
3.) I sometimes keep an eye on pivot lines (standard calculation in my software package) for support/resistance/targets.
4.) I sometimes watch whole dollar levels, and to a lesser extent half-dollar levels for support/resistance/targets.
I am sure there are a few other things I can list, but this is a good overview of my style. It is important to note that I have left everything on the blog as my trading has evolved - so you can go back and look at what I did when I traded 15-minute or 10-minute timeframes, or what I did when I plotted my Fibonacci lines one way vs. another. Nothing is obsolete, regardless of whether I still use it or not.
In March, I will try to elaborate more on my methods as I continue to post charts and analyze reader's trades. I have also talked to Kernan from TRADEthemove.com about doing a guest post on the different ways of plotting Fibonacci lines. He has committed to get me something in the next few weeks, and I think everyone will find it informative.
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