Like many other people, I started out trading looking for 'setups'.
To me, a setup was going to be a very specific beast. It would have a beginning (entry), a middle (management) and an end (exit). A setup would consist of a series of rules which I could follow methodically (with my brain switched off) and make money. My foe in this game would be ‘psychology’; this evil beast would be on my back goading me into breaking the golden setup rules. The setup would be the Knight in White shining armor, a brave and valiant soul that would help me slay the psychology dragon.
Setups would have to come from elsewhere. I would travel wide and far in search of pointy hatted wizards who magically brew up setups and let a few privileged Apprentices in on their secrets, usually at $499.99 (a $1000 value) a pop. There would be white wizards and dark wizards. The dark wizards paced the halls of Barnes and Noble offering fruits that turned to dust on the bus home. White wizards would appear magically on the mystic web and Skype rooms and disappear soon after the wand of Paypal had been waved.
If I didn't have a setup, I'd be trading at random, I'd be using my gut, I'd never be consistent. I’d be letting the psychology dragon make me do evil things to my account. Without setups I would never be able to trade. Yet where to find a setup? “Create your own” the peasants cried. Me? Create my own setup? With no wizard by my side, I had yet to even see a working setup. Create something I’ve never seen? I don’t even know the ingredients…
“Oscillator, Indicator toil and trouble;
Averages burn, and candlesticks bubble.”
Off I went to the spell books but only to find a hundred set of ingredients with a thousand ways to tweak them. The combinations and permutations were endless. The light at the end of the tunnel grew further and further away. ..
This is where the story stops for many people. Even worse, this is where the story loops and repeats itself. Everybody’s story is different of course but there are common themes.
What if setups are not the answer?
Let’s say you make a New Year’s resolution for 2012. Let’s say your New Year’s Resolution would be to end your setup quest. This might sound a bit odd. If the repeatable setup doesn’t exist, how will you enter a trade? If you can’t trade setups what can you trade? Let’s just say that setups are your left hand and we are going to tie that hand behind your back for the duration of 2012. With this in mind, what are you going to do?
A year with no ‘setups’. Anyone?
The following 9 users say Thank You to DionysusToast for this post:
If "no setups" means no chart(s), no TimeandSales, no GomVolumeLadder, no TradersInsight, etc, then I'll resort to a Dashboard of market/instrument information that just displays the Depth of Market .... Supply and Demand. So, by just looking at the Dashboard, I make my trade decisions. Any such Dashboard available ?
You cannot get away with that without proposing some strategies to replace these setups. You cannot say I am going do away with dieting in order to lose weight you have to say I am going to eat more vegetables, cut out carbs after 6:00 pm, no cakes, no sugar, go to the gym at least 3 x per week and do a lot of cardiovascular training etc.
I have done the coin flip method of no setup and you are just in. It amazes me when no money is on the line and it is just 'competition' that I am profitable every single time. Of course that is with a chart that moves as fast as my finger.
I believe we as humans have the ability to program our subconscious to be profitable traders but we don't connect. Something I still struggle with.
The following user says Thank You to bluemele for this post:
No I am just provoking a debate and taking the other side. I agree with you about setups but if you are purporting to stop using them what are you proposing in their absence. I do not use setups per se but would look for a particular condition or patter to emerge before committing to the trade. I do not sell VAH's or buy VAL's or try to fade the gap fade because the market has gapped up, no that is suicide in my opinion but I am looking for a condition to emerge ands show itself.
I think it all depends on your definition of a setup. A setup can be pretty simple.. If you watch an instrument like TF, you will see some big fast trending moves of 30 to 50 ticks...Now afterwards price will go into a consolidation phase. You can zoom out your chart and easily draw lines on these price ranges (make a box)..even set price alerts to let you know when they get breached. Then find out where the next area of support and resistance is..that's your prospective target. The longer and narrower your price consolidation is, the better chance for a good move to happen. Then when you see your "Box" being broken, check out how strong and fast price is moving....Don't wait for 5 minute candle to close because you'll most likely miss most of the move. Once it breaks through, you can usually wait for a quick pullback and then based on how strong you feel the move is, you can enter. This is a very easy setup... I know the key times during the session (usually where banks are moving money) Watch at 10:40 am est and 11 am est or even 12 pm est or final 10 minutes of us equity session. The setup is price cosolidation breakout with strong volatility plus critical market times plus a clearly defined target and stop.