There seems to be some fascination with newer/beginning traders to find this perfect setup, this small set of circumstances that give price action the appearance of a great trade opportunity. You’ve probably heard about these patterns and setups before, often referred to as Pin Bars, Engulfing Bars, Inside Bars, etc.
Beginning traders become hypnotized, thinking these price action patterns are all you need learn to trade the market, as if trading were a fashion contest, and your goal is to find the best dressed setup.
The problem is, this is a really confined view as these patterns are more often the result of order flow – not the cause of it.
A Means, Not the Reason
These price action setups discussed above, are a means to get into the market, not the reason why you should be. And it’s often the case, they are the secondary reason why you should be entering the market.
The reason why you should be getting into the market, is because your understanding of the price action & order flow in the overall market, gives you an over-weighted picture as to a clear direction in the market.
This direction could be for 20 minutes, hours, or even days. Â The amount of time it will likely maintain that direction is not important. Â That the price action gives you an over-weighted picture of the direction IS!
And when this happens, there is a trade opportunity. Â If that opportunity offers you a good mathematical reward/risk play, then you should be trading it – not because of some picture perfect setup.
Trading is Not A Fashion Contest
How many times have you seen a picture perfect setup that completely failed? Â I’m willing to bet dozens of times, and if you trade long enough, hundreds or thousands of times.
Why is that?
Because trading is not a fashion contest where you are looking for the best dressed setup. Â Because price action setups can and will fail, which should communicate to you – not to become fascinated with finding the perfect price action setup.
What it should mean, is you want to develop your ability to read the overall picture of the market, understand the order flow behind it, learn to read the impulsive and corrective price action. Â Then, look for an over-weighted scenario. Â Once you find it, check the math to see if it’s favorable. Â If so, then take the trade.
Missing High Quality Signals
If you are always on the hunt for the perfect setup or trade, you will likely be completely missing high quality signals passing by right in front of you.
The greatest mistake of higher time frame traders is they often do not take great trades that are right in front of them, because they are waiting for the ‘perfect‘ setup – one that will hit them over the head.
The problem is in passing up these trades, they are also passing up high quality signals that offer a mathematical edge and profits.
Ironically, the greatest fallacy of intraday traders is they will often take trades that are not there, or not of high quality. Â Although it may seem like the former is better than the latter, both are the same!
The higher time frame trader makes a lot less profit because they pass up really high quality signals, looking for their perfect match.
Meanwhile, the intraday trader while often having more profits, generally has slightly more losses, because they are taking trades that are not there. Â Their upside is higher for executing their edge more, but the extra losses pull them back.
Thus, when you really see this clearly, these are two sides of the same coin! Â The trick is to find the balance and wisdom of the two, not to stay on one side of it. Â This is the knot of trading you have to untie.
A Fantasy World
Spending your time looking for the perfect setup is living in a fantasy world. Â It’s like looking for the perfect partner – how many people have you really met that have one? How many people have you met thought they found one, & were completely wrong? Food for thought – but trading is not a fashion contest, and it’s not about looking for the perfect setup.
Same Setup – Different Result
There are many times several of my price action traders spot the same exact setup, yet end up with completely different results.
How could that be?
Because they managed the trade differently. One took profits a little early (but still ended up profitable), while the other caught a huge portion of the move.
Although it may seem like this one trade may not mean much – it means a lot if its repeated.
When trader A encounters a series of losses (and you will, regardless of your strategy), their downside will be more severe and they will take more time to recover. Â However when trader B encounters the same downside period, their recovering will be faster, because they padded on more alpha to their trading account. Â For them, it only takes a few large wins to erase a lot of losses.
Keep in mind, they both spotted the ‘perfect price action setup‘, yet they both had different levels of profits.
What was the difference? Â In how they managed the trade.
This should be communicating to you, what is far more important than finding the ‘perfect’ price action setup, is learning how to manage the trade. Â And this really comes down to three things;
1) Understanding Risk Management
2) Learning to Read Price Action In Real Time
3) Managing Your Emotions/Mental State
Perhaps you can find the perfect setup, but fail to do the three above, & your perfect setup is powerless to deliver consistent profits. Â Bells should be going off in your head now about what you should be spending your time studying. Â It’s not how to spot a pin bar, or engulfing bar, or some other magical bar. Â It’s about setups, price action and context.
These pin bars, engulfing bars, or any bars are easy to find, and take little mental effort. Â The learning process for this should be short.
But the learning process for the three things I listed above prior, should be never-ending.
I understand why many of you have made this mistake. Â There are these so called ‘authorities‘ and ‘masters‘ (notice self-labeled as no peer will call them that), who claim you only need 3 of these ‘setups’ to understand the market. Â That these great setups only occur on higher time frames, that intraday price action trading is to be loathed, that accuracy and profitability has a linear relationship with time frames.
Ah yes, and don’t forget the three golden setups – how convenient! Â As if a market with over a million participants, composed of retail & institutional traders, hedge funds, banks/brokers, pension funds, HFTs, intraday traders, swing traders, long term position traders, etc. are all subdued by these overlords of price action patterns.
High quality signals occur on every time frame, and there are profitable traders across the world trading on almost every time frame. Â Intraday price action trading is not to be loathed – that is just a personal feeling of some, while a ATM machine for others.
Who is right?  Neither – thus don’t hate intraday trading because it doesn’t work for you. The greatest mistake a trader can do, is to think their world and thoughts about reality – ARE REALITY!  As if your wisdom and insight is so brilliant, so total, so complete, that it has a monopoly on the truth about trading.
Does that sound reasonable to you? Â Or does it seem more likely there are many ways to trade successfully, and the best way is what’s comfortable for you.
Just remember, what may be comfortable for you, may not be for another, and neither one individually is reality by itself.
Heed the wisdom of Obi-Wan Kenobi who once said, ‘Only a Sith sees in absolutes‘. Don’t be the Sith in trading, or follow a Sith.
Find wisdom in things, then find what is most comfortable for you, while constantly challenging yourself to take things to the next level. Â Rarely ever where you start this journey (both in trading and in life) is where you end up. Â Thus remember, trading is not a fashion contest, but it is about managing risk, your mental state, and learning how to read and trade price action in real time.
Great Article and how true too.
So many things to take away from this one article.
When I was first learning to trade I was one of those beginners who spent WAY too long trying to learn and trade that “perfect setup.” However, once I learned more and more, I finally understood there is no perfect setup. Trading is about executing an edge with a favorable risk/reward and then managing that risk.
The three things in this article on managing trades are definitely spot on.
“These price action setups discussed above, are a means to get into the market, not the reason why you should be. And it’s often the case, they are the secondary reason why you should be entering the market.”
This here is game changing. When you really understand this, I think you’re on the right path. It’s something I’m still adjusting to. Too often have I entered the market simple because there was a pin bar or whatever price action setup. When the reason I should be entering is, as Chris put it, ” because your understanding of the price action & order flow in the overall market, gives you an over-weighted picture as to a clear direction in the market.”
Whoa! lol
I also need to change my understanding of intraday price action. I’ve been lead to believe by the “gurus” or “masters” that high probablity or high risk/reward setups only occur on the higher timeframes. Since following Chris I’m starting to realize that simply isn’t true.
Anyway, great article, Chris. Keep up the great work and thanks for sharing with all of us.
-Travis Hawkins
hi chris..
m going through ur stuff in detail. . just to tell u its all eyeopening .. feel like another child step taken by me in this vast ocean of knowledge..thanx n keep up ur excellent stuff..
Hello Mahmood,
Glad you are finding it eye-opening. I still feel the same way you do when diving into this market. Always something to learn, grow and evolve from.
Kind Regards,
Chris Capre
A brilliant article. I have (am) guilty of believing (until now) that simple pattern strategies only on higher time frames were only way to trade successfully (not that I have been profitable so far). I am now awake to the the importance of price action patterns in context of order flow. An excellent article.
Hi Chris,
what a great article. i could understand that setup is not enough but let us say that i have follow your lesson in PA corse ,which i am doing right now 🙂 , could overcome this issue and would be able to understand price action to be successful trader. i thought that discipline and following based rules of trade set up and risk mangement and psychology too will help me to be become full time trader.
Best Regards,
shami
Chris, this is an amazing article. You really have a gift in putting things in writing with clear images and touching words. It took me months even years of trading to get clearly that setups, big pictures, rules and emotions were working together and you, you just summarized this in one page. We can all see how you like and master trading but also how you were made to share insights about it. This community is lucky.
Best to all!
Great article. I really enjoy how you point out the fact that as traders everyone is different and we need to think for ourselves and not follow the so called “guru”. Trust me I’ve followed many a guru and it is refreshing to find the opposite here.
Chris,
excellent points – this one should be chewed on “slowly” giving thought to each concept pointed out
grif
Hello Grif,
Indeed – and am glad you digested the main gusto of it.
Kind Regards,
Chris Capre
Dear Chris, I don’t quite understand price action. Seems difficult for me. Will the course material be confusing.
Hello Orion,
Yes, in the Price Action Course, I cover the most basic models of reading/trading price action, then from there, you work your way up through the more advanced patterns and models. So all the primers needed are included, and I have many with little/no experience join the course and do just fine – so if they can, so can you.
Hopefully this answers your questions.
Thoughts?
Kind Regards,
Chris Capre
Dear Chris,
I know I stumbled upon your site not by accident rather by design of our One Creator. The article above resonates very well with me as that is what I believe too. I like it best when you wrote:
“The greatest mistake a trader can do, is to think their world and thoughts about reality – ARE REALITY! As if your wisdom and insight is so brilliant, so total, so complete, that it has a monopoly on the truth about trading. Does that sound reasonable to you? Or does it seem more likely there are many ways to trade successfully, and the best way is whatÂ’s comfortable for you. Just remember, what may be comfortable for you, may not be for another, and neither one individually is reality by itself.”
Well said Sir. Thank you.
Abdul
Hello Abdul,
Glad you liked the article, and yes, I said that hoping it would resonate with people, so glad it has.
Kind Regards,
Chris Capre
HI Chris
That was really good, hearing from you that every time-frame can be an ATM machine if you are comfortable trading it.
I hated this point of view from this “authority” that intraday price action is useless.(by the way who would call himself that? seriously! ) I think I know how he himself is successful and the reason is -besides being comfortable with what he does- overtime, he’s developed this pattern recognition ability to see repeatable price action patterns and from that , he uses those 3 magical strategies.that probably works beyond his conscious mind , Chris that’s your specialty but what I mean by that is this : he can’t teach his method, because it’s formed over time by watching the markets moving day by day. how do I know that you might ask ? well, if you follow his videos, he calls that skill “the gut feeling” — the one thing that is not teachable as he says and traders are born !! I mean come on, what I’m supposed to do if I don’t have the right gene with a pinbar symbol on it ? then I can’t be a trader ? that doesn’t sound right. maybe it worth a minute or two of thinking why not just him, a lot of people can’t teach their methods. in my opinion this endless cruise of finding the perfect strategy ends at that magical moment, when one accepts and realizes the loosing part of trading. at least it was for me, with the help of understanding the importance of money/risk management.
Sorry if I talk too much.
anyways you’re absolutely correct that managing risk, having a “fit” mental state and understanding the Price Action is what one’s required for success and must work on them constantly.
great article as always and good luck every one 🙂
Baback, D.
Hello Baback,
I continually week after week post live trades on the ‘useless’ intraday time frames, and I know tons of trades using all time frames, from tick charts, to 1m, 5m, 1hr, 4hr, daily and weekly. Its a stupid argument that you can only make money on one time frame and the rest are useless.
As to this ‘gut feeling’, that’s pretty subjective to oneself and not really useful to the next person – or as you pointed out – nothing you can teach to the next person. And if they say traders are ‘born’ with it, then they really have no idea of how the learning process goes, or what neuroplasticity is, or how people can learn virtually any skill.
But your ‘pin bar gene’ comment might have been the funniest one I’ve read this year 🙂
And yes, one has to give up the quest of looking for the perfect setup, of looking for the one that kicks you in the head, of looking for the A+ setups. I’ll be writing an article on this soon, but this is not how a professional trader thinks, nor a professional poker player, nor a professional sports player.
But thanks for the positive comments and please spread this article on forums so others can get over this freshmen idea of the ‘perfect setup’
and start focusing on trading.
Kind Regards,
Chris Capre
Thanks Chris
Sure thing. I’ve been deceived by this quest of finding perfection in life numerous times. it’s just so common.
if you think about the trading community, it’s actually quite rare that you catch somebody talking about the mathematical edge that one’s required to be successful.
it’s like no one wants to talk about this big big part of trading called : loosing, it’s psychological influence, what it does to a trader, and most importantly, a beginning trader. this , all of this, come from the wrong mindset and swindlers I believe. to be honest when I hit my stop, I’m happy most of the times, it’s like a prayer being answered. cause I know I had a reason to put it where I did and If I didn’t have my stop I was heading towards a disaster.so my protective stop actually saves me and helps me along my way. it doesn’t hold me back to be profitable, it pushes me towards it. no one ever told me this, I had to figure it out myself after what, a year ?
so it’s obvious a lot of things are wrong about general concepts of trading. maybe sharing articles like this and writing a thousand more help change things for a better.
by the way did I mention I write/talk too much ? 😉
it would be a pleasure to share this article
happy trading Chris,
be at peace.
PS : after a while I read Dr. Van Tharp’s “super trader” and he thoroughly discussed the money and risk management and mathematics required for being successful.
hey chris,
can u teach us how trade on news or economics event…. full article about fundamental analysis…… thnx for previous article about fx…. 🙂
Hello Dikson,
Yes, just learn how to read price action in real time.
Kind Regards,
Chris Capre
Hello Chris,
Thinking outside the box here,…..
i have often tried,on a demo account,
to trade these ‘fashion contest, picture perfect’trades,
and trade them in the complete opposite way to what it is telling me,
i do this,to try and convince myself,and practice,that how i manage the trade,and deal with containing risk are the most important
I am not saying i have tried it on a live account, tho sometimes i think i should to bring the emotional side into it..
Chris,Appreciate as all ways your thoughts and posts…
kind regards
David
Hello David,
Yes, how you manage the trade and contain the risk are far more valuable than finding ‘perfect A+’ setups. These can and will fail
around 40+% of the time, and are not some holy grail. When you realize this, you start learning where to put your focus and concentration as
to improving your trading – which is managing risk, your emotions and the trade.
Setups are easy to find and will pop out each day. They take little mental effort, and the fascination with finding them almost takes more effort
than needed. What is far better is to practice the skills I mentioned, so glad you noticed this.
Kind Regards,
Chris Capre
Hi Chris, there’s surely room for everyone in this market and what works for one doesn’t always work for someone else, the secret is to find what works for you and your personality and mindset and stick to it. Thanks for your thought provoking article as always.
Alex.
Hello Alex,
Yep, if you notice in my article, I mention that it is important to find what’s comfortable for you. But hating something because it doesn’t work for you, and then creating a false gospel about how its bad is misleading and close minded at least.
What one person hates, another person may love. Someone may love cold weather and mountains, while another may like beaches and hot days. Hating the other doesn’t make it bad for everyone, and to teach or communicate publicly that something you don’t like, should be avoided and is a bad idea, is highly toxic and misleading to new people who will take such information as truth.
The point is there are people making money with every style of trading, and that means people can as well. What doesn’t work for you, may be an ATM machine for another, so bashing another because you cannot make it work is really close minded imo.
That was one of the key points of my article – to be open minded, to not close doors on something because it doesn’t work for you, and to be honest about what can and cannot work in trading.
Hopefully that helps clarify it a bit further.
Kind Regards,
Chris Capre
As always a very insightful article. You articulate your point very powerfully yet in an easy to follow style. I continue to learn from you.
Best wishes,
Stan
Hello Stan,
Thank you for the positive comments and I’m glad you are continually learning with these articles.
Kind Regards,
Chris Capre
Another great article, thanks Chris
Hugo
Thanks again Hugo.
Kind Regards,
Chris Capre
Hey Chris,
Great article. I agree with you 100% that these setups don’t work by themselves. I know cos i tried them and they fail more often than not.
I’m not a member of your course as yet but from all the free stuff you’ve given i can vouch that what you teach on impulsive vs corrective moves is the way forward. Its golden.
I need to refine my trading and move it up a level from just trading setups to being able to read P.A in real time.
See you in the course soon.
All the best.
SS
Hello Sahil,
Yes, very good point.
The key here is to realize once you get past the ‘fashion contest’ mentality around setups, you start to spend more time working on how you manage the trade, your emotions, and deal with containing risk.
Setups are not hard to find, and high quality setups happen every day several times a day. These are not hard to find.
But the other aspects are – so dedicate your efforts to this, and your trading will take a giant leap.
See you in the course soon as well and looking forward to working with you.
Kind Regards,
Chris Capre
Well written, Chris!
As mentioned in our conversation, that’s what I appreciated the most in your price action course. Learning to understand what is happening in the market through reading price action (Imove vs Cmove). The Setups is secondary.
Have a good trading day …
Kind regards
Abdirahim Jama
Hello Abdirahim,
Yes, once you learn how to read the market and price action in real time, things change, especially using the impulsive and corrective model.
You have definitely realized this and its reflecting in your trading, so keep up the good work!
Kind Regards,
Chris Capre
This is again… so true! Thanks for yet another great article Chris
Hello Dion,
Glad you liked it.
Kind Regards,
Chris Capre
Very good Sir, Eye opener.
Keep on Sir.
Hello Eklavya,
Yes, lets hope its an eye opener, and feel free to share.
Kind Regards,
Chris Capre
Chris thanks for bringing a fresh understanding to FX trading.
Hello Sunny,
Glad it helped and thank you for the positive comments.
Kind Regards,
Chris Capre
Very Nice~~ I enjoying all of ur article.. I also tried some ur Method from a friend and it Works very Good in to me!!i think, i`ll gonna join ur circle soon 🙂
thanks!!
Hello Jesslyn,
Glad you are enjoying the articles and finding them useful.
Hoping to be working with you soon.
Kind Regards,
Chris Capre
good
Hello Rajib,
Glad you liked it.
Kind Regards,
Chris Capre