Perfect Trade Setups

Good versus Perfect Trade Setups

ZoneTraderPro is constantly identifying trading patterns and displaying these trade setups.  What makes a good setup and what makes a perfect setup?

Good Trade Setups

Good trade setups combine several of ZoneTraderPro filters, but everything is just not perfect. Take this trend trade from yesterday morning 7/28/14.  We go into the setup with a lower low tick of -846, but as the market reaches the red intermediate resistance zone, the tick makes a higher high by 5.  This is not devastating to the setup but its not perfect.  The trade is good for 2.75 and it trades into a Tick Divergence which is good for another 2 points.  Notice how the $TICK indicator at the bottom at the chart is screaming to get out of the Tick Divergence trade.  This again was another good setup with low risk and good reward.  It was not perfect because the previous high $TICK only exceeded by 5.  This is then followed by a Tick Divergence / Exhaustion long trade.  This is again a very good setup because of the combination of the Exhaustion trade setup and Tick Divergence trade setup.  This trade was good for 3.25 points and when you combine the three trades which occurred in less than a 30 minute period there was a potential profit of 8 S&P points with no losses.

Perfect Trade Setups

The perfect trade setup comes 2 hours later.  First we see a huge amount of volume at the blue counter trend support zone.  The fact that the sellers could not drive price lower with such a large amount of volume is a significant point. The chart of the volume shows this high volume.  Note the high volume resistance at 1970.25 which is where the counter trend resistance and the exhaustion trade is indicated.  But this is not a good setup because of the significantly higher $TICK which is identified by the red dot TICK filter.

But the reversal trade was a perfect setup.  First all of the volume is acting as support.  Second you have a higher TICK high (554) and a higher TICK low (-397) when the trading pattern sets up.  The green background indicates the Euro/dollar futures were favorable to a long trade.  The stop was only 4 ticks of risk.  This trade was good for 7.75 S&P points.