A search on any of the popular search engines will provide a trader with a plethora of high probability e-mini trading setups. Oddly enough, I was unable to locate any centralex specific article concerning low probability e-mini trading setups. Yet the problem of most e-mini traders is avoiding low probability setups, which are generally unprofitable. Considering the astounding number of new traders who fall victim to low probability e-mini trading, I found it odd that so little has been written on this particular topic.
Obviously, some trading setups are better than others. That is to say that an e-mini trader who regularly takes high probability setups succeeds at a higher rate than in e-mini trader who takes low probability setups. That being said, the rate of failure of first-year e-mini traders is in the 80% to 90% range. Obviously, an awful lot of new traders are taking low probability setups and failing.
Why, then, are we reluctant to talk about low probability trading setups?
In my world, it is very important to be able to identify high probability e-mini trading setups; but it is just as important to be able to identify low probability trading setups. Perhaps e-mini educators are loathe to discuss the negative aspects of trading as it may discourage potential students from entering the business; for whatever reason, I am baffled at the lack of discussion of low probability trading. Obviously, the failure rate for new traders would indicate that an awful lot of traders are taking an awful lot of lousy trades.
I think unproductive trades fall into three particular categories, which are: (in no particular order)
• Trading against the trend
• Trading when there is no trend
• Trading without a solid understanding of support and resistance
One of the most overused clichés and trading is “the trend is your friend.” It is my opinion however, that every new trader should repeat this mantra 25 times every night because it is truly one of the most important keys to successful trading. Yet, I observe traders initiate trades against the trend with such startling regularity that it becomes both frustrating and astounding. I’ve given this concept much thought, and realize that very enticing setups occur against the trend, especially among traders who rely heavily upon indicators and oscillators to select e-mini trading setups. Depending upon which author you care to quote, the market resumes in the direction of the trend at a rate of 70 to 80% of the time following a retracement. Yet traders find themselves in a near constant battle to avoid trading retracements because they often made very enticing setups in oscillator and indicator-based trading. Regardless of the strength of an indicator-based trade set up, if it is against the trend I simply ignore it. Unless you are an extremely experienced countertrend is trader, stay with the trend and profit.
There are many times when the market is in a period of consolidation and confined to an identifiable range. When this consolidation period lasts longer than 8 or 10 bars it often stays in this channel for an extended period of time. Generally speaking, channel based trading is random in nature and very difficult to predict. That being said, the level of trading that occurs in a consolidation channel is surprising. Quite simply, if the price action is trading in a defined range it will tend to stay in that range for surprising periods of time. It is difficult, if not impossible, to effectively trade in these channels as the action can be quite unpredictable and is definitely random in nature. Yet the level of trading that occurs in channels is startling; especially when it is obvious that a pre-established range is apparent in the chances for anything beyond a small gain are unlikely. Yet new traders pound away in these channels with gusto, hoping that they will catch a breakout or breakdown. As a side note, breakouts and breakdowns from prolonged consolidation channels are generally fail, but not before they snare a good number of traders who pour into the false breakout or breakdown with unbridled hope. Simply stated, breakouts and breakdowns from channel based trading are a low probability trade. Granted, at some point one of the breakouts are breakdowns will succeed, but not before numerous failed attempts at breaking out or breaking down fail.
Of all the factors involved in e-mini trading, one of the most important is to have a firm understanding of where her current support and resistance lie. At any given time there may be 4 to 6 support/resistance lines in a trading range. Taking a long trade directly into a point of resistance is similar to running headlong into a brick wall, especially if the line of resistance has been tested several times and held strong. Yet a casual analysis of a daily trading chart will show a sizable number of traders trading directly into support and resistance. Being aware of the exact points of support and resistance is essential knowledge for every trader. On the other hand, it seems obvious to me that many traders are only vaguely aware of support and resistance, else they would not trade headlong into these powerful price action stoppers.
In summary, this short article serves to point out three trading options that are undesirable. No matter how tempting it may seem, it is seldom a good idea to trade against the trend; nor is it wise to trade consolidation patterns. Consolidation patterns, or consolidation channels are usually confined to an identifiable range which precludes any dramatic price movement. Finally, it is essential for every trader to know and understand where support and resistance lie on a trading chart. It is never a good idea to take a trade directly into support or resistance as these lines are often a stopping point for any potential price action. Trade with the trend, avoid trading consolidation channels, and be aware of the location of support/resistance and you will greatly enhance your chances of trading profitably.