We all have our favorite “go to” set-up and when that set-up presents itself I sometimes start counting my chickens before they hatch. Generally, after taking what I believe to be the perfect entry and watching it nose-dive the wrong way I start mumbling to myself, “that trade always wins, what’s up with it losing?” It is important to understand that even the best trade has the potential to fail miserably. It’s part of the trading dance to lose trades. Trading is a function of probability and even the highest percentage trades, if you track your trades, will fail.
There are several very high probability e-mini scalps that I use to initiate trades. Some of these trades have winning percentages that exceed 70%. In my opinion, initiating a trade set-up that has profited 70% in the past is a no-brainer. A trade with high probability will generally work out in your favor, except when it doesn’t. Most people forget that a trade that wins 70% of the time, doesn’t win 30% of the time. It should not be shocking when your “go to” trade occasionally does not work out the way you planned. What causes a high probability trade to fail? There are many factors that cause a high probability trade to fail, some of which are:
· The set-up occurs at a time when economic news is announced and traders deviate from the set-up
· The trade may result in a countertrend trade. Even the best set-ups struggle when trading against the trend.
· The trade may set-up when sentiment in the market is changing via earnings announcements.
· The trade may set up close to powerful support/resistance and is stopped from completing by the support/resistance.
· The trade sometimes just doesn’t work because it doesn’t work. That may sound a little ambiguous but sometimes great trades start out properly and then everything falls apart.
· Often times there is a virtual tug-of-war going on at a certain price-point and the market is unable to move completely through the tug-of-war to your profit target. These tug-of-wars can occur in odd price points, at least price points that have not been traditional support/resistance zones.
· Finally, correlated markets may be moving in the opposite direction of the index you are trading. Correlated markets generally move in tandem or directly opposite to the instrument you are trading, but the relationship sometimes gets out-of-kilter and the two instruments temporarily move counter to their traditional relationship.