There’s been a few questions surrounding the trading setups that get posted every week that deserve their own blog post. Even though there is a post: How To Trade The Setups, some people are still a little confused.
These are not buy here and sell here setups. Trading is not that clear cut unless you are using a mechanical trading system. Those have problems of their own including the removal of discretion. Trading systems are generally made up of technical indicators that lag price.
These indicators will not tell you there is consolidation in the market.
They will not tell you there is a breakout underway
They will not tell you there is structure that could cause your trade some grief
What these setups do is highlight areas on the chart where there is a probability of trade-able action. These are daily charts and unless there is obvious reversals such as the failure test, taking a trade in the direction of the trend on that time frame is the desired action
You can certainly take counter-trend trades on the failure of the pattern that we are looking at – example is looking for longs on support but taking a reversal trade if price action is clearly bearish.
Remember, these charts are looked at on the weekend. During the week, things evolve.
Our job as traders is not to predict – it is to react. React within some framework of discipline. It is far too easy to trade every strong move but that will cause you more harm than good in the long run.