Why Should I Care About High Probability Trading Strategies?

Aug 7 • Forex Trading Strategies • 1596 Views • Comments Off on Why Should I Care About High Probability Trading Strategies?

High probability trading strategies has become the new buzzword among currency traders who want to make money consistently from the markets. These strategies are intended to be successful for the majority of trades (seven out of ten trades) and provide a complete trading plan that encompasses not just entry points but exit strategies. A high probability strategy should not be confused with a high profit strategy in which each trade offers more profit, requiring you to be successful less often in order to enjoy a net return on your investment.

To illustrate high probability trading strategies, let us look at a strategy that is based on the Momentum Strategy.  To implement it, set the period of your charts to display at five minute intervals. Then look for the price of the currency you are trading to break through the 20 Simple Moving Average when it is closing. Use the MACD to confirm the direction of the momentum before entering a trade. When the price of the currency closes above the moving average and the MACD confirms by crossing from negative to positive within the previous five bars, short the currency pair. If implemented correctly, the strategy can be successful for as many as four out of five trades.

High probability trading strategies are based on the idea that it is better to make a series of small consistent successful trades rather than making a trade that earns a high profit. Hence, these strategies are most popular with day traders and other short-term traders while high-profit strategies are for those who have the patience for longer-term trades.
 

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According to advocates of this trading strategy, there are four methods for determining in advance when market conditions are ripe for a high probability outcome in your favor so you’ll know when to enter a trade:

  1. Multiple time frame momentum. In this strategy, the trader examines multiple time frames and waits until the momentum in all of them align, whether the trend is bullish or bearish.
  2. Simple pattern recognition. This strategy helps the trader to identify whether a price movement is a trend that is likely to continue, or a correction in which the direction of the price is about to reverse.
  3. Price reversal targets. This strategy allows you to target in advance support or resistance targets as well as trend reversal, using Fibonacci ratios to watch for retracements.
  4. Time reversal targets. This strategy analyzes charts using time units rather than price data to detect corrections.

There are many other skills that you need to master when implementing high probability trading strategies, including trade management skills such as where to place your stop loss orders as well as when and how to exit a trade. While there may be a high learning curve when it comes to implementing these strategies, the rewards will more than compensate the time you’ve spent mastering them. And they are ideal for traders of any skill level, although those who already have some experience trading will probably get more out of them.

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