What Are High Probability Trades and How to Spot Them?
“High probability trades” is a loosely used trading terminology that refers to trades with high degree of success. By ‘high degree of success’ we mean there is a high probability that the price will move in favor of your trading position and go in the direction you want it to go.
As every experienced forex trader knows, it is impossible to capture the market’s every move. The only thing a trader can do is to pick trades that have better chances of raking profits no matter how small. He filters all the information he has at hand from the underlying fundamentals to technical analysis models to narrow the options. Incidentally, there are only two options to choose from – up or down in terms of price direction or buy or sell in terms of trading decisions.
There is really no Holy Grail in forex trading that can open the flood gates of profits for traders. There are only probabilities. And you take your best shot in picking up the ones with the greatest probability that the price will be moving in the same direction and produce profits for you. You call these high probability trades and different traders have different ways of determining what they consider as the high probability trades. Where one trader looks at a certain price level as a good buy, another may view it differently and consider it as a good sell instead.
And when we talk about probabilities, every trader knows that there is always that possibility that the price may move against your position. This brings us to the second element that should ideally be incorporated with every ‘high probability trade’ you take – the trading stop. Every high probability trade must be executed with an accompanying stop to protect your account from being wiped out and at the same time leave you with enough margins to trade another day.
As mentioned earlier, no two traders have the same view of what are and what are not high probability trades. It boils down to their individual trading strategies and the analytical method they use to forecast price movements. They have a common objective though and that is to rake in more winning trades than losing trades so that by the end of the day they are on the profit side.
Some forex traders determine their ‘high probability trades by analyzing the underlying fundamental factors (mainly economics). Others use technical analysis models from the simplest to the most complex. Others use both. But one thing is definite – what works for one won’t necessarily work for the other. And this is because, there are other variables that may come into play like trading temperament, appetite for risk, size of the account, etc.
But whatever methodology you use to determine your high probability trade, you must never forget that you are a directional trader which means you only trade in the direction of the major trend and never against it. No amount of extensive analytical work will make the price move in your favor. You are only taking a calculated risk after you have filtered most of the unimportant details and narrowed down your trading option to what you consider as the high probability trade which may or may not work in your favor. This is the reason why you have a protective stop all the time so you get to survive for another day and take the next high probability trade that comes around.
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