Everyone wants to make more money trading, right?
Our goal should always be to maximize our odds of winning on any given trade.
If we do that, by default, we’ll fatten up our P&L’s in a big way.
So let’s go through 7 ways to improve your chance of winning on your next trade.
One of the most important factors in whether you’ll make money on a trade or not is the overall market direction.
Because if the market’s going up… guess what happens?
Most stocks go up! So if you’re long any stock when the market’s ripping higher, odds are you’ll make money.
Relative strength and relative weakness is also important.
You want to be in sectors that are stronger than the market overall.
And you want to be in stocks that are stronger than their respective sectors.
Maybe the SPX is up 0.5%. The QQQ’s are up 1%. And Apple (AAPL) is up 1.5%.
We can assume that Apple – a strong stock in a strong sector – has a higher probability of going higher.
Volume is confirmation.
If you’re long a stock and it’s rising on strong volume, you’re getting confirmation that you’re making the right move.
Because volume represents passion and conviction.
Say you buy a stock on a simple breakout to the upside.
If that breakout is coming on volume, the odds the trade will work go up.
News is also important.
I love seeing a stock respond well to news.
I’m talking both direction and volume.
If a company has good news and the stock rises on volume, there’s a good chance the stock can keep rising. So long trades will have a higher probability of success.
One of the biggest mistakes traders make is using only one time frame.
I look for Time Frame Continuity. This is when all time frames are pointing in the same direction.
Let’s say I want to go long Nvidia (NVDA).
If NVDA is trending higher on the weekly, daily, hourly, 15 minute, and 5 minute charts, a long position will have a higher probability of success.
Why? Because every time frame shows the same story.
On the flip side, let’s say a stock is down on its daily chart, sideways on the weekly, up on the 15 minute, and looks topped out on the 5 minute.
What would I do?
Nothing! Because there’s no message either way.
My best trades happen in the first 30 minutes of the day, so I focus much of my energy there.
Why? The open is where price discovery happens.
Markets are thinner and less liquid.
That tends to mean that your trades can move faster in a shorter period of time.
You also have institutions positioning themselves long or short based on news, or whatever happened with the market overnight.
It’s a recipe for action.
So focus on that first 30 minutes.
FYI – the second best time to trade is 10-11 a.m., and third best is 2-4 p.m. when institutions come back from lunch and traders reposition into the close.
That means more potential for movement.
I’m not crazy about midday trading because there’s not enough movement.
One of the most important things we do on the Pro Desk VTF® is watch the options flow.
My team constantly looks for large options orders that can signal big moves coming in stocks.
We really like to see large, repeating options flow into a stock as it’s going higher.
So, if you see repeat option flow come into a stock, you have a better chance of making money on that name long.
Before I place a trade, my inner voice is always asking “what is the probability of success on this trade?”
And since I’ve internalized all the concepts you just read about, I can make a decision in seconds.
That should be your goal.
So you should start thinking about these 7 layers of probability the next time you fire up your screen and see that big, shiny buy button.
Try the Pro Desk VTF® today!
Want to Trade With My Team? Click here!
– Derrick Oldensmith
Senior Trader and Managing Supervisor