Filtering Trades touched on this brilliantly in the Slack Group this week was understanding the difference between High Probability Setup's and Valid Setups, and this comes down to taking into account the HTF structures and where the LTF price is in relation.
As you would have seen in my previous post regarding Split Screen backtesting and having an emphasis on the HTF while backtesting the lower timeframe patterns, this has been helping tremendously in filtering trades for me.
A quick breakdown of a trade I chose to avoid this week on NZDUSD in favour of a HPS on NZDAUD...
In the first screen on NZDUSD H1, we have multiple Ascending within Ascending channels, with a smaller Ascending structure with an Arching nature. However, when zoomed out to the Daily, price is actually sitting in the center of the larger Daily structure. This takes it from being a 'High Probably Setup' to now just a valid setup based on LTF structures only.
Moving onto the next couple of screens, price could just be setting up for a move up for the Third Touch of the Larger Daily structure, or a move back down to fulfill the channel, then again move up.
Instead, NZDCAD had HTF confluence with larger structure 3 Touch, also within LTF 3 Touch Ascending Triangle Formation and a strong retracement from this level.
Therefore, before taking a trade it’s important to simply zoom out and see where price actually is in relation to the HTF structure to avoid any unnecessary losses.
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