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Trade Quality Foundation
What is trade quality?
Any attributes that help determine the chances of success of a trade opportunity you have identified.
Meaning you shouldn't look at trading as taking right trades or wrong trades, but you should look at trading as taking low quality trades vs high quality trades.
Your job as a trader is to be able to identify high quality trades trade opportunities.
So how do we increase the quality of trade?
Simple, the more you learn and understand about price action, the more you can see into the nature of the trade and how many high quality traits it has and the more it has:
The higher the chance it will go in your favour bur more importantly
Go in your favour with m"momentum"so that you actually make good returns.
Meaning the more you learn, the more you can see, and the more importantly identify whether they are worth pursuing or not.
The more things you can identify from the list when you are looking at a trade opportunity, the higher the trade quality and will take your trading to the next level.
What you do when analysing a trade opportunity is you need to be able to identify and list price action traits that make a trade opportunity of high quality.
So what exactly constitutes as high quality price action traits? We will list them all below:
Breakout Momentum
So what you do is you identify a key level of support or resistance where price tried multiple times to break through and failed = key word is "multiple times".
Price then finally broke through this very key level that previously held multiple times. So for price to be able to break such a key level that help multiple times, there needed to be heavy momentum that entered the market.
You want to trade "with" this breakout momentum.
Fresh Trend vs Trend Exhaustion
Are you getting in at the start of a trend or start of a reversal OR are you getting into a trend that has already moved significantly?
The Higher Time Frames (Monthly and Weekly)
Do you have price action, price movement or quality traits that are visible on the higher time frames that help your analysis and directional bias?
As a recap, things you find on the higher time frames hold more weight. They take longer to form but give more accurate price action signals of where price is truly headed or of what the market is truly doing )specifically the monthly and weekly time frames).
Now you do not trade on the higher time frames, you just use them as a guide.
Correlations
Do you have an asset that is positively correlated to the asset you are trading that acts as a leading indicator for your directional bias?
Meaning do you have a positively correlated asset that gives you a very clear picture of where the market is headed?
Time Frame Confluence
Do you have time frame confluence meaning multiple time frames giving you the same directional bias?
Divergence
Do you have divergence? And if so what kind?
Fibonacci
Are you at a fib level? and if so which fib level?
50%/0.5 Fib Retracement = Good Level
Area between 50% - 61.8% = Great Level
61.8%/0.618 Fib Retracement - Best & Highest Quality Fib Level
Trend Line
Are you at a trend line point?
Moving Averages
Does the moving averages line up and which moving average>
Certain moving averages work better for specific time frames.
Long term moving average vs short term moving average.
Area of Confluence
Are you at an area of confluence? and if so hoe many traits are stacked?
The more that are stacked the higher the quality of confluence.
Candlesticks
Do you have candlestick patterns forming? What kind?
Multiple candlestick patterns stacked together = higher quality.
Forming at a key level or area of confluence?
Price action inside of the candlesticks on the lower time frame?
Chart Patterns
Do you have chart patterns forming?
Now the same idea of trade quality also applies for key levels of support or resistance meaning how good of quality is the level you are looking at?
Not all key levels are equal, meaning they are not all the same in terms of effectiveness and quality.
Best quality support and resistance traits that significantly increase trade quality:
Found on the higher time frames specifically the weekly or monthly.
Higher time frame levels Are The Most Key Levels so when you come across them they are of the highest quality and of very high interest to us as traders.
Higher time frame levels means they are obvious and you can spot them on the higher time frames.
To be more specific, what this mean is the levels can be seen clearly or visually obvious on the higher time frames = monthly and weekly.
Extreme swing highs and lows (highest and lowest points price has reached in recent time).
The level has multiple support and resistance traits stacked together meaning any from the following list:
Multiple reactions to the level.
Recently respected.
Recently formed.
Very obvious and you can spot it instantly when looking = not hard to find.
Acted as both support and resistance.
The move away from the level was drastic.
Swing high or swing low = highest or lowest point.
Found on the higher time frames.
To recap, not all support and resistance level means:
The higher the probability that price will indeed react to the level when it touches.
The higher the probability that price will reverse and move away from the level with true momentum.
Makes the trade opportunity of higher interest to us once we notice them because of the automatic increase of trade quality.
Any attributes that help determine the chances of success of a trade opportunity you have identified.
Meaning you shouldn't look at trading as taking right trades or wrong trades, but you should look at trading as taking low quality trades vs high quality trades.
Your job as a trader is to be able to identify high quality trades trade opportunities.
So how do we increase the quality of trade?
Simple, the more you learn and understand about price action, the more you can see into the nature of the trade and how many high quality traits it has and the more it has:
The higher the chance it will go in your favour bur more importantly
Go in your favour with m"momentum"so that you actually make good returns.
Meaning the more you learn, the more you can see, and the more importantly identify whether they are worth pursuing or not.
The more things you can identify from the list when you are looking at a trade opportunity, the higher the trade quality and will take your trading to the next level.
What you do when analysing a trade opportunity is you need to be able to identify and list price action traits that make a trade opportunity of high quality.
So what exactly constitutes as high quality price action traits? We will list them all below:
Breakout Momentum
So what you do is you identify a key level of support or resistance where price tried multiple times to break through and failed = key word is "multiple times".
Price then finally broke through this very key level that previously held multiple times. So for price to be able to break such a key level that help multiple times, there needed to be heavy momentum that entered the market.
You want to trade "with" this breakout momentum.
Fresh Trend vs Trend Exhaustion
Are you getting in at the start of a trend or start of a reversal OR are you getting into a trend that has already moved significantly?
The Higher Time Frames (Monthly and Weekly)
Do you have price action, price movement or quality traits that are visible on the higher time frames that help your analysis and directional bias?
As a recap, things you find on the higher time frames hold more weight. They take longer to form but give more accurate price action signals of where price is truly headed or of what the market is truly doing )specifically the monthly and weekly time frames).
Now you do not trade on the higher time frames, you just use them as a guide.
Correlations
Do you have an asset that is positively correlated to the asset you are trading that acts as a leading indicator for your directional bias?
Meaning do you have a positively correlated asset that gives you a very clear picture of where the market is headed?
Time Frame Confluence
Do you have time frame confluence meaning multiple time frames giving you the same directional bias?
Divergence
Do you have divergence? And if so what kind?
Fibonacci
Are you at a fib level? and if so which fib level?
50%/0.5 Fib Retracement = Good Level
Area between 50% - 61.8% = Great Level
61.8%/0.618 Fib Retracement - Best & Highest Quality Fib Level
Trend Line
Are you at a trend line point?
Moving Averages
Does the moving averages line up and which moving average>
Certain moving averages work better for specific time frames.
Long term moving average vs short term moving average.
Area of Confluence
Are you at an area of confluence? and if so hoe many traits are stacked?
The more that are stacked the higher the quality of confluence.
Candlesticks
Do you have candlestick patterns forming? What kind?
Multiple candlestick patterns stacked together = higher quality.
Forming at a key level or area of confluence?
Price action inside of the candlesticks on the lower time frame?
Chart Patterns
Do you have chart patterns forming?
Now the same idea of trade quality also applies for key levels of support or resistance meaning how good of quality is the level you are looking at?
Not all key levels are equal, meaning they are not all the same in terms of effectiveness and quality.
Best quality support and resistance traits that significantly increase trade quality:
Found on the higher time frames specifically the weekly or monthly.
Higher time frame levels Are The Most Key Levels so when you come across them they are of the highest quality and of very high interest to us as traders.
Higher time frame levels means they are obvious and you can spot them on the higher time frames.
To be more specific, what this mean is the levels can be seen clearly or visually obvious on the higher time frames = monthly and weekly.
Extreme swing highs and lows (highest and lowest points price has reached in recent time).
The level has multiple support and resistance traits stacked together meaning any from the following list:
Multiple reactions to the level.
Recently respected.
Recently formed.
Very obvious and you can spot it instantly when looking = not hard to find.
Acted as both support and resistance.
The move away from the level was drastic.
Swing high or swing low = highest or lowest point.
Found on the higher time frames.
To recap, not all support and resistance level means:
The higher the probability that price will indeed react to the level when it touches.
The higher the probability that price will reverse and move away from the level with true momentum.
Makes the trade opportunity of higher interest to us once we notice them because of the automatic increase of trade quality.
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