The High Probability trading strategy by Rayner Teo
“Trade in the direction of the general market. If it's rising you should be long, if it's falling you should
be short”.
- Jesse Livermore
Uptrend - consists of higher highs and lows
Downtrend - consists of lower highs and lows
Support - an area with potential buying pressure to push price higher (area of value in an uptrend)
Resistance - an area with potential selling pressure to push price lower (area of value in a downtrend)
Pullback - is when price temporarily moves against the underlying trend.
Advantages of trading pullbacks:
You get a good trade location as you're buying into an area of value. This gives you a better risk to
reward profile.
Disadvantages of trading pullbacks:
You may potentially miss a move if the price doesn't come into your identified area.
You'll be trading against the underlying momentum.
Breakout - is when price moves outside of a defined boundary. The boundary can be defined using
classical support & resistance.
Advantages of trading breakouts:
You will always capture the move.
You are trading with the underlying momentum.
Disadvantages of trading breakouts:
You get a poor trade location as you're paying a premium.
You may encounter a lot of false breakouts.
“Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a
point determined by the maximum dollar amount you are willing to lose.”
- Bruce Kovner
3 ways of stop loss:
1. Volatility stop
2. Time stop
3. Structure stop
A volatility stop takes into account the volatility of the market. An indicator that measure volatility is
the Average True Range (ATR), which can help set your stop loss.
Pros:
Your stop loss is based on the volatility of the market.
An objective way to define how much “buffer” you need from your entry
Cons:
It's a lagging indicator because it is based on past prices
A time stop determines when you exit your trades based on time.
Pros:
You reduce losses
If you have trading records, you can identify optimal amount of time to give your trades
Cons:
You may exit prematurely only to see price move in your favour
A structure stop takes into account the structure of the market and set your stop loss accordingly.
Pros:
You know exactly when you’re wrong because market structure has broken
You’re using “barriers” in the market to prevent price from hitting your stops
Cons:
You need wider stop loss if the structure of the market is large (this results in smaller position size to
keep your risk constant)
Confluence - is when two or more factors give the same trading signal. E.g. The market is in an
uptrend, and price retraces to an area of support.
Guidelines for confluence:
1. Not more than four confluence factors
2. Do not have more than one confluence factor in the same category
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading with the trend). If
it’s an uptrend, then wait for the price to pullback to an area of support (trading at an area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger). If there's
failure test entry, then go long on next candle's open (my entry trigger). If a trade is entered, then
place a stop loss below the low of the candle, and take profit at nearest swing high (my exit and profit
target).
Vice versa for downtrend
