In order to understand what a high probability trade is, one must start with analyzing probability and what it means to a trader. Probability is a term that refers to the possibility that an event will happen. It is normally between the numbers zero and one. When the number is zero, it means that there is an impossibility, and when it goes up to one, it means that there is a certainty.
When it comes to high probability trades, the meaning is that whatever way that at trade is done, there is a possibility that a positive outcome is certain. This is a secret that all traders would like to have, as it would mean that they are guaranteed profits. However, it is a concept that is hard to bring to life. Here are some ways that you can find a high probability trade.
Look out for Decision Spots
The value of stocks is constantly changing throughout the day and you need to be able to identify potential moments where you can get an edge as a trader. To see these spots, you should be able to read a candlestick chart, and also identify the patterns that occur within it. These decision spots are rare moments, so should not be expected at every turn during a trade. In fact, one needs to be patient and wait for these to happen.
Ideally, as a trader one needs to look at the moment on the charts and determine the places where they will need to make a decision. These are often entry and exit points. By keeping track of these patterns, it is easier to identify support and resistance, as well as moving averages. Trend lines also help to make the high probability trades more clear.
Consider the Trading Time
There are three distinct trading sessions in the day, and each of these have some potential to reveal a high probability trade. First there is the morning, where there is the highest volatility. Rather than looking for trades at this time, it would be pay to be observant instead. It is in the morning that the tone of the day has been set, and therefore, tracking the directions in which trades are moving is essential.
Then there is the mid-day session, which starts off with a lull and a good time to make some trades based on the information that has been gathered from the morning session. Although a high probability trade may not occur at this time, one should be able to get a basic return. This is followed by the post noon trade, which is the trading period until the market closes.
It is in this last session of the day that it is much easier to find the high probability trades. This is where traders are looking to break out or there are reversals as well, as all are seeking to make some profit at the end of the day. In the event that the trading week was quite strong, it is at this time period that you are likely to see reversals that are also strong. There are less stocks flooding the market which increases the possibility of a seller being able to make a profit.
High probability trades are rare, although you can identify them with some experience in trading. It is best to wait for the afternoon session to make the best position on these, as this is where they are most likely to occur. Furthermore, one should learn how to read financial charts, as it becomes easier to use historical information to identify these types of trades.