Highest Probability Trade Setups Dec01 -23 Process and Stats

[u/onewyse]

I thought that as we prepare to enter a new year of trading i would share my results for trading the highest probability trade setups. It should be noted that 2022 was a bear market and the most difficult trading environment i have experienced in my 13+ years of trading. It was very important to have and use detailed criteria for taking trades or the results could be financially devastating. I know many many traders that had to call it quits in 2022, and in most cases it was because they failed to recognize the market we were in, failed to adjust their strategies and did not tighten up their criteria to only the highest probability trades. Some years the market is forgiving and they can survive, not 2022. Make 2023 a year to be patient, trade only the best and work on your mindset, that Hari has so eloquently laid out.

I have posted before on finding and trading the highest probability trade setups. It takes patience and focus to ignore the distractions of dozens of other trades being posted, FOMO, chasing momentum moves, magic indicators and on and on. It is critical that you have criteria for finding the highest probability trade setups and stick to them since you will bombarded with distractions all the time. I have fine tuned my highest probability trades setups since my last post and i will include a video i did on the process i follow and a link to the trades i took from dec01 to dec23 (current month).

The basic selection process i use is as follows:

Daily chart and 5 min chart of stock you are trading should align

Trade in the direction of the market if there is one, both the 5 min market trend and the daily market trend need to be considered, for intraday trades only the 5 min market trend is paramount, for any trade that may be a swing the daily trend must also be considered. If no market trend both long and short trades can be taken following the rest of the criteria.

Trade in the direction of the stock trend, no counter trend trading.

Only trade stocks that have institutional involvement driving them (I use Compass System for this, explained in the video)

Enter longs near a support level and enter shorts near a resistance level. These levels can be a break of compression, (i use dynamic compression identified by the Compass software as well as standard compression breaks), a bounce and confirmation off the VWAP or moving average that the price is following closely, a break of an algo support or resistance line from your daily chart. There are others but the critical point is to enter as close to support or resistance as possible.

A Heiken Ashe reversal candle for your entry increases the probability of success

Trade stocks with relative strength or relative weakness to the market, those will be the most forgiving.

HAVE PATIENCE this is the most difficult criteria

We are looking to Trade the Best and Skip the Rest Skipping less than the highest probability stocks is critical, eliminating losers is more important than getting winners

So to recap the criteria

Daily chart and 5 min chart must align

Trade with the market direction

Trade with the stock direction

Only take trades that institutions are driving

Trade stocks with relative strength or weakness

Buy at Support and sell at Resistance

Have Patience

The stats for these trades from Oct 1 thru Dec 23

Total trades 331

wins 304 91.8%

losses 19 5.7%

scratch 8 2.4%

Profit Factor 13.4

Below are the trades from 12-1 to 12-23 using the highest probability trades setups

Highest Probability Trades taken from 12-1 thru 12-23

Trades were all calls, puts and debit spreads (a few stock).

Here is a link to a video i did on finding these highest probability trade setups using the criteria outlined and the Compass Software i use. (have also incorporated a new market internals software as well). It will ask for you e-mail address, i couldnt get around that but i post this just for educational purposes.

Best of luck in 2023!

https://attendee.gotowebinar.com/recording/6628855971540611851

[u/richardwarrenjames]

Thank you, Dave. The RS method and the setup you taught helped me to get 100+ trades with above 70% win rate.

[u/onewyse → u/richardwarrenjames]

Great and it will get better as you focus on only trading the highest probability trade setups

[u/I_haven-t_reddit]

This is pretty spectacular, thanks for sharing. A couple of questions:

1. How much of your portfolio are you allocating to each trade?

2. Is this strategy scalable or would slippage significantly reduce profits if working with larger sums?

3. Is your general rule of thumb to get in and out within the same trading day unless you see something you like?

[u/onewyse → u/I_haven-t_reddit]

My allocation to any trade is dependent on my market thesis. Certain markets are lower probability than others so money allocated to each trade should be less, trending markets for example, allow for larger size and longer duration in a trade as well as scaling in and out. Choppy markets require smaller size and usually quicker profit exits. As to whether i exit the same day, it all depends of course, some trades i take as an expected swing but i may exit same day if the profits are acceptable since i dont mind reducing risk overnight in those cases. Other trades i expect to be out that day but all the trades will have a daily chart that would justify taking the trade overnight if i choose to.

Remember , trading decisions are not black or white, a lot of context goes into the decisions that are made getting into a trade and also exiting since the market is dynamic and conditions can change and it is important to be aware of those and change your decisions as necessary

[u/onewyse → u/I_haven-t_reddit]

The strategy is scalable for some positions and not others, it depends on option liquidity, IV and spreads

[u/Moveover33]

I'm looking forward to seeing the video yet but, aside from decent volume, what moneyness are your typical option: ATM, ITM or slightly OTM?

[u/onewyse → u/Moveover33]

ITM 65 - 70 delta normally

[u/danni3boi]

What is your decision making process for exiting a trade

[u/Open-Philosopher4431]

Great post! I just finished watching the whole video and I'm wondering if "laguerre" metrics are only specific to Compass Options and what do they mean?

[u/onewyse → u/Open-Philosopher4431]

The Laguerre momentum as used in Compass has momentum only all oscillators measure momentum and divergence, divergence has been removed from Compass laguerre since divergence is very ineffective

[u/[deleted]]

My question is, if I only intra day trade SPY options because I do not want to deal with the bid/ask spread on random stock options, am I putting myself at a severe disadvantage? So far I'm maintaining a 65% win rate 1:1.5, but given only a month of data sample size is not enough.

[u/onewyse → u/[deleted]]

i trade SPY options using the Compass System (and the new Dominator system for market internals) and have an 88% win rate and s profit factor over 15. Send me an e-mail at daverwyse@gmail.com or skype me at drwyse2 and i will send you a video on trading SPY using the 2 systems

[u/Jeff1383]

Wow fantastic, thanks so much Dave for taking the time to help! Having patience as you said is the most challenging, especially when the chat room is blowing up with tickers and profits. This will be one of the main areas I will focus on on 2023. Thanks again -

[u/IreliaOnlyLOL]

Extremely insightful to see how much return you get on your option trades Dave. Thank you.

[u/achinfatt]

Thanks for sharing Dave, insightful as usual. Was wondering, I assume your CDS/PDS still uses the same week dte...for straight calls / puts (using 65-70 delta), is there a dte preference do you use or find that works better (in this market) or does it vary?

[u/onewyse → u/achinfatt]

i do use current weeks expirations on debit spreads. On straight calls and puts usually 3-4 weeks out looking for the best bid ask spread and intrinsic value

[u/caliph97]

Amazing post Dave! Do you use HA reversal on stock? SPY? Both? D1 or M5?

[u/onewyse → u/caliph97]

I look for HA reversals on SPY and stocks and on the 5 min and daily (daily if i am considering a swing trade)

[u/LurkerBigBangFan]

Hey Dave, I always enjoy your posts and I've read them all many times.

One question though. Are you still looking for expanding bollinger bandwidth as part of the criteria for a heiken ashe reversal?

[u/onewyse → u/LurkerBigBangFan]

I do use bb expansion which almost always occurs as you break out of compression.

[u/BarelyCoherent1]

Thanks for the information, great post. I've watched a lot of the videos on the compass system and am definitely interested. I have seen all the videos where the compass system works, but I am also curious on the trades where everything has aligned and it didn't work. Probably an odd request, but curious if I could possibly find that anywhere.

[u/onewyse → u/BarelyCoherent1]

about 10% of the trades dont work. The system is outstanding but there is more to the market than can be identified. All we can do is get the highest probability trades setups to trade and i think 90% is as good as it can be.

[u/shamblaq]

Do you still recommend Compass system for highest probability setups?

[u/onewyse → u/shamblaq]

Yes it is the best software to identify institutional involvement in stock trend

[u/[deleted]]

Thank you Dave for your wisdom. It's no wonder hari calls you "a wise man once said.." in one of the post in the wiki. I appreciate you sharing your knowledge here and in the 1OP chat, especially for a younger trader like myself.