What Does a Winner Look Like?

Life is about patterns and predictions. There is no other option.

As traders, we look for patterns that we expect to resolve into winners, and this often starts with identifying setups. A setup is a condition we wait for before entering a trade. It’s a pattern we believe we see — one we’re hopeful will lead to a profitable outcome.

The problem is, we become fixated on these setups. After entering a trade based on one, we often just go along for the ride. It’s like we stop trading right when we should be starting. Some might argue this is “set-and-forget” trading, but I think that approach is taken too literally. Nowhere else in life do we make a decision and then stop considering new information. That would be like driving home from work and deciding not to touch the brakes anymore because the first traffic light was green.

To successfully respond to new information, we need a plan — one that defines how we’ll react when that information aligns with or contradicts our expectations.

Let’s get into something more concrete and look at a few charts. Below is a price pattern a swing trader might look for:

• Price breaks structure
• Makes an impulsive move down
• Pauses and begins to correct
• The correction resolves with a new leg lower

The goal is to enter near the apex of the pullback and capture a significant portion of the next wave down — a typical swing trader setup.

Note: While I do think volume data is very important, I have omitted volume here, as it it not relevant to the concept I am explaining.

But here’s the often-overlooked — and equally important — part of this pattern: the resolution of the correction. In other words, after you enter, what does a winning trade actually do?

From the image below, you’ll see that these swing trades should start working fairly quickly, with minimal hesitation, as price reaches a new extreme. The patterns that occur after entry are just as important as the setup itself.

Here is a trade I recently took. The general pattern is there — and that’s the main thing (keep the main thing the main thing). The red arrow marks where I entered.

There were a few factors I was aware of:

• The break of structure wasn’t a major level
• The first leg down looked a bit exhaustive
• The pullback, while mostly corrective, was pushing the longer side of how long these corrections usually last

In the image below, you can see what happened.

After allowing a few candles of wiggle room, the trade started to move in my favor. However, shortly afterward, a bullish candle formed (green arrow), and I decided this trade was no longer doing what a winning trade should. I exited on the next candle (orange candle). Admittedly, I should have exited sooner — as soon as the green candle opened — but I let my trailing stop take me out.

So: go study what winning trades do — and what losing trades do.
Understand what typical and atypical price structure looks like for your style. Set clear expectations.

Learn what winners look like — and when you don’t see that, get out.