How to Create Profitable Trading Setups?

Daily trading is a fascinating realm and more like magic to novice traders learning about the financial markets. Sometimes what is in front of us seems delusional, but who knows if they are delusions or the reality if it can lead to earning profits, right?
The nature of day trading seems infrequent, vibrant, and untamed, but profitable trading setups are hidden in those inconsistencies.

Profitable trading setups represent planned time moment and order price level when a trader can enter into trade and exit from the trade, making any profit in the process. Technical analysis (Price charts, candlestick patterns, indicators )and fundamental analysis (economic news, important economic reports) can lead to profitable opportunities for traders who know how to read between the lines. In special cases, the randomness of prices and arbitrage opportunities can actually be the real-time indicators that day traders can profit from.

Profitable trading setups can be made in two ways:
1) Using a trading plan where traders do live trading, write trading thoughts, trading setups, and reasons why he/she entered into trade. After trading, plan analysis, traders can avoid bad practice trades.
2) Using quantitative trading, traders can analyze past performance, strategies, create models that have better accuracy than random trades systems or some simple trading rules systems. Using machine learning, traders can classify winning and losing trades. They can use regression machine learning methods to predict the final price (Neural network, deep learning, ensemble machine learning methods, etc.).

Both these methods can help traders to improve trading accuracy.

The simple approach to creating a profitable trading setup is to use some simple trading rules (trend trading system, breakout system, scalping system, position trading system). After either quantitative analysis or trading plan analysis to add new rules, filter bad trading setups.

For swing traders or scalping traders, or day traders, breakout systems are excellent for creating a profitable system.

We have stated the top five-day trading strategies or profitable trading setups that can emerge at any time but not all the time in the market. By identifying these setups, a day trader can earn profits or increase his chances of earning profits.


How to create a forex trading setup?

To create a simple forex trading setup and execute the first trading order in any trading platform you need to do the following steps:

  • Step 1: Start your trading platform
  • Step 2 – Open the Chart (for example open EURUSD chart)
  • Step 3 – Add Indicators on the chart
  • Step 4 – Place the order (“Add new order”)
  • Step 5 – Set the trading size in lots, Stop Loss price level and Take Profit Level ( BUY EURUSD at 1.3, stop loss 1.29, target 1.31)
  • Step 6 – Get Order Confirmation
  • Step 7 – Wait few seconds to see realized trade.
  • Step 8 – Trade is created. You can see it on the platform.
  • Step 9 – Check the size, stop loss, and target level to be sure.


1. Impulsive Pullback-Consolidation Breakout Setup

When the market opens, an impulsive wave starts in one direction. This strong move happens during the first 5 to 15 minutes of the market opening. After this strong wave, the price generally tends to get normal, which forms a consolidation, and the prices further sideways for a couple of minutes or more. Though, this consolidation process happens within the price range of the first impulsive wave. For example, if the price had fallen during the market opening, the price consolidation would bring the prices up, but it may not exceed the opening price.

Though traders here, have to be careful as the price consolidation should happen in the same direction as the impulse wave. If the price had fallen in the impulse wave, the consolidation should not exceed the opening price. If that occurs, it is called the opposite consolidation, and taking a trade-in, such volatile conditions should be avoided. Also, you can utilize this profitable trade setup with the price again breaking above the consolidation level. It would serve as a good buying opportunity.

As a day trader, you can place a buy order a cent more than the consolidation price to sell it later at a higher price in such trade setups. If you are in a short position, you should place the trade to lower the consolidation price to buy it later at an even lower price.

For example, for the stock XYZ, the opening price is $15, the impulse wave dragged the price down to $10, and the consolidation occurs till $14. In such cases, you can expect a downside scenario for this particular stock and can trade accordingly.

An important point to note for this trade setup is that the consolidation should not be larger than the impulse wave as it makes the pattern less useful and effective. This pattern can happen any time and multiple times in a trading day, but it’s more effective when the market opens. If this pattern happens any time after that, the price changes would be significantly small.

2. The Reverse Consolidation Breakout Setup

In the stock market, nothing is fixed. So, it is not necessary that each of the consolidations would be smaller than the impulse wave. One big move often happens in one direction, and another happens in the opposite direction, which is called the reversal.

If the consolidation move exceeds the opening price and reaches to $16, it will act as a reversal in the example given above. In such times, hold back a little and witness the market. If the price breaks above the consolidation level (here, $16), you can go long. If you want to buy stock in such times, you can place the buy order at around $16.10 to profit with a higher price later.

3. Reversal Pattern at Support or Resistance Level

If the stock ABC price falls when it touches the $55 level, and such incidents have happened at least two times, this $55 level is called the resistance level. If the price of the same stock bounces back whenever it reaches $40, and that has happened at least twice, the $40 level is called the support level.

The reversal happens at both the support and resistance level, as it changes a stock trend. Thus, both levels act as pricing areas.

In such trading setups, you should wait for the price to consolidate at either of the levels. If a reversal happens as the prices increase even a cent above the consolidation near the support level or one cent down the consolidation near the resistance level, you can expect a bounce-back or fall of prices.

Though if the price breaks the support level, you can expect a downturn for the stock. If the price breaks the resistance level, you can expect an upward trend for the stock. Here consolidation acts as trading signals by breaking the support/resistance level.

4. The Strong Area Breakout Setup

The strong breakout area occurs when the price of a stock crosses the support or the resistance level. This strategy is powerful but is very challenging.

For example, the stock ABC continuously falls when it touches the $55 level, but if it crosses this level, it does mean that a new trend will start. Though many times, a breakout doesn’t necessarily mean a big move, and if that happens, the impact of this profitable trade setup reduces.

5. The False Breakout

The stock market is unpredictable and many times goes in the opposite direction than it shows. In such scenarios, you can use the strategy of a false breakout.

For example, you are trading as per the impulse pullback consolidation trade setup; if the price is falling at the market opening, you would expect the consolidation to be a little upward but not more than the open price. If the stock follows this pattern of a false breakout, you can take your position accordingly. But if the current price goes beyond the opening price, it can be a new trend, and you can take the trade as stated in the reverse consolidation breakout setup.

The Bottom Line

As a trader, whichever strategy you chose, be confident of your knowledge, skills, and experience. Analyze the diverse scenarios before choosing a profitable trading setup. Read, learn, and combine your researching skills into trading. You can also perform this mix and match on the practice trading account available online. With experience and persistence, you would develop your own profitable trading setups suitable for your requirements and risk appetite.

I suggest you read our article to learn more about is forex trading is profitable!



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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