Active Traders: Bread-and-Butter Setups

In the 30 years that markets have been in my life, I've met a lot of active traders. And yet I'm still impressed when I find one who can successfully trade with a deep roster of chart setups. The fact is, those types—the Michael Jordans of trading—are one in a million. Does that mean the rest of the trading pack isn't skilled? Far from it. Many skilled traders get there by sticking to a select few chart setups. They call them their bread-and-butter trades—those that they've become comfortable using. For many, it's a short list. And there's nothing wrong with that. There are a number of factors to consider when developing your own bread-and-butter list. It may start with repeatability, such as a chart pattern that is commonly found across multiple time frames and that you can trade on a regular basis. Your bread-and-butter setup should also provide a favorable risk/reward ratio. Finally, a bread-and-butter trade should have clear criteria for failure, leaving no question about when to close it out and move on. Perhaps the most important thing to remember is that your bread-and-butter setups should be in sync with your trading style. You can experiment with a number of setups to see which work best with your particular trading personality. But here are a few common approaches to consider.

A word to the wise: Embrace the tedium. That's right, boredom can be a trader's friend. When "boring" becomes mechanical, guesswork is reduced and emotions stay out of the way. Bread and butter is comforting, just as you might expect.