What is a TS3 trade set-up ?

A simple ABC pattern is where the market makes a correction to its trend that sub-divides into a 'zig-zag' pattern containing 3 waves - A, B and C. In the MTPredictor software, the Wave C in this ABC pattern must exceed the price extreme of the Wave A.

>> This set-up is driven by investor psychology in buying and selling waves. It is extremely important for traders because when such an ABC correction is complete, the market should continue in the original trend direction. Therefore, the end of the simple ABC correction is the ideal place to consider entering a new trade - in order to both maximize profits as the main trend resumes and keep the initial risk of loss small.

When checking for trade set-ups on charts individually (though most traders will use the Trade Scanner on a group of markets), once the chart is loaded simply click on the Trade Set-up module button. The software will analyze the last part of the data file to check whether a TS1, TS2 or TS3 trade set-up is present.

As an example, in the chart below, the software has automatically identified this ABC correction up against the downtrend in SPY (S&P Depository Receipts which track the S&P 500 Index):

However, this powerful module does not finish its work here - it also automatically identifies the narrow support or resistance zones where the Wave C trade set-up is most likely to end (the pink rectangle on the chart below). To achieve this, select in the 'Show' function the Typical Wave C WPT (Wave Price Target). Furthermore, the same module is also able to display colour-coded reversal bars, blue for buy and red for sell (tick Trade Setup, again under Show):

Note that, if using the Trade Scanner to find set-ups in a group of charts, these two features are pre-ticked on its main page, giving the same display.

>> A valid trade set-up occurs when a blue or red reversal bar unfolds at a WPT zone eg. the pink Typical Wave C zone below. This is how the combination looks on a chart:

MTPredictor has not only identified this potential ABC correction, but also the narrow price zone (in pink ) where the Wave C is, typically, most likely to end. In addition, the red (sell) reversal bar suggests the high is complete. A new short trade can be considered if this market trades below the low of the red (sell) reversal bar.

However, no trade should ever be taken before evaluating its risk outlook. In another vital feature, the Trade Set-up module in MTPredictor can also 'analyze' the current trade set-up (whether found manually or by using the Scanner) simply by ticking the Analyse function in the window. This will give the most likely future price targets and, more importantly, the associated Risk/Reward ratios at all these key levels:

It is a simple but powerful process to automatically calculate, then display on the chart, all the future WPT (Wave Price Target) zones, including their related Risk/Reward ratios. In addition, the analysis provides two extra, critical price levels for Risk evaluation - the price at which the trade will have returned 100% of the Initial $ Risk needed to take the trade and the price at which 2-3x the Initial Risk has been made.

Here, it can be seen instantly that if SPY declined into the first profit zone, the minimum Wave C WPT (orange zone below), it would mean a potential profit of just over 8x the initial $ risk required to take the trade. All this critical information is available before deciding to take the trade. Here, this would be an excellent R/R trade.

Displayed on the chart, the information looks like this:

And this is how the trade turned out:

The high on Aug 22 2003 was the exact end of this Wave C correction, just before SPY continued to decline to new lows - this TS3 trade set-up identified an ideal point to enter short. In fact, SPY continued to fall and then reversed precisely at the first projected profit target, the orange minimum Wave C WPT (as projected on Aug 22). This produced a profit of approximately 7.5x the initial $ risk (ignoring slippage and commission).

The TS1, TS2 and TS3 trade set-ups are specifically designed to identify the end of a correction against the main trend. As a result, they represent the best opportunity to accomplish two aims:

• Maximize profits by trading in the direction of the main trend and
• Keep losses small when the trade goes wrong.

These are the two most important elements in a successful trading approach to the markets.

When monitoring a portfolio of markets, the 3 key trade set-ups will be identified out of the database by using the Trade Scanner, as mentioned above, saving the trader precious time for the Risk/Reward analysis process.

Does your current futures trading system, stock trading system or commodity trading software allow you to scan for, identify, evaluate and manage such important trade set-ups ?

If not, then it is time to invest in the MTPREDICTOR series!

Risk Disclaimer and Disclosure Statement

Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. By purchasing the MTPredictor program, you acknowledge and accept that all trading decisions are your own sole responsibility, and MTPredictor Ltd, MTPredictor.com or anybody associated with MTPredictor Ltd including S. E. Griffiths and A. P. Beckwith cannot be held responsible for any losses that are incurred as a result