To learn how to get a profitable win rate, let’s look at a theory. Let’s say there is bill the first and bill the second. Bill the first is looking to buy an apple, so he goes to bill the second who is selling some apples. On the first day, the price of an apple is 8 dollars. Bill the first sees this and remembers, that the price of an apple was 3 dollars just yesterday. 8 dollars for an apple is way too much compared to yesterday’s price. Bill the first was going to buy an apple for 8 dollars, but suddenly, this new information is affecting his decision. When Bill the second says, the price in the morning was as high as 10 dollars, and asks if he wants to buy an apple for 8 dollars which is much cheaper? Bill the first says no thanks, because they are overpriced. He will come back later when the price is fair.

 

So he goes home, watches some Trading Rush videos, and comes back, only to realize that the price of an apple is gone up. One apple is trading for 20 dollars. Bill the first says “man I should have bought it when the price was low”. Suddenly, a 10 dollars apple that was overpriced just yesterday, is now a great deal. Bill the second says, don’t wait, buy them now, who knows if the price will go higher or lower. Bill the first says no thanks, because they are overpriced. He will come back later when the price is fair.

 

On the third day, prices are down, and an apple is selling for 10 dollars. On the first day, Bill the first thought 10 dollars was very high and the price wouldn’t go higher. On the second day when the price did go higher, the 10 dollars price tag was suddenly cheaper. Now that the apple is trading for 10 dollars, Bill the first is really happy and is willing to buy the apples at 10 dollars without a second thought. He thinks that he is getting a better deal right now, because the price was as high as 20 dollars, and who knows if he will get a better deal ever again.

 

Now If you plot the prices of apples using a candlestick chart, you will notice that it looks very similar to an up trending forex or stock market chart. Every time the price made a new swing high, the price was overpriced for Bill the first. And when the price came down from 20 dollars to 10 dollars, Bill the first felt like he was getting a 50 percent discount. In the real world, people like discounts on most products, but in the forex and stock market, many beginner traders buy when the price is at the top of the trend. Many don’t buy stocks like they buy other products. Stocks don’t always go to the moon, in other words, stonks don’t always go up. 

 

But there are people who think like Bill the first, and they will patiently wait for the price to give a discount. If you have been trading for a while, you might have heard someone say “buy the dip”. It basically means buying an asset after a decline in price. If you had purchased the dips this year during the market crash, you would have gotten some major discounts and would be sitting with some profit. Lets look at an example. Here is a real chart of a stock, and as you can see price is in an uptrend. It is very similar to the chart of the apple prices we saw earlier. It’s like the price went from 3 to 10 dollars, then 8 to 20 dollars. And when the price came back down to the previous swing high, many people bought the stock as it looked like a big discount. Many traders will draw lines on these price levels and will call them support and resistance areas. And if you have been following everything in this video so far, like the video if you have, you now know how and why support and resistance work. Price has a higher probability of reversing from these levels, but you can’t immediately buy when the price touches these areas, because you don’t know the exact point of the reversal. Prices can reverse from little bit above or little bit below the area. That’s where a profitable trading strategy comes into play. For example, a trading strategy like the MACD strategy we discussed on the Trading Rush Channel, which had a profitable win rate on its own, can get a higher win rate if you take trades near these important price levels.

 

In an uptrend, these price levels will act as strong support levels, and since price has a higher probability of moving in the upward direction from a support level, you can increase the win rate of any trend trading strategy even more, by taking entry signals near these price levels. Furthermore, if you know there is an important price level nearby, you use that information to set a better stop loss as well.

 

For example, on this chart, we know price is in an uptrend. Instead of buying at the top, you patiently wait for a pullback. You use the MACD indicator to find the entry point. MACD gave an entry signal right here. The stop loss according to the MACD strategy we discussed on the Trading Rush channel, goes below or above the pullback. In this example, since price is up trending, the stop loss goes below the pullback. But if you look closely, the distance between the pullback and the support area is not much. So instead of setting the stop loss below the pullback, you can set it below the support area. This way, the chances of price hitting your stop loss will be lower. After taking 100 trades with the MACD strategy, we know that MACD strategy was a profitable strategy in the long run. But in this trade, you have increased the chances of winning even more, by setting the stop loss below a level where price has a higher probability of reversing. If you are supporting the channel on Patreon and have seen my trade analysis, you can probably tell that I wouldn’t have taken the first MACD trade, and would have waited for the price to come down after the second MACD signal, to get a better reward risk ratio before the swing high.

 

In this example, traders who went long at the first pullback are happy, and may add their position when the price gives another discount. Traders who thought price will come down even more during the first pullback, missed the big upward move, and will also buy if the price gives another discount. And traders who just saw this move, will also create a buying pressure. In simple words, there will be a high demand to buy the stock near this price area. And price did react from the support area, and MACD gave another signal. As you can see, by thinking like Bill the first, you could have made money. So be like Bill.