Yesterday, during Friday’s session on ES, we saw some examples of one of the best setups in trading.
What setup is it?
It’s a failed new low/high or a sweep/flush followed by a reclaim.
Using a long trade example, it’s basically when the market attempts to auction below a level/area and fails to hold below and then reclaims back above.
This is one of the best spots to enter a trade or to start building a position as the market just got valuable information that shorts don’t want lower prices or that buyers are too strong for sellers to take lower prices.
These setups often precede great moves when they happen in key areas, and it often gives us a good low risk/high reward entry. They are better when we can stack confluences on the trade and take these trades at key levels/areas.
Before the setup happened we could see that the 4930 area would be a key area to look out for buyers to defend as seen below.
On the footprint chart below we can see aggressive buyers stepping in at multiple levels including the 4930 level where they showed up in the past.
In general I like to view buy imbalances as bullish until proven otherwise. If we aren’t filling in those gaps and imbalances then the market is imbalanced to the upside, and I’m only interested in longs. If we are testing the imbalances, but price is failing to hold back below them then I still prefer longs. Though it depends on the overall context as well.
Shortly after setting the initial balance we saw strong buying imbalances showing up again.
How we can trade this setup
One of the ways we could trade this is we could enter near the original low with a stop loss below the lowest low. This would allow for a low risk/high reward trade.
It ended up giving a massive reward for small risk but of course it doesn’t usually work out this well which is why we aim for spots that offer asymmetrical reward to risk. This allows us to have more losses than someone who is exiting trades right after going into profit.
Exiting trades right after it goes in our favor combined with holding losers is one of the main reasons that traders fail. A lot of traders have a strong fear of losing, so they exit quickly in profit out of fear of giving back profits or potentially losing. This hurts your bottom line long-term.
A better way to avoid giving back profits is to move your stops up behind price (not too close) and let the market stop you out in profit or near breakeven. This way you allow the trade to keep running without having risk on the table.
It depends on the situation and context though. This tends to work better when you enter with momentum.
If you exit quickly then you aren’t able to add to positions, and you aren’t able to take advantage of days when we get large swings. We can scalp small moves if we want, but I personally believe that it’s harder to scalp small moves than it is to catch low risk/high reward trades. It’s also emotionally difficult to scalp small moves.
Another example of a flush plus reclaim from the afternoon
In the afternoon of the session the market did another sweep and reclaim. This time it was a continuation trade since buyers were in control at the time. The reclaim before the open was a reversal as the market had just sold off prior to the setup.
The market tested into 4972 multiple times and then when the market attempted to hold below the level it failed and reclaimed back above the level.
That’s all for today. I hope you found value in this post. Be on the lookout for more posts in the future. I’ll be adding more content and eventually even videos as well! Follow me on X/Twitter if you don’t want to miss a post. I will always mention when new posts are released on X/Twitter.