Most trading advice is either a single "holy grail" setup sold with a straight face, or a firehose of indicators with no rule for when to actually buy. This is neither. It's the plain playbook we trade from: a handful of price setups, one honest way to size the bet, and a short list of things that make us walk away.
None of it is magic. Every setup below is a rule you can test on real prices in a few seconds — and we've wired each one into our free backtester so you can see how it behaved before you risk a cent. Where the tool can't tell the whole story, we say so.
The one thing that matters more than the setup: risk in R
Before any setup, learn this, because it's the part beginners skip and pros obsess over.
Don't size a trade by how much you're spending. Size it by how much you can lose. Pick the price where you'd admit you were wrong — your stop-loss — and risk a small, fixed slice of your account to that point. We use 1%. The distance from your entry to your stop is one R (one unit of risk). Everything else gets measured in Rs:
- A stop-out is −1R. That's the most a single trade should cost you.
- A target set twice as far away as your stop is a 2R winner.
- A run of trades that averages, say, +0.4R each is a real edge, even if you lose four times out of ten — because your winners are bigger than your losers.
That last number has a name: expectancy, the average R per trade. It's the only stat that tells you whether a system actually makes money over time. Our backtester reports it directly, so you can stop guessing. Two more habits we bake in: move the stop to breakeven once a trade is up 1R (now the worst case is a scratch, not a loss), and never put more than 1% at risk on any one idea.
You can feel all of this by turning on the stop, target and risk controls under "Detailed setup" in the tool and watching the expectancy number move.
The six setups
Four of these are trend trades — you buy strength and ride it. Two are counter-trend — you buy a washout and fade it. All six are long setups here; the same logic mirrors for shorts.
1. EMA bounce (buy the dip in an uptrend)
The bread-and-butter trend trade. In an established uptrend, price rarely goes straight up — it pulls back to a moving average, catches its breath, and resumes. You wait for the pullback to a rising average (the 50-day EMA is a classic), then buy the bounce when price reclaims it. The trend is your friend; you're just getting a better price.
2. Trend retracement (ride the whole move)
The same idea as the bounce, but instead of taking a fixed 2R and leaving, you hold as long as the trend holds and only exit when it breaks. It gives up the clean target in exchange for the occasional trade that runs for weeks. Best when the trend is strong and orderly (shorter average above longer average, price above the 200-day).
Backtest a trend retracement →
3. Breakout (buy the range break)
Sometimes price coils in a range, testing the same ceiling three or four times. When it finally closes above that resistance on real strength, the traders who were short get squeezed and the ones waiting on the sideline chase — and it tends to keep going. You buy the break, put your stop back inside the range, and aim for a multiple of the risk. The classic mechanical version is the "Turtle" channel breakout.
4. Bollinger mean reversion (fade the stretch)
Counter-trend, and best used with the broader market rather than against it. When price stretches well outside its lower Bollinger band, it's a long way from its own average and often snaps back. You buy the stretch and target the middle band. This one lives or dies on discipline — a band tag alone isn't a signal; you want a reversal candle and an oversold reading to back it up.
Backtest Bollinger reversion →
5. Capitulation (buy the panic)
The contrarian bottom-fish. After a steep, fast sell-off to a new multi-month low — the kind where everyone's stopped out and given up — you watch for a specific reversal: the one white soldier, a bullish candle that gaps its open above the panic day's close, holds a higher low, and closes above the panic day's high. Panic sellers are trapped and buyers take control. We confirm the washout with Williams %R oversold on both a short and a long window before trusting it.
Backtest the capitulation setup →
6. Impulse pullback (catch a fresh trend early)
The others buy dips in established trends; this one buys the first dip of a new one. A fast-over-slow moving-average cross signals a fresh trend has started. Then you wait for the first small corrective pullback — a bar or two making lower highs off a swing high — and buy the bar that resumes, breaking back above the pullback. Get in early, before the crowd notices the trend.
Backtest an impulse pullback →
The indicators that confirm a setup
A setup is a location; indicators tell you whether it's worth acting on. We lean on a small, boring set rather than a cluttered chart:
- Moving averages for the trend and for pullback targets (price above rising averages = up; the 50/100/200 act as support).
- Stochastics and Williams %R to tell overbought from oversold — buy nearer oversold, not after a run.
- MACD for momentum and for spotting when a trend is quietly weakening.
- Bollinger Bands for when price is stretched too far from its mean.
- Candlestick reversals — the bullish pin bar, the one white soldier, engulfing patterns — to time the exact turn at support.
One pattern rarely earns a trade on its own. Two or three lining up at the same price — a moving-average support and an oversold reading and a reversal candle — is where the probability lives.
The checklist before you click buy
Run this every time. It's short on purpose.
- Is the bigger picture with you? For a long, you want the broad market and the stock's sector pointing up, not just the stock. A great setup in a falling market is a coin flip.
- Is there enough volume? Thin names gap around and jump your stop. We want healthy average daily volume.
- Is price respecting its moving averages? If a stock has historically bounced off its 50- or 200-day, that support is worth something. If it slices through them, it isn't.
- Is it not overbought? Buying a stock that's already stretched far above its average is buying the top of the move.
- Is there a real technical buying point? A cross, a reversal candle, a bounce off support — not just "it looks cheap."
- Is a resistance level or an earnings report sitting right in front of your target? Either can stop the move cold. Don't hold a trade through an earnings date you didn't plan for.
The red flags that make us pass
The trades you don't take protect the account as much as the ones you do. We walk away when we see:
- Earnings coming up inside the trade's window — a gap on the report can blow through any stop.
- Insiders selling while the story is supposedly bullish.
- A short runway — the company is burning cash with little left.
- Decelerating growth — revenue and profit growth slowing, not accelerating.
- Price that ignores its own technicals — if it doesn't respect supports and averages, you can't lean on them.
- A stock that's already run a long way — you've likely missed it; chasing is where accounts go to die.
- Thin or falling volume, or management with a bad track record.
How to actually place the trade
The mechanics matter less than the discipline, but for the record: we use a bracket order — three linked orders placed together.
- Entry: a buy stop-limit a few cents above the confirmation candle's high, so you only get in if price actually follows through.
- Stop-loss: a stop order below the setup's low — your −1R exit, no negotiation.
- Target: a limit order at 2R (or wherever your plan says), locking in the price.
Then the one rule people break: once the trade moves 1R in your favour, slide the stop to breakeven. From there it's a free roll.
What a backtest can and can't tell you
Here's the honest part, because pretending otherwise is how people lose money.
Our backtester runs the mechanical core of every setup above on one ticker's daily closing prices, with real stops, targets and risk sizing, and hands you the expectancy in R. That's genuinely useful — it filters out setups that sound clever but don't hold up.
What it can't do is the context that makes these systems work in real life. It sees one stock in isolation, so it can't check whether the broad market or the sector is trending your way, or how the stock stacks up against the S&P on relative strength. It doesn't read earnings dates, insider activity, or the fundamentals behind the red-flags list. And it fills at the daily close, not intraday. So treat a good backtest as "the rule alone had an edge," then apply the checklist and the red flags by hand. The tool does the math; you still do the judgement.
Two things make the judgement easier. Our momentum screener surfaces the strongest large caps — the kind these trend setups want — so you're not fishing in a falling market. And when you find a setup worth watching, you can save it to Pulse and re-open the exact backtest in one click, any time.
Start here
Pick one setup. Backtest it on three or four names you actually follow. Turn on a stop and a 2R target and watch the expectancy. If the number's positive across a handful of stocks, you've got something worth trading small — and a rule you understand, instead of a signal you're hoping works.