Trading is very expensive to learn. There are countless ways to trade, many of which are unprofitable and many others profitable only to their sole practitioners. Of these countless ways of trading, only a couple are probably suited for you. Most people who try to trade systems without proving it to themselves will end up losing everything they put into it.
It is my opinion that a couple of observations of market behavior are insufficient to be branded setups and traded off. Its like observing the number thirteen is unlucky or people with the zodiac sign Leo are born leaders. It may seem true due to selection bias but most likely its just simple superstition. Many trading setups are superstitions and you should not trade them until know the probabilities for each setup.
Whatever setup you observe, read on a blog, hear from some hotshot trader or otherwise obtain from other means needs to be tested and measured to determine the following:
- Potential reward:risk (Needs to be at least 1:1, 2:3 or better recommended)
- Stop size required (Smaller is better or you may get shaken out)
- Probability of success: (Theoretically 50%+ but 60%+ recommended)
- Invalidating conditions and subtle variations (the fewer, the better)
The best way to get this information is to actually trade the setups. A sample of 20 trades will quickly eliminate poor setups. A sample of 40 should be sufficient to calculate probabilities. A sample of 100 should be sufficient to calculate stops.
Setups have subtle variations that make a given setup clear or strong vs muddy or weak. For example, today's trend down b12-27 from the W reversal was broken by a counter-trend move b35-49 and then we got a deep mW b50-55 (two inside bars b52,54 make this three tiny pushes). The subtle difference between the three pushes ending a leg versus an actual reversal of a trend takes experience and many traders could fail to realize that this is not an actual reversal. If they did not take a scalp profit, they probably were stopped out. Such losses add to the overall cost of your trading education and only screen time will make you better.
I believe the first year of trading can be done entirely in SIM and will probably save tens of thousands of dollars for the average trader. I have yet to meet a single trader who became profitable in the first year. Save the capital for once you know what you are doing. Modern SIM trading is extremely realistic and enables you to keep the same detailed records of wins, stops required, etc. The only thing missing is your mental discipline and ability to trade exactly as if it was the real thing. If you wish, you can toss a coin and switch between real trading and SIM trading arbitrarily until your mind does not differentiate.
Most traders fail because they run out of capital and the severe loss of the first few years of trading makes them give up. Reduce the cost of education by carefully evaluating and choosing setups and practicing your system until your prove it to yourself.