Looking at Probabilities

In the search for good quality trade setups, it is important to focus on one of the most important elements in my opinion: the probability of the next move. Is the risk to the upside, or is the risk to the downside?

If a stock has closed up 6 days in a row, what is the more likely outcome over the next few trading days? More up? Sure. Rest? very possible. Profit taking? seems very reasonable. These are just a few potential scenarios that can play out.

The same is true for a down move. Let’s take a look at the Daily chart for $EXAS to see what the higher probable outcome is:

Down or Up?

 

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