What is a 'high probability' trade?

I've seen a lot of posters referring to certain trade setups as 'high probability'. This implies that one can tell how likely a setup is to go in the expected direction. What I do not understand is, how do people attach a probability of success to trade setups?

Usually past performance, which in every disclaimer is "no guarantee of future success!"

here is one ,green values doller buy,yellow everything else sell,

Ponzi Jr, its relative to your trading method.

Your method might use, for example, the following criteria for opening a long position:

1) MACD crosses its signal line
2) RSI has just diverged from a price low
3) Stochastic is rising from oversold

So, if you get consistent results with this method, i.e. 6 out of 10 times a trade taken with the above indications is a winner, then you have your baseline method. If you see all three criteria fulfilled in the chart then you would call that a "high probability trade".

If you only see two criteria fulfilled then the trade has less probability of success. If you see all three criteria fulfilled at two or more timeframes then you have a very high probability trade setup.

Venzen is correct, you have to establish a time frame first, 1 min chart, daily, tick chart, etc, identify your pattern setups and then simulate or "sim trade" on a practice account first. Remember, before you enter a trade ALWAYS define your risk limit on each trade and stick to it, once you enter a trade it is simply risk management from there. If you are trading single contracts, you have to have a set stop to protect capital. Do you have a written trading plan/ business plan.?
My trading is a business, I have a written plan with my risk predetermined before I enter into a trade. As soon as my trade starts showing a profit I keep moving my stop up to lock in profits. Are you a day trader, position trader etc.
Set yourself up some parameters like venzen suggested and start documenting the results. You will learn pattern recognition and momentum trades over time.
Are you trading off a DOM where you can program your stops and set your limit orders, or just hitting the buy and sell order icons.? I will stop here for now.
Good luck and keep on keeping on.!!

Trade setups don't really metter, it all comes down to 'Profit/Loss Ratio': average profit on winning trades divided by the average loss on losing trades over a specified time period. The lower the number, the worse the system is at predicting future movements in market prices.

Or simply put: combination of your risk/reward ratio and win/loss ratio will tell you if you have established long term edge over other market participants.

You can be right 60-70, even 90 % of the time and still loose money, because you have very low R/R ratio.
For example, I was right only 41 % of the time in the last decate, yet still come out positive, because my R/R ratio was 1:2,67.


Here is an excellent analysis of real FXCM client's poor risk management behavior:
Why do Many Forex Traders Lose Money? Here is the Number 1 Mistake

Here is the most important section of the Dailyfx article:
"In our study we saw that traders were very good at identifying profitable trading opportunities over 50 percent of the time, but ultimately they lost as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run.
When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature."

Fxjay was the one always talking about high probability stuff.

I could be wrong, but I don't think OP is looking for a "how to" on system building?
I think what OP is getting at is;
In a predefined system (one that already has been tested and has W/L statistics), why are some set ups defined as high probability more than others?

Probably Venzen gave the best description so far in talking about confluence: when all factors associated with your system are aligned.
This could be one idea of high probability.

Another could be a swing trader entering a counter trade after a massive directional move.
Or a breakout trader entering after a prolonged narrowing of PA.

At some level we probably all have some bias when we open a trade...some we dread but can't pass because the signal is per our rules, others we relish because the conditions seem optimal.
The real question is; how many times we win a trade we believe to be high probability, and does that isolated statistic actually deviate from the predefined W/L %?
Statistically, as soon as we enter a trade, it's 50:50. Up or down. We can lose optimal looking set ups just as easily as we can win ugly ones.

What @Tom81 said above is basically correct, however I reject the idea stated in the linked article.
The old "let winners run, and cut losers" adage is tired, and irrelevant in an increasingly efficient market.

It's absolutely right, if you have a favourable R:R ratio then you can afford to be less accurate with your entry picks.
In fact, aiming for larger R:R usually means the win % will be inherently lower.

But having been on both sides of the RR table (one method with 1:3 R:R for 2 years, 43% WR), I decided that (and no offence here @Tom81) if I am getting less than 50% of my picks right, then something is majorly wrong. There are easier ways to make money.
Also, just by increased loss distribution, using lower win % methods means you are more prone to consecutive losing series, and larger overall DD's.
In fact, when using such methods, if for any reason the system starts suffering less than usual win %, things can get very ugly in a hurry with even only a few less % wins.

So, as with everything, there's no "one size fits all" answer to a successful method.
I made the choice to move to a higher win % system that has what most would consider a losing R:R ratio.
I'm not the only one who does this.
One of the more famous Fx money managers with a 3 year proven track record has an average win of only 7.5 pips, and an average loss of 106 pips.
But...he wins 94% of trades!

So, I guess as @Tom81 said, its the combination of W/L and R:R that define a winning method, but provided one side of that equation is heavily in your favour, the system will be profitable.
Which you prefer is up to you.