Trading Setup
Definition
A specific pattern or condition on a chart, such as a bull flag or a first pullback to VWAP, that marks a possible trade. A setup says where to look. It does not say how to enter, where to exit or how much to risk.
Example
“The bull flag is the setup; the entry, stop and target are what turn it into a strategy.”
Detailed Explanation
A setup is only the innermost layer of a trade plan. Hundreds of setups form every session and many fail, so spotting one is never a reason to trade by itself. It becomes a tradeable idea once a strategy adds the stock filter, market conditions, entry, stop and target, and once a system adds position size and a daily loss limit. A setup has an edge only if the whole package of rules around it shows a positive expectancy over many trades.
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