Understanding Trade Setups and Gradings
What is an A+ Setup Anyway?
How I Rate My Daily Trade Setups
I wanted to provide some additional context on the letter grades I assign to the trade setups in my nightly plans, including both how I arrive at the initial grade and how I mentally upgrade or downgrade setups as the next session develops.
The initial grade is assigned when I write the plan the night before. It reflects the information available to me at that time. From there, the overnight session, premarket action, cash open and developing session provide additional information that helps refine my view of each setup.
And yes, for the second time in 3 years I threw some of my own word slop and the starter kit into AI to have it clean it up and format my thoughts. I believe in always disclosing this as far too many people are passing off AI slop as their own. If you’ve been here for any appreciable amount of time you’ve heard all of this before and know my writing style.
What Goes Into the Initial Grade?
There are four primary considerations.
1. Probability of Success
How likely do I think the trade is to work?
At the most basic level, I’m asking how confident I am that the setup can at least reach its first target and give me an opportunity to take meaningful profit and begin managing the position from a position of strength.
2. Risk and Invalidation
How easily can I define and manage my risk?
A setup with a clean invalidation point and relatively tight stop is more attractive than an otherwise similar setup requiring substantially more risk.
I’m not simply asking, “How likely am I to be right?”
I’m also asking, “How much do I need to risk to find out?”
3. Alignment With Broader Market Structure
The same trade setup can have a very different rating depending on the environment in which it occurs.
If the monthly, weekly and daily timeframes are all bullish, my ratings will naturally favor longs. If all timeframes are bearish, they will favor shorts.
When timeframes are mixed or the market is in balance, my ratings may be considerably more neutral between the two directions.
This is one of the reasons context is so important. A particular level or setup does not have a fixed grade—the broader structure surrounding it matters.
4. Potential for an Outsized Move
I’m also considering the full potential distribution of the trade rather than simply the distance from entry to T1.
There may be a setup where I have high confidence that I can take meaningful profits at 3–5R, but the profiles also suggest a reasonable possibility that the trade could develop into something much larger.
If perhaps 10–20% of the successful outcomes have the potential to produce something on the order of 20-30R, that right-tail potential can make the trade extremely attractive from an expected-value standpoint.
I don’t need to predict which trade will become the 20-30R trade. I can take profits at the higher-probability targets, manage my risk, and retain exposure to the larger move when appropriate.
So, broadly speaking, my initial grade reflects:
Probability + Risk Efficiency + Market Structure + Potential Range/Asymmetry
The Grade Then Evolves with the Session
Once overnight and cash trading begin, I am continuously incorporating new information. Keep in mind the video on trading my levels (especially the 2nd half) and how the session profile and trend play into trade selection. The video can be found here: Trading Pharm Levels
The session profile and trend is absolutely critical in evaluating planned setups which is why it is a standing note at the bottom of the trades section in each plan.
You can think of the letter grade in the nightly plan as the starting grade. From there, setups are receiving mental upgrades and downgrades based on what the market actually does. It is always possible (though quite rare) that an A+ setup doesn’t work at all, and it is always possible (more common in persistent uptrends) that some random spot that isn’t a setup produces the trade of the day.
Other Active Setups
One of the simplest examples is when another setup has already activated.
If a short setup triggers first and begins working, my planned long setups receive a mental downgrade.
If a long setup activates and begins working, my shorts receive the same treatment.
This doesn’t automatically eliminate the opposing setup. It is simply another piece of evidence that becomes part of my assessment.
The Cash Open and 5-Minute Opening Range
I pay particular attention to the relationship between price, the cash open, and the first 5-minute opening range.
If we see little to no trade above the cash open and no trade above the 5-minute opening range high, I consider that a bearish open.
In that environment, my planned longs receive a mental downgrade.
Conversely, little to no trade below the open combined with no trade below the 5-minute opening range low is bullish information and causes me to view shorts less favorably.
The broader structure still matters here.
If all higher timeframes are bullish, for example, a bearish open may simply make me more patient about finding the right long rather than changing my broader directional view.
Initial Balance
The next important piece of information is Initial Balance, which for me is the range established during the first 60 minutes of the cash session.
If price is trading below IB, that is additional bearish information, and my long setups receive a mental downgrade.
If price is trading above IB, my shorts receive a mental downgrade.
But these developing structures can also upgrade a planned setup.
Suppose I have identified a key weekly level as an attractive short the night before.
The next morning, the first 60 minutes trade and the IB high forms immediately below that weekly level.
Price then pushes above the IB high into my planned weekly level and fails.
Now my original setup has gained another important piece of confluence: a look above and fail of the IB high.
The setup I liked the night before may now be considerably better.
The same concept applies in reverse with a planned long and an IB low.
Putting It Together
This is ultimately how I use my nightly plans.
The plan identifies the opportunities that I believe are worth watching and assigns an initial grade based on the information I have available.
Then the market starts filling in the blanks.
A setup may begin the night as a B+ and develop exactly the type of opening action and structural confluence that turns it into an A/A+ in my mind.
An A setup may encounter enough conflicting information that I’m treating it more like a B by the time price gets there.
And sometimes the developing session makes a planned trade considerably less interesting while creating a much better opportunity somewhere else.
This is why I spend so much time discussing context.
The nightly grade answers:
“How attractive does this trade look based on what I know right now?”
The developing session then helps answer:
“Given everything I know now, how attractive is it when I actually have the opportunity to put capital at risk?”
The levels and setups give me a roadmap.
The developing session tells me which roads I actually want to take.