Do You Have A Bread & Butter Trade? Here’s My Favorite Setup

 

Trade setups fall into one of two categories: bread & butter trades and all others.  For the reasons you will read below, bread & butter trades are some of the best.  I’ll show you my all-time favorite bread & butter setup.

Characteristics of a Bread & Butter Trade

Bread & butter trades have specific characteristics.  These trade setups:

  • Are reliable profit generators. This means that when traded properly, they have a solid win rate and strong positive expectancy.
  • Set up frequently.  In day trading, they can occur multiple times a week.
  • Are seen in all time frames and all markets.
  • Are easy to identify on the unfolding chart.  There is no special mystery about them.  In fact, all knowledgeable traders can see them clearly.
  • Don’t involve a lot of complicated conditions or indicators.  They are simple to understand and simple to trade.

The Spring Bread & Butter Trade

My favorite bread & butter trade is the Spring.  The Spring has all the features of a solid bread & butter setup.  It’s reliable and occurs regularly.  We sometimes see two and even three Springs on a given day.  The setup criteria are straightforward and easily identified on the chart.  It comes into play on all time frames from monthly to tick charts.  And, we see it happening in all actively traded markets: FX, stocks, and the futures markets.

The Setup

The Spring is an uncomplicated trade setup.  A market makes a swing low, rallies, and then retreats back down to the swing low.  As the market comes back down it dips underneath the previous swing low, and then closes back up above it.  The action of going under the swing low and closing back above it is the key to the Spring.  This action is a special form of testing.  The market pushes below support, finds no sellers, and then ‘springs’ back up.  Dipping underneath support challenges sellers to show themselves and take the market down.  When that fails to happen, we know support is likely very strong.  It is at this point that a long entry is made.

Bread & Butter Trade Examples

Let’s walk through two recent, intraday chart examples.

Bread__Butter_Chart_-_GDayton.jpg

The chart on the right-hand side is a 5-minute Euro FX Currency futures chart.  The market makes a swing low at A.  It then rallies to B before coming back down to test the swing low at C.  When the market fails to follow through to the downside and, instead, turns back up and closes above the low of A, the Spring trader enters a long position, buying on the close.  The trade objective is a drive above the last swing high.  In this case, about 40 pips were available in the trade.

An hourly chart of the S&P e-Mini futures is on the left.  Here we see a Spring occur during the European trading session.  A swing low occurs at A, followed by a rally to B.  The market ‘springs’ when it reacts at C, going underneath the low of A, and then closes back above that low.  This Spring set the stage for a strong trend day during the US trading session, pushing the S&Ps up over 30 points.

Springs are best traded in up trending markets and trading ranges.  It is a part of the Wyckoff Method and used by traders across the globe.  If you are interested in this bread & butter trade, the author’s website provides many examples of Springs and other Wyckoff Method trades, including free resources on both the Wyckoff Method and trading psychology.