Context & Setup Formations

Context & Setup Formations: The Building Blocks of Consistent Trading

🔶 INTRODUCTION

In the world of professional trading, knowing where and when to enter a trade is crucial to becoming consistently profitable. The Context & Setup Formations document is designed to guide traders through FXAN's systematic approach to identifying areas of opportunity in the market. By combining the context provided by specific market levels with clearly defined setup formations, traders can make informed, high-probability decisions.

FXAN's Cygni 75 algorithm provides seven key contextual market levels, each offering a unique edge for traders. These levels, combined with powerful setup formations, form the foundation of a comprehensive trading strategy that can adapt to various market conditions.

🔶 [A] CONTEXT: IDENTIFYING KEY MARKET LEVELS

Before entering any trade, it's essential to understand the context, or the price levels, where the market is most likely to offer profitable opportunities. FXAN teaches traders to analyze the market using seven specific contextual levels:

• A1: Market reaching daily extremes (Zone III) – When the market reaches extreme levels, it provides an excellent opportunity to observe price behavior and potentially plan trades based on reversals or shifts.

• A2: Market crossing the DFP (Developing Fair Price) – The DFP represents the average price weighted by volume. Whenever the market crosses this level, it signals an opportunity to analyze future market intentions.

• A3: Cygni 75 candle color change – A shift in candle color indicates a change in control between buyers and sellers, offering critical insights into market momentum and direction.

• A4: Momentum shift – Recognizing shifts in market momentum allows traders to time their trades more accurately, either riding or avoiding momentum-driven moves.

• A5: AOI Levels (Area of Interest) – Derived from previous day’s fair price, AOI levels offer confluence points for support and resistance, and can serve as ideal entry and exit points.

These contextual levels provide traders with an edge in determining where to engage with the market, increasing the probability of making profitable trades.

🔶 [B] SETUP FORMATIONS: EXECUTING THE TRADE

After identifying the context, traders must look for specific setups that guide their entries and exits. FXAN defines two types of setups: continuations (B1, B2) and shifts (B3, B4). These formations allow traders to align their trades with market behavior, providing a clear framework for making decisions.

• B1: Mean Reversion (A0) – This setup is based on a flat DFP, indicating that the market is looking for balance. Traders can buy when prices are low and sell when prices are high, taking advantage of the market's tendency to revert to the fair price.

• B2: Price Discovery (R+/R-) – When one side dominates the market, the DFP gains a slope and the market moves quickly to discover new price levels. This setup allows traders to capitalize on momentum and trade in line with the dominant side.

• B3: Reversal – As momentum fades, the market tends to return to its fair price. This setup helps traders recognize when to trade against the current move, taking advantage of profit-taking or a loss of market strength.

• B4: Shift – Similar to a reversal, this setup identifies when the market is shifting back to equilibrium. Traders can capture profits when the dominant side of the market starts to lose control.

🔶 WHY CONTEXT & SETUP FORMATIONS MATTER?

By combining context with specific setup formations, traders can approach the market with a clear plan. This method allows for flexibility across different market environments, from trending conditions to range-bound scenarios. The ability to adapt based on market structure is crucial for success, and the education in this document provides traders the tools to do so.

🔶 CONCLUSION: A FRAMEWORK FOR SUCCESS

The Context & Setup Formations document provides traders with a structured, adaptable approach to entering and exiting the market. By combining seven contextual levels with four powerful setups, FXAN enables traders to create hundreds of strategies that can be applied in any trading environment. Whether you're new to trading or an experienced trader, understanding context and using setup formations is key to building a long-term, profitable trading strategy.