"Setup" is just a technical name for "an objective set of entry and exit rules." Their value isn't magic — it's objectivity. Instead of trading on hunches, you have clear criteria: enter here, exit there, stop over there. That makes the trade testable and, crucially, automatable. Here are the classics, with the logic and how to code them.
First of all: no setup has a "win guarantee." They're structured starting points, not infallible formulas. They work best combined with trend context (see multi-timeframe) and strict risk management. A setup without risk management is just an organized way to lose money.
Continuation setup
Popularized by Larry Williams, the 9.1 trades the continuation of a trend after a small pullback. The 9 average acts as a very-short-term trend reference. The idea: in an uptrend, price rises, takes a breather (a correction bar), and you enter on the resumption.
Entry (buy)
An uptrend (price above/hugging the rising 9 average). After a correction bar, buy on the break of the previous bar's high.Stop / Exit
Stop at the low of the entry bar (or the correction). Target by risk/reward ratio or trailing along the 9 average itself.Reversal / pivot setup
Also about the 9 average, but with the opposite goal: the 9.2 seeks to capture the start of a new move when the 9 average changes direction. Instead of following an existing trend (9.1), it tries to catch the turn — which is riskier, but with the potential to capture the move from the beginning.
Entry
When the 9 average turns (from down to up, for a buy) and price confirms by breaking the high of the pivot bar.Stop / Exit
Stop below the pivot's low. Target at the move's projection or trailing.9.1 vs 9.2 in one sentence: the 9.1 surfs a trend that already exists (safer, enters late); the 9.2 tries to catch the turn (riskier, enters early). Many traders use both depending on the day's context.
Continuation Point
Another Larry Williams setup. It seeks the breakout of a small consolidation within a trend. After bars of indecision (consolidation), price resumes the trend's direction by breaking the consolidation's high/low. It's a breakout setup applied intraday.
Entry
In a trend, after a short consolidation, enter on the break of the consolidation's high (buy) or low (sell).Stop / Exit
Stop on the opposite side of the consolidation. Target at the projection or a defined risk/reward ratio.The Moving-Average Squeeze
A setup using three moving averages (short, medium, long). The "squeeze" happens when the three cross at virtually the same point and then fan out — signaling the start of a strong trend. It's the squeeze concept applied to averages: compression followed by expansion.
Entry
When the averages cross (the squeeze) and start to fan out in the move's direction, confirming the start of the trend.Stop / Exit
Stop at the squeeze point. Target: let it run while the averages stay open and aligned.Setups are made to automate
Because they have objective rules, they turn into code directly. See how in the Pine Script guide.
01Why setups are ideal for a bot
Here's the connection to your automation goal: classic setups are objective rules — "if the 9 average is rising and price breaks the previous high, buy." That's literally an if. Unlike "trading on feel," a setup can be translated into code unambiguously. That's why they're the best starting point for anyone who wants to build a bot:
- Clear rules → easy to code in Pine Script or Python.
- Testable → you backtest and see if the setup has a positive expectancy in the history.
- Optimizable → you test variations (the average's period, filters) with method.
02The cautions that separate profit from loss
The fatal mistake: taking a setup, seeing that it "works" on a few charts, and trading real money without testing. A setup without a backtest is faith, not strategy. And even with a positive backtest, beware of overfitting — optimizing so much for the past that it fails in the future.
- Context matters: a continuation setup (9.1, continuation point) needs a trend. In a ranging market, they give false signals. Combine with a regime filter.
- Always risk management: a stop defined before entering, position size by risk, never "removing the stop to see if it comes back."
- One setup isn't enough: good traders have a repertoire and apply it by the day's context, rather than forcing the same setup in every scenario.
03Frequently asked questions
What is the 9.1 setup?
A Larry Williams trend-continuation setup, based on the 9-period exponential average. After price makes a correction in a trend, you enter on the resumption when it breaks the previous bar's high/low.
What's the difference between 9.1 and 9.2?
Both use the 9 average. The 9.1 is continuation (surfs an existing trend, safer). The 9.2 is reversal/pivot (tries to catch the average's turn, riskier, enters earlier).
What is the moving-average squeeze?
A setup with three averages. The "squeeze" is when the three cross at almost the same point and then fan out, signaling the start of a strong trend — a compression-and-expansion concept.
Do classic setups still work?
They give an objective entry-and-exit structure, which is valuable and automatable. But they have no guarantee — they work best with trend context and risk management. They're a starting point to test, not a magic formula.
Which setup is best to start automating?
The continuation ones with simple rules (9.1, continuation point) are good to start with, being objective and dependent on a clear trend. Code it, do an honest backtest and add a regime filter before thinking about real money.