“If the market is an auction and volume dictates price, why are you spending all of your time on a Rorschach test?”
A No BS question to a lifetime chart addict…
In a previous life, I worked for several proprietary trading firms in Chicago. During my time there, I learned a few things. I also made a lot of money. And I still use the same strategies today which I used then, albeit, with some modifications. Technology changes but the fundamentals always seem to stay the same. If you would like to get an inside look into what happens in the world of proprietary trading, I invite you to read through this site and watch some of the videos I have posted on youtube. You will learn more from me for free than I learned from all the courses I bought as a novice way back when I knew everything there was to know about technical analysis and thought I was a genius. Except I was a genius who wasn’t making any money.
If you already understand the benefits of watching the order book (a.k.a. tape reading) and realize it has value, then I do not need to sell you on this idea and you will find a lot of helpful information on my site and in my free youtube videos.
If you do not know what the order book is…or if you do not see any value in watching it…or if the idea of trading without charts sends an inexplicable wave of uneasiness down your spine…all I ask is that you read the next few paragraphs. It is my hope that the information within them will help you understand why most traders lose money.
Traders are becoming smarter. Technology has prompted this. The average guy in his house is starting to learn things which he could have never learned prior unless he worked for a trading firm or walked onto a trading floor. However, even with all the news and information which is available, many retail traders are still incredibly lost in the quagmire of misinformation, bad advice and sales pitches which bombard them on a regular basis.
Please take a moment to contemplate the following…
The regulatory agencies have made spoofing illegal. “Spoofing” means placing orders with no intention of executing them. Spoofing is not illegal because it doesn’t work. It’s illegal because it DOES work. There are lawsuits which have proven that certain traders were able to game markets by influencing the order book with their order placement strategies (look up the Panther Energy trial and the current case against Navinder Sarao, among others). Some of these guys made millions and now have to pay it back. Many others have made millions doing the same thing and will never have to pay it back. A company called Virtu revealed that it had one losing day out of 1,238 days. Companies have built microwave towers that move signals faster than wire. Billions have been spent on infrastructure to move orders at the fastest speed possible. Graduates from schools like MIT have been spending years of their lives writing code for trading programs instead of using their talents to build spaceships or find a cure for cancer.
Now…I ask you…do you think any of these exceptionally intelligent individuals who are spending fortunes on cutting edge infrastructure in hopes of achieving faster than light order routing so they can beat the next guy to the punch with a trade which has been triggered by an algorithm that took two years to program…do you think these individuals are making trades based on what would be considered “traditional” technical analysis? Are those programs attempting to pinpoint the next Fibonacci wave extension? Are those programs attempting to spot a “head and shoulders” pattern? Would all of that time, money and intelligence be necessary if they were simply going to enter a trade at a “pivot point” and then set a stop loss at a “support level” which is 10 ticks away from the entry price while simultaneously setting a profit target at a “resistance level” which is 25 ticks away from the entry price?
If a person contemplates those questions, said person should quickly come to the realization that maybe there is something else to the equation besides technical analysis.
So if the top dogs in the trading realm are not spending all of their time watching the technicals, what are they watching?
Answer = Volume.
The term “front-running” has been in existence since the inception of trading. It means you are trying to place a trade in front of an order which is then going to move the market in your favor. You know that a big order is about to hit the market and drive the price up at least 2 or 3 ticks so you buy before that order hits. It’s essentially risk-free money.
You are always attempting to be a front-runner unless you are taking physical delivery of a commodity. Every single trader on the planet who isn’t an actual consumer or producer is doing nothing more than attempting to get in front of orders which will move the market in his direction. Or, if a trader moves size, he is attempting to BE the market and move it himself in an effort to entice other traders to follow his lead. But he still only gets paid if other orders follow and move the market in his favor.
This is Trading 101. It is the raw fundamental premise which many people seem to overlook. In order to develop a consistently profitable trading strategy, you have to understand the basics. Buy low. Sell high. Get in front of orders which are going to move the market. That’s where you start. And since volume moves the market, volume should be the most important factor in any methodology.
Some quotes from heavy hitters which can help offer perspective…
“My bid WAS the support.”
“Instead of just selling my 1 billion, he sells 1.1 billion because he knows the market is going to break on my order.”
“If you see Goldman coming at you with 5000 contracts, why fight it?”
“It’s kind of an ego rush to know that I just single-handedly drove up the price of coffee by a couple cents.”
“I tried to cap the market by selling 300 million and it just blew right threw me. That’s when I knew I had problems.”
There are times when some types of technical analysis can be useful. Most of it isn’t but some of it is. The problem for most traders is they focus on the technicals first. This is a mistake. The primary focus should be on the volume. The secondary focus can be on some of the more useful technicals. Then a trader still has to bring both of those elements together and recognize how they fit into the big picture. What is happening right now and what’s the right move based on all the factors involved?
“95% of traders fail to make money in the long run.” So goes the saying. While I’m sure no one has ever done a study to prove that number, I think it’s safe to assume that it’s probably not far from the truth. However, you never hear a follow up saying which accurately explains why this is the case. I can tell you it’s not because 95% of people are stupid. It’s not because the exchanges and the brokers are the only ones who make money in the trading world (although they certainly make a lot). It’s not any of the usual suspects which are mentioned in blogs and books. The reason a very large percentage of aspiring traders fail is because they do not understand the game. They do not have the first clue as to how the game is played. They do not understand the importance of size, the domino effect, risk to reward, profit per contract traded, the meaning of “low risk/high probability”, or any of the other factors which contribute to a methodology which has a chance of succeeding in the long run.
The majority of people who attempt trading essentially want to be spoon-fed a million dollars. Who doesn’t? The others who are willing to put in the effort usually do not have the time or the bankroll necessary to learn. They have to work real jobs just so they can survive and they simply do not have enough hours in the day to give themselves a legitimate shot at success.
Trading is a skill which has to be developed. Try to imagine sitting down to play a game of chess with a grand master after you’ve only been playing for a month. Or building a custom car after you’ve worked for an oil change shop for a month. Or trying a murder case the day after you pass the bar exam and become a lawyer. Silly notions. Yet people seem to think they can learn how to trade in a month. So why do they think that way? It’s a combination of many things but it’s mostly based on lack of education and misinformation.
Most people start out in this business the same way. You read a book which tells you that it’s possible to turn $2,000 into $20,000 in a few months or maybe even a few weeks. You can do it from the comfort of your own home. There’s no overhead, no employees and no customers. All you do is click your mouse a few times and voila…you’re on your way to riches galore.
Then you open an account and place your first trade. You might win. You might lose. It’s irrelevant really. The important thing is that you’ve discovered the rush. You see it’s possible. If you win, you see what it’s like to make a 15% return on your money in a day. If you lose, you think that if you had just done the exact opposite of what you did, you would have made a 15% return on your money in a day. You’re hooked.
The quest begins. Books, books and more books. Videos. Seminars. Blah. Everyone promising the missing link. No one delivering. But you won’t stop. Because there are guys out there making millions. You know there are. At least you think you know. You’ve read their names in the books. The hedge fund managers. The “flippers” of the world. You know they’re real. So what do they know that you don’t?
Well, for starters…
*Do you know that most professionals who trade large size either own or lease a seat on the exchange? This reduces their transaction costs substantially. As a matter of fact, if they do enough size, their exchange fees are almost $0. This means they only pay clearing, brokerage and NFA fees. If they’re doing that much size, they can usually get in with a broker who only charges a few cents a round turn. So a professional pays somewhere between $0.05 and $0.30 a round turn while you pay $2.00 to $3.50 a round turn or more. Imagine how much better your bottom line would be if you paid one fourth of the commissions you currently pay, let alone if you paid less than one tenth of what you currently pay. This is not applicable to traders who are just starting out and trading a one lot but if you start doing 1000+ turns a month, it is worth your while to do a cost/benefit analyisis and look into possibly leasing a seat.
*Do you know that short-term movements are way less random than long-term movements? People who don’t know any better will often call the intraday chop “market noise” as though it’s meaningless and there’s no rhyme or reason to it. The reality is that it’s usually far easier to predict what’s going to happen or not happen on an intraday basis. Short-term “market noise” often determines long-term market trends. Apply that idea to your life in general. Can you tell me what’s going to happen in the next six minutes with a pretty high degree of accuracy? Can you then tell me what’s going to happen in the next six months with that same degree of accuracy?
*Do you know that most professionals don’t use charts to determine their exact entry and exit points? They are aware of major support and resistance levels but when it comes to actually placing the trades, they typically determine their entries and exits by watching nothing more than the bids, offers, and time and sales. In other words, the orderbook (a.k.a. orderflow).
*Do you know that many professionals rarely look at charts or may not look at them at all because they are capable of making profitable trades by only watching the DOM (depth of market) platform?
*Do you know that the person who is bidding might actually be trying to sell or the person who is offering might actually be trying to buy? How is this relevant? It’s relevant because as soon as that person gets his order filled at the better price, the “fake” bid (or offer) will disappear and the market will probably move in that direction for at least a tick or two if not more.
*Do you know that all trading platforms are not created equal? If you don’t believe me, run a few of them side by side during the unemployment number release. If you’re a scalper, having access to the best platform is critical. There are several different ones from which to choose. I use the JigsawTrading depth and sales platform which can be plugged into NinjaTrader or into any platform which is fed by the Open E Cry (OEC) data feed. It will also be available to MultiCharts users in the near future. The Jigsaw DOM is, in my opinion, hands down the best DOM platform for the normal retail trader. TT’s X-trader is the standard and for good reason but it’s quite expensive and it’s really not necessary unless you are working many types of orders simultaneously. It’s designed more for pros who do a lot of HFT, spreading, etc. There are some other good ones on the market as well but the point is that you need a good DOM. It makes a huge difference. The good platforms flow really well in fast markets and you can see prints that you miss on other platforms. Most people do not understand this because most people have never seen a good DOM in action. This is one of the reasons why people do not understand the importance of the order book. I have many people ask me if using these particular platforms are requisites for implementing my strategies and the answer to that is no, they are not. My strategies are based around reading the volume and the order flow and you can use any DOM you like. I simply feel that these platforms give you more of an edge when it comes to following the volume.
Many aspiring traders don’t really understand what scalping is. They have become infatuated with technical analysis and risk to reward strategies and think that scalpers are “gangster traders” (I quote from a forum post I once read). These people are wrong. If anything, scalpers tend to be some of the most risk averse traders. There is a large amount of misinformation circulating out there in regards to scalping. There are some who think it might be a good strategy but feel it is beyond their abilities. They prefer to remain safe in their charts and place stop losses based on past price action rather than current events.
If you want to have any chance of turning small amounts of money into large amounts of money fairly quickly, you need to familiarize yourself with the idea of scalping. I explain this in more detail on the “For Inexperienced Traders” page. If you don’t know why I’m saying this, read that page in it’s entirety.
Scalping is probably not beyond you. It’s just foreign to you. It’s a completely different way of approaching trading and it will require some time to learn. Anything worthwhile does. But you don’t have to be a rocket scientist to get it.
I am not a genius. I am good at games. I knew a trader who made a million dollars trading but couldn’t figure out how to work the microwave in our office. This is true. I came to find out later that he was a great chess player after he repeatedly stomped me at will. I have met successful traders who have Ph.Ds and others who are dropouts.
It does seem like good traders often tend to be good at games and puzzles as well but this is not always true. The only thing that all traders do seem to have in common is a certain mindset (or perhaps, a certain disease, depending upon one’s perspective) which allows them to risk large sums of money without concern for losing it. Financial stability isn’t something which concerns us. We are very aware that while we may have made money in the past, it’s possible we may lose it tomorrow. There are certain safeguards one can put into place to prevent oneself from going completely broke in one day but it’s usually possible to override those safeguards if one really loses one’s mind.
I know a guy who made a million and lost it. I know another guy who made 20 million and lost a whole bunch of it. I know another guy who had several years of triple digit returns on a small fund and then put together a 100 million dollar fund and blew it all. These guys were great traders. They didn’t get lucky when they made money. They understood the game and played it very well. They didn’t get unlucky when they lost. They broke their own rules and started making stupid trades. They stopped waiting for high probability trades and started taking shots. They started trading too much size. They started holding positions much longer than normal. They started thinking, “it has to come back”.
No. It doesn’t.
I’ve made a lot of money trading over the years. There are guys who have made much more but I’ve made more than the majority of people who attempt it. I’m way ahead of the game. It wasn’t due to luck. I can show you some of my strategies and give you examples of how to apply them in the real world. I can give you specifics about why they worked and explain why I feel certain movements lead to high probability trades which work more often than not. But I offer no guarantees. I offer no magical system. You may never make a dollar trading. In fact, if you’re new to the world of trading and haven’t yet reached the point of no return, I advise you to quit before you start. Don’t bother trying. Your odds are slim to none. The road is not easy. It will take you a long time to become proficient just as it would at any other worthwhile endeavor. So go find another worthwhile endeavor that you might actually enjoy. Seriously.
If you’re already hooked, then you might want to check out the No BS Day Trading basic course and intermediate course as well as the webinars. If you pay close attention to the information provided (and if you have the mindset for it), you can cut years off the learning curve. I’ve been there and done it and can show you what tends to work and what doesn’t. At the very least, I can point you in the right direction and possibly keep you from wasting anymore time and money on some “buy green, sell red” system. Once you have a better understanding of what’s really happening behind the scenes, you will be able to weed out the legitimate guys from the salesmen.
The truth is that you don’t need to buy any course to make it. The only necessary thing for you to do is to spend many, many hours in front of your computer staring at the DOM. That’s it. It’s how I learned. It’s how everyone learns. Bids and offers. Offers and bids. Time and sales. Market profile. No one taught me anything. I just sat there and stared for hours and days and months. Like I said, I can help shorten your learning curve substantially but you are still going to have to put in the time. There’s no way around it.
Everyone wants to know why I share my strategies. It’s a legitimate question. There are several answers to this. For starters, there’s nothing secret about them. What I am sharing with you is already known by every other pro in the world. I’ve had conversations with guys I’ve never met before and within two minutes the guy is talking about the very same things I’m sharing with you. We don’t all trade the same way but yet, we do.
I also share my strategies because people pay for trading information. There’s a market for it and I’m offering my ideas to that market. The difference between me and the majority of the other guys is that I put my money where my mouth is. In the course materials I offer, I will show you real trades made in real-time with real money. I will show you good trades that worked perfectly and explain why they worked. I will show you trades which I thought were good when I entered them but then I saw something which changed my mind and so I scratched the trade or took a small loss. I will explain why I changed my mind about those trades. I will also show you really stupid trades which you should not repeat and while I won’t be able to explain why I decided to be an idiot at that moment in time, I can tell you why the trade was stupid and hopefully help you avoid being an idiot yourself.
If I share my strategies with you and you end up becoming a hugely successful trader as a result, you’re not really going to affect the market that much. You’re not going to be major competition for me. Very few, if any, people who are reading this are going to go on to trade thousands of contracts. And if you do, more power to you. Glad I could be of assistance.
So take a look around. Read the pages for experienced and inexperienced traders. Watch the sample videos. Write me if you have any questions. I’ll be happy to answer them. The goal of this site is to educate you on the real world of trading. I try to cut through the nonsense and BS and get down to the brass tacks. Hence the name…