Strength of the Move
Strength of the move (max 2): How did prices leave the level: strong fashion, or a more gradual move away from the level. Gives clues to supply and demand imbalance at the level. Strongest turn in price level is where supply and demand is most out of balance. So our quest is to look for price levels where supply and demand is most out of balance. The biggest clue in how in balance or out of balance prices are at a level, is how quickly they leave. The more quickly they move, the more out of balance they are.
1. How far did prices rally up from demand level before coming back to it. That is initial profit margin.
2. If buying at support or demand, where is the nearest area of supply. If risking 20 cents on trade, is nearest supply level 60 cents or farther away? If not, we are not interested in the trade.
Support and demand levels all around, we only want to take the best.
Looking at daily charts for big picture. Most of Sam's trades are intraday, but he still looks at daily chart for big picture. Big picture is important to day trader for two reasons:
1. big picture trend up or down - determines which side we want to be on
2. Where are big picture support and demand levels? We dont want to short right above a demand level. We only know that from the big picture.
If we are taking shorter time frame short positions in context of a big down trend, then this gets a 2. If we are shorting during a bigger picture uptrend, and we are close to big picture support, it is a 0 or a 1.
Retracements / Tests
We may look at this different than conventional wisdom. Once prices have left a level, (example of picture explanations), sell zone with a lot of candles - we want to enter on the first retracement, it is highest probability entry. First time entry is a 2. second time is a 1. Third time is a 0.
This is all just motion into mass. The mass is the supply and demand, the big stack of orders.
Chopping tree example: Every swing removes some of the mass. The more swings, the more chance to go through.
Time at Level
Very much in line with first enhancer - strength. At price levels with supply and level out of balance the most, price will spend the least amount of time at the level. The textbooks talk about this in the opposite way.
At price levels with the most imbalance, price will spend the least amount of time: few candles.
If price is in balance, price will stay there a long time. it is equilibrium, we dont want to trade there. We want to trade at the extremes.
Question: How many candles in what time frame: Be very careful about coming up with a specific number. Changing time frame will change the number of candles. At your time frame, compare the number of candles to time spent at other levels, dont get hung up on specific number.
How did price arrive come back to the level. We want to be anywhere near other levels. We don't want new resistance levels before we buy, or new support levels to form right before we sell. Strong arrival usually means strong departure at the level.
The worst possible case is an 8 - This can be a confirmation entry.
Here are the scores:
If it was a 9 or 10, it could be a limit order. - limit order
8 - confirmation entry
7 - No trade if less than 7
Another odds enhancer for short term traders: Time of day that trade is meeting entry. The opportunities that we point out that meet entry in first 45-1 hour of the day, these are usually golden opportunities. Later in the day is often not as great.
Coming from the institutional side of trading, you know, because you see the order flow. Time of day odds enhancer is, in any market, supply and demand is most out of balance at or near the opening of trading in any market. I saw this day after day. Given that, if you are good at picking out levels and turning points, those will be most profitable. If entering in the first hour of the day, the best day traders make their money in the first hour of the day. I don't know anyone who makes money just trading in the afternoon. If they are trading in the afternoon, they didn't make money in the morning, and it will be tougher. After all the orders get processed, usually supply and demand are back in balance.
If you dont know what you are doing, don't trade at the open. But if you do, trade because that is the time when most of the transfer between accounts occurs. Morning is the golden opportunity.
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Start by doing what's necessary, then what's possible, and suddenly you are doing the impossible.
Francis of Assisi