First of all, the secret or trick (whatever you want to call it) that I am going to reveal here are very rare and are not available in any book or youtube stuff. I learned trading through experience, mind my words "trading" not "technical analysis". I learned TA from books but trading -- I learnt through practice, and by practice I mean losing money :) I think no one can ever learn trading without losing money. Any ways...
Secondly, the trick is applicable on everyday basis. Infact, it is applicable on 90% of trades that you take on intraday basis.
So before you lose your patience, here is the secret:
Let's discuss this stuff on a long trade and u can apply it on the short side later by yourself. Let's say you find an interesting setup to go long. You took the trade and put a stoploss and target orders. The stock moves in your direction and you are quite happy with the trade. Now it is, say, half way your target point where you might have considered to to trail. Suddenly the stock takes a dive down and hit your stoploss. The moment it hits your stoploss, it resumes its previous trend (upward in this case) and reaches your target in a strong momentum. You are just stunned, staring at the chart and scolding the market or yourself uttering you are a fool..you can never learn trading..bla..bla.
To my knowledge, it would have happened to everybody unless one has silicon brains.
Let's see what happened with the trade.
Not only you but there were many other traders who were looking at the beautiful buying setup. The moment the setup started yielding results, it came on scanners of some big traders or trader. But they have a problem with breakout trades. They do not enter untill they are confirmed about the breakouts. Once the BO is confirmed, they look for entries. But they have another problem you know -- they have huge money. Yes, huge money is a big problem.
The price has already run far enough and if they pump in their money at this point, they would be buying at highs. Their huge orders will makes the 'ask' go higher and it will make the price to run up even faster, so they will have to buy at even higher prices. No..No..No..that's not what they like coz they know that's how 95% people have been losing money in trading.
Their only desire is to buy at lower prices, on pullbacks. They just look for points where most of traders have placed their stops. Because it is those points where there is lot of supply, stop loss orders you know..sell..sell..sell..everybody is moving out of the stock which is in an uptrend after BO from an incredible setup.
It is only those selling orders which can fulfill the huge demand of big traders without even raising the bids. Ultimately, the demand overpowers the supply and the stock shoots back to resume the trend.
How the price was forced to hit the floor? That's a different story. Some call it operators' game. Such activities are more common in the afternoon sessions, when volumes are sucked. We call it churning session, where there is change of hands.
So why don't a retail trader trades with the market maker. It may be because of lack if awareness or lack of experience I must say. But once you know the market makers' psychology and adapt to it, you will make money in more than 75% of your trades. You just have to look for such opportunities on the charts. OR ELSE you will have to go for wider stops, which most of the traders could not afford.
You may combine this knowledge with my VWAP SETUP that I am going to link with this post.
HAPPY CHRISTMAS and HAPPY TRADING in 2019 I wish we all make good money in 2019
Hit Like if it has added to your knowledge. Comments are also welcomed.
Regards Bravetotrade
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Patience is the key for trading. As we know that more than 80% of break outs fail in the markets, but 80% of traders get stuck in these break outs only is also a truth. And 99% of them are retail traders. So a humble advice for retail traders is to sit patiently and wait for opportunities rather than hoping on to a trade. The methods discussed above are not the only methods of trading or make money in the markets but u can keep this tool in your trading arsenal in case u need.
Very well narrated, the actual story happening on trading floor. Keep it up and do post your knowledgeable experience for benefits of small and armature investor cum traders.
Very true. One thing i have found to be very true from the writings of Al Brooks is 80% of break outs fail and 80% of reversal attempts fail.Your VWAP strategy is good. Tried it on many charts and it looks good. Adding volume at the points of interests helps make a better decision. Thanks for sharing.
Bravetotrade
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@mtayal, yes, vwap and volume can do some tricks. Always welcome.