Trader Education Recap | Week of 11-14-16

trading education recap 11-14-16

[Video] An introduction to Order Flow...

Order flow isn’t a term you will hear on CNBC or read in the Wall St Journal…

It’s an underground secret, exposed only to those in contact with big money. When tens of millions of shares are involved, order flow is not going to be announced on TV.

That is unless they want you to buy shares they need to sell, or, they want to accumulate (buy) a few million shares and need you to sell to get the shares.

How do they do that? It’s simple. It’s done with a specific type of price action…

What attracts the attention of retail investors? Higher prices. More specifically, fast-moving higher prices. Said through the lens of technical analysis, higher prices with wide fluctuations after a significant move higher.

The “fluctuations” part is what makes the retail buyer think he has a second chance at a better price.

So we are clear, a “sloppy/whippy” topping pattern (after a mark up/up trend), is when institutions are marketing stock for sale. They are telling you they need to get out, and they are attracting you like moths to a street light with price action.

Order Flow is a key topic in our coaching program. See what’s in the program here — >>

Our Next 4 Week Coaching Program Begins == >> Monday November 28 

How to Game Plan if the Stock Market Collapses

The last-minute FBI announcement, Trump victory, decline and rally wore out the keyboard the previous two weeks.

Now what?!

How do smart traders prepare for the coming reality check? 

Traders love momentum but we really want order flow. We want obvious, and we want room to go (profit potential).  Traders lose money in two key scenarios. By accepting risk in poor trade ideas, or by not earning more in great trading ideas.

The profit potential to the up side, means the stock market needs to trade through, and hold, new all-time highs.  A 10% correction lower gives us some meat on the bone. I’m not saying I want stock prices to trade lower. I am saying to be prepared if it happens.

First, throw out your long-term moving averages. They are misleading when prices trade back-and-forth like this. Use the 20 sma or old-school trend lines.

Second, trade stocks with relative weakness to the market. Make a list of stocks that see selling pressure, while the market rallies.

Third, dig into sector rotation. Which sectors or industries remain vulnerable to new Trump policies? Which companies could suffer should dismantling Obamacare become the priority?

Fourth recognize if you are trading with the general market or simply with the sector. This scenario will dictate your trade management. Build positions in the first scenario, cash flow in the second.

Trump rally to be followed by 11% stock-market tumble, forecasts Tom DeMark

Dow could first hit 19,000 in next few sessions—but then fall, technician says

Prominent technical strategist Tom DeMark predicts that stocks, which have rallied mightily following Donald Trump’s victory in the U.S. presidential election on Tuesday night, are on the verge of peaking and then subsequently tumbling by as much as 11%.

DeMark told MarketWatch that he’s forecasting the S&P 500 index SPX, -0.14% to hit 2,213 by next Wednesday, followed by a correction. “Expectation is for U.S. stocks to endure at least 11% decline after top recorded,” he said. A correction is typically defined as a drop in an asset of at least 10% from a recent peak.

Read More — >>

exit trades

How to Exit Trades Correctly

You expend too much effort finding perfect entry signals and prices.

I know this without knowing you, because that’s what I did. We need to spend more time learning how to exit trades.

We enter expecting the trade to give us profits without much effort or planning. We enter and only see one side of the trade. Sure have a stop-loss in mind but we never expect to need it. Our belief is “I did the work, it’s going to make money…”

Once in the trade we sit back and count our coming P&L, or worse, act surprised when the trade moves against us.

Anyone can enter a trade, but one of the keys to success is learning when and how to exit. Should you scale out? Should you get out in full? Should you build a position? Should you day trade the position or swing trade?

If the position moves against you should you get out or scale out? This last trade exit gets it’s own line because it’s one of my favorite scenarios to discuss with new traders.

The concept of getting “stopped-out” solely on price is ludicrous. How many shares traded at your stop loss? Is the trade still valid?

I teach to exit “most of the shares.” Hold 100 shares and monitor your position. If it continues to move against you, but the trade idea remains valid, watch. Don’t abandon a good idea. You lowered your risk, you are ok.

If the trade begins to move positive, look to work the order again. We are risk managers working probabilities.

Never forget that.

frustrated trader

The Right Way to Lose Money

This trading advice can literally…overnight… turn your trading from positive to negative, from frustrated to calm

During a recent coaching call, I heard the line that changes everything.

“I finally get it.

You have been saying this for months and I finally get it. The more I recognize and stay away from poor trading ideas, the steadier my P&L grows. Doing absolutely nothing else, learning to spot perfect trades, and only trade perfect trades, made me a winner.”

I stopped taking trades because I felt like I needed to trade, or I wanted to trade, or any other reason we all convince ourselves of. My biggest problem now is holding good trades longer.

Of course I am ecstatic but I want to drive the point home so you can apply the lesson immediately.

Always strive to lose money on your best ideas. You are definitely going to lose money. We all will. Losing trades are included with “probabilities.” But how you lose is what matters

Understanding the Difference Between Order Flow, Stock Price Momentum and Great Trading Ideas.


I love making money. I’m sure you do too.

The current momentum gives us a reason to believe in the stock market again. The previous four months made us work hard. We didn’t become traders to work hard! We want the lifestyle, the glamour and the income.

July through early November was blue collar trading. The recent two weeks showed the return of white collar trading. The visualized image of “trading is easy.” Just buy, even stocks pointing lower will go higher!

Let’s be careful here…

Momentum is nice, but order flow is what we want. Order flow is sustained buying or selling pressure. Buyers or sellers are committing money, a lot of money, over time.

Order flow makes your bias easy, you clearly should be long or short. Momentum is tricky. You need flawless timing. Best case scenario is momentum in the direction of order flow. Golden. Order flow plus momentum is a great trading idea.

Today we see hundreds of stocks tearing into their sixth or seventh day higher. Many with zero bullish order flow.

A buy? Yes? High probability for follow through. No.

This trade idea frustrated me for a long time. Learn from my losses (2000-2001). If you trade pure momentum without order flow, be prepared to make decisive decisions. Hesitate and you are done.

Trades with order flow give you more leeway. More big money committed to the idea, They are not changing sides in one day.

Great ideas, ideas that you can build a long-term career on are built on order flow. Look to the left and ask; “How much have the institutions committed to this stock?”

Momentum is fun, but order flow is the girl you bring home to meet your mom.

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