Excerpts Writings From JJ @vwaptrader1, More Interviews, Trading Essays

From The Desk of Trade Beautiful – Bottom, Bottom, Bottoms!

$TWTR is making me feel like I am in a Lizzo video right now.

Let’s talk about Bottoms and whether or not we are in one.

Just as in real life no one likes a flat bottom. The rounder the bottom the better and it looks like the $SPX has not stepped foot in the gym in months.

First things first, unless someone hires me as a TA this is just for educational and informational purposes only.

Let me preface this by saying there is always a bull market somewhere. Energy and grain have been doing extremely well. A lesson for newer traders or maybe stubborn ones, it is ok to leave your beloved tech and growth stocks and move over to a new sector when they are not working. I give you permission.

In a sea obsessed with bottoms everyone is looking to “nail” the bottom. Let them at it. A broken clock can be right twice a day. Our job is to, especially if you want to stay in this career long term, figure out the truth by reading what is in front of us. The charts.

Today I am not going to speak on inflation, CPI, QE, Investors reevaluating based on P/E or anything to that nature. These are all lagging imho. All that matters to me is what the charts are telling me. I really don’t care why. My time is better spent elsewhere.

So what pattern were technicians looking at wayyy before CPI etc?

What’s that? Try again.

You Got it. Classic topping pattern Head & Shoulders.

Looking at the chart we can clearly see the H&S forming and the confirmation of the break was 4300.

3800 has been a massive talking point between experts, because it is the 38.2% retracement area. I adore measured moves. It is like ballet. Poetic justice if you will lol.

So taking into account the March 2020 lows we can see the 50% retracement would put us at 3500. This doesn’t mean we cannot bounce around.

Let’s take a quick look at the largest weighing company in the S&P $APPLE.

With 7% of the S&P , trading 26x its forward earnings and having just broken support conforming a double top formation I can safely say this adds to the case of the bottom is not in

Take a look at the measured move targets below on the break of $151.50.  Bullish case if reclaims this level and holds, as there will be a lot of trapped shorts expecting more downside.  

Remember, we let the charts tell us the story and we allow the patterns to work themselves out.  Every rally begins with an end to selling pressure and every selloff comes after bullish action, so it is important to not get tied into a bias.  

I really hope you have enjoyed this quick article!

Please feel free to reachout to me on Twitter https://twitter.com/tradebeautiful to chat stocks, trading, technical analysis, and to let me know if you would like more . Send me a message or tweet of what you would like me to cover next!

Til next time.

Trade safe. Trade Beautiful.

Les xoxo – @tradebeautiful (Twitter)

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Excerpts Writings From JJ @vwaptrader1

Trading in Uncertain Market Conditions – from the Desk of vwaptrader1

Trading in uncertain market conditions – from the desk of vwaptrader1

The market has changed drastically.  We have to adapt our style of trading and manage risk and expectations.  To thrive in uncertainty follow these rules as a start and remember that risk management is the MOST important thing in these trying times.

  1.  Time of day.  For new traders with limited skills in trading, the market open in RTH is not wise.  Let the market open and let the order flow establish itself.  This means letting the big traders do the work and take on the fast volatile new orders that come in off the open.  For more seasoned traders who have the skill and account size, size down so you don’t get whipsawed with SIZE.  New traders should trade Globex where the price action is slower and you can see moves coming and reacting.
  2. Before trading watch the market. Figure out where inventory is.  Where longs or shorts are trapped.  Look at the structure and how the price action is.  Is the market moving fast or slow? Is the price jumping around or is it stable?  Where are the stops? How is price acting at the stops?  How many stops are sellouts taking out? Make notes of all this before you execute
  3. When looking to buy dips remember we have SUPPLY in these markets now.  This means the market will take the lowest stop before stabilizing and making a move higher.  Short sellers KNOW there is supply and will not bid the market as aggressively as they did last year when there was no SUPPLY.
  4. Make a plan for your out/ safety stop BEFORE you enter a trade so you are not caught off-guard.  
  5. Let the size traders work at extremes when markets sell-off, remember there is more supply now, let those big-money accounts take the risk, then look to execute. Being patient is allowing those big-money accounts the time to do their business.  Getting in the way means getting unnecessarily stopped out.
  6. Remember it takes TIME to clean up supply after a sell-off.  If a market has been over VWAP for 4 hours it is going to take longer than 5 minutes to clean it up when it breaks VWAP as not everyone who is trapped long over it will sell at the same time.  Allow time for the sellers to all realize they are trapped and head for the exits
  7. Be aware of margin call selling when you are taking longs.  When markets cannot hold settlement we will have margin calls.  When other asset classes sell-off we get cascading margin calls as funds sell whatever they can to avoid sending money to their brokers.  What this means for you the retail trader is DON’T GET GREEDY on longs. Sell into strength!  If you are long and the market cannot take out the first upper stop above you get out and get paid.  Always trail stops when in profit in case of selling that will hit the market like a rogue wave.  Your stops are your lifevest, do not go into storms without one.
  8. If you cannot figure out the trade, wait and watch the market will tell you what is going on.  Resist the urge to jump in and boredom trade or revenge trade.  If you have trouble doing this, reach out to one of the moderators in our room.  We are here to help.
  9. Use Globex trading to put together information so you can build trades in RTH.  Be disciplined and always make sure you think risk before reward. The markets are not going to treat bad decisions and greed kindly.  Govern yourselves accordingly.
  10. If you are having trouble with a market, size down and trade less.  The emotional wear and tear of losing money and blowing up accounts can be avoided by not pushing trades.  We have to be vigilant and smart now.  Anyone can make money in a bull market with no supply.  We have a two-sided market now so remember we have to be smarter, faster executing, and more patient to allow trades to develop.  Do not get upset if you miss a trade because you hesitated and chase it.  There will be thousands of trades for you.  
  11. Admit you are wrong when you get it wrong and get out fast!  Do not let that “ oh it may turn” get in your head.  Be savage and cut losses quickly this preserves capital.  If you get stopped out 3 times take a break and review what you got wrong.
  12. Stay flexible and learn to adapt to different market dynamics. We will see many in the upcoming weeks.

Reminder that @vwaptrader1 teaches and trades live at Microefutures.com / EquitiesETC.com Trading Room Community

Excerpts Writings From JJ @vwaptrader1, Trading Essays

Excerpt Writings from JJ @Vwaptrader1


The function of wholesale and other time frames in the market and their impact on price action.
(How to swim next to the shark instead of into its mouth)

(Footprint chart provided by null_antechamber)

When a market is trading up and down in a narrow range this type of price action is known as “chop”. As traders, we are taught to avoid this type of price action and for good reason. By the end of this, you should have an understanding of how and why “chop” occurs and how to position yourself on the right side of the trade once the opportunity presents itself.

Let us see why this type of price action occurs and how observing it can help you trade with the size players who move price in the market.

While price is moving in this up and down fashion larger timeframe players are building a position. Using the tools that we have, we can see where the position is being built and how the structural location of this position can tell you the agenda of the size traders who are building it.

In the graphics below is the structure in question. Here is some background: before the regular trading hours (RTH) of July 17, 2020, the overnight inventory was long. At about 35 minutes into the RTH session, ES began its downwards correction as trapped longs sold out near the overnight low. At this point, price cannot break the overnight nor the previous day low. This is a huge indication that the sellers who took price down are not OTF size sellers, but rather trapped long players who are selling out or having their stops taken out.

Market Profile (TPO charts) shows what business is transpiring. Now we must investigate how those size traders deal with this selling and how they later profit from it.

As the initial wave of selling starts to slow down, momentum traders see this and jump in and buy. The wholesale side of the business knows this and in order not to buy the momentum traders stock back and cut into their profits, they move bids up and down resulting in chop. (Also keep in mind when a market goes to areas like the overnight low, some traders who follow price will short here and there will be others that sell from long positions down here too.)

This order flow and the way the wholesale handles it is the mechanics of this business. By creating this back and forth price action the wholesalers are able to absorb all this selling order flow, consequently resulting in what we retail traders call CHOP.

Now we will see how the wholesalers resell this position back into retail buying as the selling subsides and is “taken into wholesale inventory” This is how the wholesaler makes their money as they provide liquidity to retail traders.

Screen Shot 2020-07-23 at 4.35.59 PM

The above is the market profile which shows selling has shot off down at 3196

Screen Shot 2020-07-23 at 4.37.07 PMScreen Shot 2020-07-23 at 4.37.15 PMScreen Shot 2020-07-23 at 4.37.20 PMScreen Shot 2020-07-23 at 4.37.32 PMScreen Shot 2020-07-23 at 4.37.37 PMScreen Shot 2020-07-23 at 4.37.44 PMScreen Shot 2020-07-23 at 4.37.48 PM

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Excerpts Writings From JJ @vwaptrader1, Trading Essays

Excerpts Writings from JJ @vwaptrader1

How the markets have become cleaner over time,  My confessions of Stealing order flow

Before the advent of online trading the markets were very opaque: very few people now know anything about order flow, back then even fewer did. Practically no one, including people who took companies public, knew how the mechanics of the market actually worked. For pirates of the over the counter and small-cap markets, it was heaven.

This gave rise to opportunity.  

If you had a company you took public and you were the financier you had a large position. In order to sell or dispose of that position, you need to create a market to sell it into.  This is where the Stock promoter came into play. He was hired by the inside shareholders to bring in buyers. He is given a position of say 5 million shares to use as he desires to create a market for the insiders, to say, sell 40-50 million shares.The promoter will start his campaign using all known methods of advertising to bring in buyers. When those buyers come in, their orders go to large market makers. If the large market makers do not know where to find a size seller they will move their bids up. We relied on the fact that 90% of promoters do not know how to trade or are too cheap to hire a specialist like me to manage the market. This is how we did it.

We identify deals with weak promoters and hunt their order flow. So if their stock is 1.00x 1.05 (bidxoffer) and a size buyer comes in, NITE the market maker would go bid 1.02. We would see that, call him and say “Oh we have an interest what you got?” “ I can pay the bid for 100k” he would reply. Sold!

We have just shorted 100,000 shares of a stock at 1.02. Now that bid drops and NITE goes back to say 98 cents. (under the best bid of $1).

Now for the fun part. 

We go and hit the bids HARD! You do this by hammering every bid on level 2(of course you tell your buddies to get out of the way first) then you slam it down. Once you break $1.00, you offer 200,000 shares at 98 cents and SHOW it, while you are hitting the bids. This scares the heck out of everyone, buyers scatter like pigeons, you take the stock down to close to 50 to 60 cents. You now call around looking for stock. “I can pay the bid for 150,000 shares”  The promoter will find out because you want him to. You have a market maker who is on neutral grounds call the promoters brokerage firm and show the bid; he will sell. He has too. He has gotten the stock for free and spent money to bring in buying. HE MUST SELL. You cover your short, a quick 50G booked and on to the next pillage!  All before lunch.

 JJ (@vwaptrader1) is the head educator and trader at highly popular Microefutures.com