Much of Technical Analysis is predicated on ‘the signal’ which is where a few indicators line up and "Viola", you’re supposed to get yourself into and then make a lot of money.
The challenge with this common technical analysis approach of trading, is that after you enter a trade because of ‘the signal’ things can fall apart….and money may not be flowing into your pocket.
This reality is what turns off a lot of traders.
Traders may understand the signal, and follow the signal, but what do traders do if there is no information that tells them that things are about to fall apart, or worse, have already fallen apart?
This is where order flow can lend a hand.
Order flow can be the ‘tell’ that gives a trader real-time corroborating information that the signal is valid.
Also, order flow can tell you whether there is a high likelihood that the trade will play out as expected, or whether it looks like all bets are off, and a trader should cash in his chips.
As a hard rule, we don’t mess around with signals that do not have the necessary corroborating order flow, as order flow is the ‘heft’ that will force price in the desired direction.
Our ‘Entry Gambit’ order flow methodology insists that immediately after an entry, substantive corroborating order flow must appear, if not, we get out of our position.
Furthermore, the order flow must not only appear at the right place at the right time in the right amounts, it must also maintain a threshold level that indicates to us that a move has not only ‘oomph’ to take off, but that it has the ongoing ‘oomph’ to maintain the move.
This workshop will be an exercise of walking through our sequential market model accompanied using explicit insights into what type of entry is appropriate for each step in the model.
Then, for each entry, we will review what the expected follow on of order flow should be.
This market mapping approach is both visual and logical.
This exercise will allow you to understand what the standard order flow behavior is across our market model.
This model allows for entries that can be considered extremely early to those that can be considered to extremely late.
Each entry along the phase from extremely early to extremely late has a different risk profile.
We will discuss what the ramifications are of larger risk to less risk along this entry continuum, and the downstream effect early to late entries on one’s P&L statement, and one’s stress levels.
A High Level Overview of Our Tape Reading Entry Gambit
1) Maintain a market model.
- We use a Head & Shoulders (H&S) model, which we will review during our workshop.
- The H&S model provides the framework for us to take advantage of multiple opportunities.
- Having a model allows you to have a map and a plan.
2) Observe price and tape’s (order flow) adherence with that model.
3) During periods of high alignment amongst price and tape with the model, traders have an inference that there is an ‘opportunity’.
- Note | We consider our trading extremely ‘opportunistic’.
4) As the price and tape plays out along the model, in our case the H&S model, multiple entry locations arise.
5) Depending upon a trader’s risk tolerance, experience, capital, and available screen time, some or all of the entry locations can be trades.
6) Each entry location has some unique order flow expectations.
7) If price and tape track to the documented expectation, then the price continuum should also track to the model.
8) If price and order flow do not track to the model, then get out of the trade by either:
- Lowering profit target (Note – Profit targets can be lowered to a loss level)
- Raise your stop
- Simply exit the trade
9) KEY POINT | After you enter – tape should come in right behind you.
Register for this free workshop here.
Looking forward to seeing you there.
Chief Algorithmic Officer @ ...sceeto
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