I use a very simple concept of supply and demand, and I focus on the auction that takes place in those larger areas of supply and demand. I trade both trend and counter trend (CT) and I am always aware of the trend on multiple time frames so I can manage the trade accordingly.
Volume profile (VP) or volume at price is a major component of my trading style as is reading the tape and price action (PA). I like trading at extremes, and as a result of PA and how the auction looks at supply/demand areas, I can often find extremes that present themselves within a larger range as well.
I identify my areas of interest or zones prior to the trading day and continually monitor the developing zones as the day progresses. It is part rocket science and part nuclear physics. I observe 1. How price gets from zone to zone and 2. How price reacts when it gets to a zone. Then I have a few choices and this is where the rocket science kicks in: go long, go short or stand aside. I know that seems like a lot to absorb so read that last sentence a few times if you need to before you read any further.
Whew, glad you’re still with me. So once I enter a trade, based on odds and probabilities I manage the trade according to my plan and there are 3 possible outcomes: 1. I make some points 2. I lose some points 3. I break even.
I do not look at indicators or fib levels. I studied Elliot Wave (EW) and Fibonacci for many years and I found very little consistency with it but I did take a few things from each of them which to me really have nothing to do with either of them. First, I will take notice of 50% retracements or a 50% move simply because 50% equates to the “average” of something. Second is that the market moves in a series of waves of stair case type movement. That’s years and thousands of dollars of my unnecessary study of Fibonacci and EW distilled into two free sentences of value for you.
I don’t look at a chart the way many other traders do. The chart only looks the way it does because of the PA, auction, buying and selling etc. That’s how the chart is created. So many traders I have worked with over the years are led around buy the chart instead of the other way around. They have a downward bias because the chart is headed down and that is how the visual of a chart can throw a trader off & miss what might really be going on. Obviously there are plenty of times that a chart is headed down and we should be biased to the downside but this is not always the case.
Many people talk about trading with an edge which I believe then but I also feel that you can trade on the edge of the market which is an exhaustion point. Also, as we have all heard the analogy about stretching a rubber band until it cannot be stretched anymore, that is the point of exhaustion. This happens all the time on all different time frame charts and looks the same no matter what time frame you trade. As a short-term trader I look for these exhaustion points on multiple time frames but I use the very short-term timeframe to help with my entries and that is what I call price action. As I am writing this March 13, 2012, you just had the FOMC announcement and the movement was very subtle off the initial reaction but once price went higher to an area I had previously noted as an exhaustion point, I was able to get a short at 1379.50 with minimal risk. I scaled out of my trade on the way down right into an area of support that was also predetermined. Very simple, very basic and I have no idea (nor do I care) what was even said during the announcement.
Something else I try not to do is buy after an extended period of buying or sell after an extended period selling. This is not to say that I will never do that but the circumstances have to be right. Many traders will wait for some type of a retracement pullback and then a break out of that level or pivot, which is fine but those are the people usually filling my orders. I would prefer to take the trade that looks the worst or feels the worst with minimal risk as opposed to waiting for the confirmation and entering the trade much later in the move. One of the key things with any trade entry for me is to make sure that when I place a trade, whether it’s a long or short position, that it is not approaching an area of support or resistance.