2020 Trading Group Therapy Plans

Published on: January 24, 2021

We are planning to do something different for our Group Therapy sessions in 2020. . One of the reasons for this is that there’s only so much to be said about trading, we’ll start to get repetitive if we go over the same topics again. The plan is to focus on customer issues rather than us choosing the topics

For example, I am working with a trader now that has the opposite issue to most – he can’t pull the trigger. He’s undertrading. If you think about it – that’s something that journaling your trades doesn’t help much – because you aren’t making any trades. It’s also a tough one to advise on – it would be very easy to give bad advice, after all – how do you know the trader is really missing trades versus there not being much opportunity for his particular trading method on the markets he’s looking at? 

You can’t just say “Trade more”.

It calls for “hands-on” work. Right now, he’s recording videos each day and uploading them so that we can review.  There’s a common misconception that exiting a trade is “Bad” if the market then goes your way after the exit. But the market can only go 2 ways, so it’s likely to happen half the time. Care must be taken not to fix something that isn’t broken. I’ll be reviewing his ‘missed trades’ with him to see if he really is missing trades and we’ll figure out a ‘go-forward’ plan to address it.

This will be the topic of our first Customer Issue Focused Group Therapy. We’ll use this as the model for other Group Therapies in 2020. 1 a month. Customers will suggest topics – we’ll either pick from those ourselves OR  we’ll let you vote on them if there’s too many for us to choose from. If your topic is chosen, you will need to diligently journal your trades and you will need to provide videos (we’ll guide you on that). You will also need to come to the meeting and give your side of the story. Send details of your issues, we’ll chat about your role, if it seems too much – you can bail with no hard feelings.

Before that though – I’d like to do an “Extended Directors Version” of the “Cut & Chop” webinar we did last week at Wealth365. It’s extended because we are putting in a lot more information AND we’ll split it up into 2 or 3 sessions, so we can make it more interactive. I felt that session was too compressed.

The goal of this event is to challenge a lot of the beliefs I see that many of you still hanging on to. For example – I’ve had many requests to add yesterdays volume profile to the Depth & Sales. It’s a reasonable request. With all customer requests that ask for more information used to make trading decisions, I always ask how it would be used. The answer I often get is “I find it useful”. That’s not quite the same as saying ” I believe there is a set of traders holding positions overnight that do x because of y” – I can get on board with that. What I don’t want to do is keep adding more and more ‘stuff’ to the product. The more data points you use to make a decision – the harder making that decision will be. My view is that margin rules funnel short term traders into styles that have them flat at the end of the day. My opinion is that yesterdays volume profile has no value – it’s not representative of existing positions whose holders will react in any way. I will hold that opinion until someone convinces me otherwise. 

What I could do when someone says “I need it because I find it useful” is ask “Are you profitable?” and if they say no reply “It’s not useful then, is it?” but that’s right up there in the top 3 of how to upset your customers. What I can tell you is there’s things I used in trading that I found ‘useful ‘for a long time until I realized I wasn’t really using them in the heat of the moment. They were not adding value to the decision making process. Traders are odd beasts though – so I’m also open to something being your “lucky rabbits foot” that you can’t trade without. 

So – we’ll go a lot deeper into a number of concepts like:

• The Dog & The Tail – The connectedness of things
• Supply and Demand zones  
• Support & Resistance
• Timeframes
• Futures vs Stocks – Structural differences, differences in what causes activity
• Holding Times
• Algos/HFTs
• What we are left with

The last subject is key. A lot of people think we are completely ‘anti-chart’ at Jigsaw but sometimes there is no other data point than history. One of the reasons is that people think this is that our drills kick off focusing you only on the Depth & Sales. That’s because we are teaching you the Depth & Sales, not because you can’t use anything else again. I’ve had a few people apologize to me for ‘still using charts’.

I don’t believe in technical analysis, I think the key to trading is to understand what other people are doing, the idea that you can’t look at any history at all is not something I agree with. Sometimes there is nothing else to key a position day trade off. 

Everything we talk about in these sessions will come with an explanation of why I believe it to be true. For example Demand Zones. Are large trading institutions sitting there waiting for the market to come to them when they want to buy a million shares of TSLA? And if price moves up – will they simply pass on the TSLA opportunity because it didn’t hit their price? It doesn’t make a lot of sense. If I am right and institutions are buying over a range of prices – whose orders are at that “supply zone”? And if they want to buy TSLA and price is dropping, why not wait for lower prices? Of course, there could be times when large options positions means an institution stands to lose if a price is breached – but that’s more the exception than the rule.

Also worth consideration – how can you stop the S&P Futures without stopping the SPY ETF, the 500 stocks, the options on the futures, the options on the ETF and the options on the stocks? 

Anyway – all this will be covered and I really welcome you to disagree in the sessions. 

In terms of availability, these sessions will be available to anyone that purchased the Advanced Training (or Institutional Training (or daytradr Professional/Institutional). The recordings will go into the Advanced Training course.

The rest of 2020’s Group Therapy Sessions (the ones focused on your issues), will be more widely available.

Feel free to start emailing details of your issues.

FREE BONUS: Take a look into the decision-making process of professional traders with this video training series that helps you make smarter trading decisions. (Article continues below)

Order Flow itself is simply information. Just like charts, it can be used in a number of ways, some good and some bad. But let's first break down order flow into it's components so we all agree what we are talking about:

Order Executions/Tape Reading - This aspect is the real flow of orders. It's the information we see in Time & Sales, Footprint Charts, Cumulative Delta. It is looking at market orders, either as they execute or historically. I guess this is the "true order flow". Every trade is a buy and a sell. We look at market orders because we consider them to be more aggressive. When someone trades with a market orders, they are giving up a price to get an instant fill. Limit orders on the other hand just lazily sit there waiting for a market order to hit them. Often these are market makers with no directional conviction. So we see market orders as being more significant.

But we don't use these in isolation.

Volume Profile/Positions - The tape reading part helps us assess various things like momentum, traders getting stuck, balance of trade BUT the volume profile helps us understand where people are positioned and likely to get stopped out. I sometimes call this "Order Flew". It's important to know when trades will be "washed out" - for example - if we have a volume cluster on the S&P500 Futures and the market moves up 100 points and back down to it, it's unlikely short term traders on either side that were positioned there will still be there. But recent, nearby volume helps us assess areas of positions.

Market Depth - The bids and offers, the lazy passive orders waiting to be hit. This is part of the story but in terms of overall importance, I'd put it at around 20% at most. For example - if you return to the high of the day on any market, the offers will be quite large directly above the high. It means nothing at all. It's just a quirk of the market. It does not help you tell if a price will hold. On the other hand, if you see large depth and as we approach it, we see more added to the depth in front of that price, it means others are front running that depth and that is a useful bit of information.

This is the key - it is all just information. Just like price charts are information. When people look at Order Flow, they consider it to be a technique more than a set of information. They look for things like iceberg orders and decide to make a one rule trading system to fade every iceberg, For these people - yes, order flow trading is overrated because they are trying to ignore everything else going on in the markets and construct a trading system a chimp could execute.

For those looking to improve a decent trading approach, the best thing to focus on in Order Flow is momentum. Once you can read momentum you can:

• Avoid getting into positions when momentum is against you.
• Confirm trades are working after entry when momentum goes your way.
• Exit trades in profit when momentum fades.

That's perhaps the easiest way to use order flow because momentum is easier to read. It's about the market continuing to do what it's already doing. On the other hand, reading a turn in the market with order flow takes a higher level of skill and a little longer to learn.

Order flow can't put lipstick on a pig. It won't help you 'improve' something that doesn't work anyway, which is why whenever someone calls me, the first thing I ask is what they are currently doing and we discuss whether they need a reset or whether it will actually help.

When Jigsaw started back in 2011 - we were one of the first in the space and certainly had the best education. It was always going to attract the underbelly of the trading education/tools world and now we see stuff out there that is so complex but so impressive and futuristic that new traders are drawn to it like moths to a flame.

So here's my advice when looking at Order Flow

• Order Flow can't improve something that doesn't work.
• Order Flow can be used on it's own, without charts to enter and exit the market but you also have to be able to recognize different market states that need different/altered setups. There is nothing magical about this.
• Don't start jumping at shadows and take 50 trades an hour in your first week looking at Order Flow, be selective. It can be exciting to see cause and effect play out in front of you for the first time but don't overtrade.
• Do drills to learn how to read it before you trade it.
• Markets can only go up and down. Don't overcomplicate it. If you have too many Order Flow tools on your screen - you will not be able to make consistent decisions. Less is more.
• Take time to choose a market with a pace you like. Interest rates might send you to sleep, the DAX might give you a heart attack.

It is hard to see how a set of information could be overrated. It is true that some methods of presenting this information are better than others. It is also true that some people simply get on better with different tools (e.g. Footprint vs DOM).

There's a middle ground between complexity and simplicity that will leave you making consistent decisions where you improve over time. For those people, Order Flow will be way underrated because they will be the one's getting the most out of it.

Those that jump in with both feet on day one and those that have 100 different tools up, for those, it's a painful experience.

Keep it simple and manageable. Start with momentum reading and build from there. You will never look back.