Market Stalkers - Sample

Market Stalkers

by: Deeyana T. Angelo

Disclaimer The

information

trading

carries

in a

this high

ebook level

is of

for risk

educational

purposes

only.

and

suitable

for

is

not

Leveraged

all

market

participants. The leverage associated with trading can result in losses which may

exceed

experience

your

initial

carefully

investment.

before

Consider

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If

your

objectives

necessary

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and

advice

level

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from

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Copyright Notices All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law.

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©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk

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Market Stalkers


Table of Contents

Disclaimer .............................................................................................2 Copyright Notices ............................................................................................................... 2

Introduction .........................................................................................4 Two Ways of Trading .......................................................................................................... 4

Chameleon, the ambush predator ........................................................... 5 Supply and Demand Basics ....................................................................6 S/D Formation Types .................................Error! Bookmark not defined. The Right Zones .......................................Error! Bookmark not defined. Scoring Table .......................................................................

Error! Bookmark not defined.

Filters...................................................................................


Odds Enhancers ..................................................................


Trends and How to Read Them ...................Error! Bookmark not defined. Swings and Quartiles ...........................................................


Topdown Approach (TDA) ....................................................


Rule of Fours .......................................................................


Risk Management .....................................Error! Bookmark not defined. Risk Model ...........................................................................


Summary ................................................Error! Bookmark not defined.


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Introduction There are many trading books out there, some good, some bad. Most of them will promise that their system can make anyone into a trader. I tend to disagree. Trading is one of the most mentally difficult jobs you could possibly imagine. It’s almost like telling people that anyone can be a professional footballer. While trading can be a lot of fun, it can also bring about a lot of stress. Learning how to trade isn’t an easy road. Even if you’re given the most profitable system in the world, results will vastly vary from person to person. So I will not promise to make you into a super-trader, but I will attempt to demystify misleading concepts of trading that have plagued the traditional trading books and courses for decades. In this ebook I will explain, from a professional traders point of view, what I see when I look for trades. Over the past year I have worked with a software architect to develop an algorithm based on my skills, firmly believing that my way of trading is systematic. However, what I have learned is that my way of trading is quite a bit discretionary. And extremely difficult to explain to a computer. Luckily, this ebook is going to be read by humans not computers and humans should find it relatively simple to grasp the techniques described here. Without further ado, let’s sink our teeth into some new knowledge.

Two Ways of Trading When you break it down, there are really only two ways of trading styles: chasing price or stalking price. What do I mean by stalking? I wait and I wait, until the price comes to my desired level and then I pounce. Like a puma or a chameleon. Second way of trading is to chase price and be more like the lions, aggressively chasing after the gazelle ie price, once it already moves away. That way of trading works for a very few select people. I’ve only met 2 traders who have become successful doing that. So let’s stay away from gung-ho trading!


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Chameleon, the ambush predator You may have noticed our little chameleon mascot on the front cover. The reason I chose the chameleon is because a chameleon’s nature is very shy and mild. It’s quite a sweet, non-aggressive creature and yet its hunting style is one of an ambush predator. Camouflaged, it sits hiding and waiting. Until a fly goes by and then BAM! One flick of a tongue and the fly has met its end, whilst our chameleon is happily munching away. No fuss, no drama. Pure patience and discipline. And that’s the kind of trader that you should strive to become. Let me tell you a little bit about myself. I used to be an accomplished musician until the after effects of recession started to rain down on my industry. Eventually I decided that my time is worth more than the student-rate gigs I was being offered after 20 years in music and I decided to turn my attention to something else. I have always been interested in the markets. But not enough to learn anything about them at that point. I was too in love with music. Actually I’m still in love with music, but today I am happy to say that I am equally in love with the markets and trading. I’m one of the lucky few who have found their second dream in life. Nowadays I trade my own account as well as working remotely as a professional prop trader for a Chicago-based company. I am known in the trading circles as “Doggette”.

Chameleon is quite a sweet, non-aggressive creature and yet its hunting style is one of an ambush predator. Camouflaged, it sits hiding and waiting. Until a “ fly goes by and then BAM! My trading style is indeed one of an ambush predator. I wait for the price to come to my levels and then I expect a certain behavior at those levels. I use a price action concept of supply and demand, along with consolidation areas to get in on the moves. But I never chase price. Ever!


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Supply and Demand Basics In order to start grasping price action concepts, a lot of professional traders use supply/demand to find their levels. They are clearly visible if you know what to look out for. S/D analysis comprises of looking at the chart horizontally, which means you will always be looking to the left of the current price to see what came before. But first, let us remind ourselves exactly what supply and demand is.

What is supply? Supply means providing something that people need or want:

səˈplʌɪ/ verb

make (something needed or wanted) available to someone; provide.

And demand is:

dɪˈmɑːnd/ noun

desire for something, a service, product, item, etc…

As traders, we will be using technical analysis to determine when supply is plentiful and prices are too high – ie when to start selling. Or opposite – when demand outweighs the supply, when prices are too low and we want to start buying. Market is an auction that works based on balance and imbalance of supply and demand. On any given day, there will also be a fair price, as determined by price action from the previous day. But more on that some other time. How do we transfer this to trading various asset classes? To do this, you need to start looking to the left of the chart, to find previous


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swing highs and lows where price turned. While it might seem that we are only looking for traditional support/resistance lines, bear with me while I explain that S/R is NOT quite the same as supply/demand. S/R is usually represented as a single price, one key level that you’re supposed to use to execute a trade. Trading from S/R as your guide in reality is extremely difficult and doesn’t offer great profitability, right off the bat. Reason for this is that markets are rarely that precise in hitting these levels. Most of the time, price will either fail to completely reach the level or might pass it by quite a few pips/ticks, making it very difficult to consistently trade the same level. To top this off, traditional books will tell you that the more times price hits a level, the stronger it is. Nothing is further from the truth! Let’s have a look at a chart to illustrate this. I will use a long term AUDUSD chart. Long term levels are more accurate and “cleaner” looking, with very little noise purely because of the amount of trading that went into them.

Figure 1.

AUDUSD Weekly Chart with traditional Support/Resistance key level


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On this chart you see a key level in AUDUSD. Looking at this it should be really easy to trade right? Let’s analyse this in a slightly more detailed manner. The first green bubble numbered 1 is when the support line gets created. When the price first tests the support, its gets massively broken, needing a 200 pip stoploss to survive the “test”. In all likelyhood, no 2 is a loss. At bubble no 3 price fails to even reach it, so no fill. At no 4 the level gets broken, so another loss. Now that the price went well below the support level, traditional books tell us that support, once convincingly broken, turns into resistance. So let’s try and trade that idea: At no 5 once again a stoploss of over 225 pips would have been necessary to work out – another loss. Finally, at no 6 once again a trade wouldn’t get a fill. Hmmm. So that’s loss, no fill, loss, loss, no fill. Not great is it? What is going on then? Clearly we have a key level and it’s definitely reacting with the price but a trader is unable to catch these moves. It looks messy, impossible, difficult, gambling etc. Enter supply/demand analysis. Let’s have a look at the same chart but this time using the boxes that will highlight s/d levels.


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Figure 2. Same chart, with the first demand level

When price first created the support and proceeded to move away from it, price created a DEMAND level. This kind of a demand is defined the minute a candle fails to advance in direction and starts to go sideways. Remember this part. Sideways action. Even if it’s for only 2-3 candles that consolidate, whatever happens next will potentially be a demand or a supply level. In this case, price consolidated then moves away upwards, creating a DEMAND. This move would have been very noticeable even on much lower timeframes, way before this weekly demand was created. Once the price returned to the level of consolidation, ie sideways action, now that a trader knows there is potentially some demand here, he/she now has a clear trade direction. By recognizing that and going long once the price was inside the demand, swing trader could have banked 1400 pips by simply holding on to the trade for a less than 2 months then exiting once he/she noticed a bearish engulfing pattern once the weekly candle was done. Even if you only used a mini lot size, you’d be looking at roughly £890 with the rollover costs included. That’s an extra £445 a month. On a mini lot size. So far so good. Once you’ve played a demand level once, caution is always advised on the second test of the zone. This is because the level isn’t fresh


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anymore and contrary to what popular trading books tell you, a level actually gets weaker and weaker with each test. Think about it like chopping down a tree: everytime an axe hits the tree, a little piece falls off, until there’s no more wood to support the tree and it eventually falls down.

By recognizing a demand and going long, even with one mini lot size, a swing trader could have banked 1400 pips by simply holding this trade for less than “ 2 months. That’s roughly £890.

So after the first trade, a trader would simply watch the price action for confirmation on the second test of the zone. Since the trader never gets that confirmation, price goes straight through the level and then retraces, creating a brand new zone in its place. To clarify this part: once price busts through the bottom/top of the zone by more than about 12 pips, the zone is broken. Consider it wipes. Price might continue to create a brand new zone in its place, which we now treat as a brand new demand. So once the level was broken, price proceeded to go on another trend up, creating a new demand. With that in mind let’s have a look at where the second trade would be located:


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Figure 3. New demand is created

After the move up, once the price started to come down, it actually hit the first available supply level – a zone where price turned. Now that there is a demand and a first obvious supply in place, we have a trade direction, trade location and trade exit. Purely by trading what is already on the chart – no need for guessing. Once the demand is reached, a trader would enter a trade and hold it until the first obvious opposing supply. This trade was worth 700 pips. Even on a mini lot, that’s again a nice chunk of £440, in about 9 weeks. When second test of the demand comes, again caution is advised – I never put limit orders on second tests. I desire my levels fresh and virginal – untouched. Second tests can work on confirmation entries (more on those later), but practice safe trading and wear a condom. Because second tests are a bit slutty and dirty and might trick you into thinking a trade is working out and then simply crash straight through. Also minimize your profit expectations for the same reason. In this case tough, a trade does work out and banks another 750 pips. Now that I’ve given you a rundown of what S/D zones can do, let’s


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look at a way to find these zones on the chart. Here’s a Monthly chart of EURUSD:

Figure 4. Locating highs and lows

To look for zones, first locate your highs and lows. Oh and before I forget, later on we’re not going to be using monthly and weekly charts to get in on the trades, but larger timeframes are cleaner looking, so these are still only for education purposes. Back to the highs/lows. Mark highs/lows and then notice whether there were consolidations prior to the moves away from highs/lows. Go ahead and mark little rectangles around all those areas. Try looking to the left of the chart when you see an obvious swing highs/lows. These swing highs/lows are not allowed to cut through candles. You’re looking for originating points of moves and once price trades through the high/low they’re no longer valid.


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Now extend those rectangles TO THE RIGHT, like this:

Figure 5. Some of the rectangles overlap

Some of the rectangles are overlapping. What does this mean? That they have been tested before, therefore no longer untouched. Treat with caution. Wear a condom. Or just don’t touch! Just say no! But seriously – overlapping rectangles also show you which zones are currently reacting and this can give you a really good sense of direction from a birds eye view. So the overlapping zones, aka previously tested zones are REACTIVE zones.

Look to the left of the chart finding obvious swing highs/lows that don’t cut through candles. You’re looking for originating points of moves and once price “ trades through the high/low, they’re no longer valid. Let’s clean up the chart a bit and remove the overlapping zones, zones that dip into previous, older levels:


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Figure 6.


Clean picture with REACTIVE zones, birds eye view, EURUSD monthly chart

To learn how to correctly draw the zones, the little boxes, the lovely rectangles filled with profit potential, let’s use two lines of different colour… Click Here To Get The Book And Keep Reading


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Market Stalkers - Sample

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