All about analytics for beginner traders

The levels where buyers “stand” are shown in green color. Such levels often provide support to the market. The bigger the bar chart value is, the (usually) stronger the support is.

For example, in the picture above, an arrow points to a trade for buying 12 E-mini S&P index futures contracts (SP500).

Importance of monitoring the trade flow has a long history. The Order Flow indicator can be traced from the end of the 19th to the beginning of the 20th century. That was the epoch of Jesse Lauriston Livermore, J.P. Morgan, Richard Wyckoff and other legendary exchange dealers from the Wall Street when traders received price quotes through a special device called the stock ticker. The stock ticker used the telegraph principle and printed on its tape:

1) asset name;

2) the last trade price;

3) trade volume.

Traders made huge money in those days without MACD, RSI, Moving Averages and other indicators. Ability to read the tape allowed (and still allows) building up a complete story of the struggle between the buyers and sellers as it develops on the exchange, using individual registered trades.

Every time you study the tape or chart, consider everything you see there as an expression of forces that increase and decrease prices. Study your charts not from the point of view of comparison of stock formations and behavior patterns, but from the point of view of motives of those who dominate it and successes and failures of buyers and sellers when they struggle for power at each move.

Richard Wyckoff, 1931

Due to the Order Flow indicator (or Time and Sales Tape) you can assess:

– efforts and results of activity of buyers and sellers;

– trades of major players;

– beginning of buy and sell waves, their development and culmination.

Having made a conclusion that the market is in a long-term descending trend, a trader switches to the hourly or 15-minute period in order to get confirmation from the chart about a correctness of his assumption and/or to find the best point of entry into a short position.

Here’s how confirmation in an intraday chart might look from the point of view of a short-term trader:

Example.

Here’s how confirmation in an intraday chart might look from the point of view of a short-term trader:

Arrows show a failure of buyers near the 188.80 resistance level close to a recent peak in the Savings Bank stock market.

• Arrow A. The buyers undertook a serious effort to break the level (it can be seen from the majority of Buy orders on the Volume Delta indicator where the general volume is higher than average), however, there was no effect. The bar ranges became narrower. The price as if abutted against the ceiling and refused to grow. It is a sign of the bearish power at the level of 188.80.
• Arrow B. A reversal took place as a logical consequence. The price reduced by 0.5% during the next 15 minutes.

When you develop your chart reading skills, you start noticing some regularities in behavior of buyers and sellers. And then (which is logical), you have a wish to use the discovered patterns for your profit. But it is important to do it with a cool mind and avoid gambling attitude. You need a well thought over strategy for this.

It is good if you start building your strategy on the basis of understanding the real nature of the market mechanics. Many beginner traders just copy trading methods, which they find in books, blogs and forums.

Good news is that it is easy to copy a somebody else’s strategy.

Bad news is that:

• this online trading strategy might not be good for you personally due to some personal qualities – it might require high level of discipline, concentration and emotional tension;
• it requires corrections and additional developments in non-standard market situations;
• it just does not bring profit in a long-term perspective (all buy&hold strategies worked perfectly well with cryptocurrencies in the fall of 2017, but something went wrong at the beginning of 2018).

Start from understanding one simple fact – you will not make fast and easy money on the exchange. Study different strategies, avoiding those that promise a fortune in 5 minutes.

Trading is a highly competitive business. Simply to buy when a fast MA (moving average) crosses a slow one is a way to a slow but definite “discharge”, since this strategy is accessible to the majority and is not based on a competitive advantage. Why do you entrust your capital to the crossing of two lines? Can they justifiably explain why the very first trade resulted in a loss?

It is difficult to find your own ace. ATAS can help.

Before you start developing your own trading strategy, answer the fundamental question – by means of what the traders make money?

Formulate your ideology. If your profit is the result of errors of other traders, it means that you should sell when buyers make errors. And buy when sellers make errors. Who does act against whom at this moment? Why do I take the buyers/sellers side at this moment? Use the following concepts: demand and supply, strong players and the crowd, effort and result, and cause and effect.

In order to be convinced in stability of principles, study as many charts “from inside” as possible. Read interviews of professional traders between lines.

Here is a checklist of mandatory questions you should answer when building up your online trading strategy, drawn up from advice of successful traders:

1. Why do I select this market? Crypto, forex, stock, commodities – what advanced knowledge and skills would help me to make money in this market.
2. Why do I select namely this timeframe? Do I have sufficient time to work in this market?
3. What is my plan to enter a trade? What market forces and mechanisms, which are hiding behind the price and volume values, will push the price towards me? Do I have a sufficient proof of rationality of my entry?
4. What is the exit plan? How do I understand that the potential of the trade is exhausted and the market flywheel (orderly or unorderly) turns against me?
5. What risks do I take? What is the size of my position, level of acceptable loss and acceptable number of failures?
6. Have I formulated my trading strategy as a hard copy plan? Do I follow it? What are my mistakes and how to improve my trading?

Online trading strategy is a dynamic system, which interacts with a trader. It helps him to develop and he improves it as his professionalism grows.