It’s the gold rush in the new territories of the wild, wild west. With little room for error and everything to lose, you’ve packed up all your possessions. Now you’re prospecting for gold in a stream — praying that you’ll beat the odds and find your fortune.
For millions of retail traders, the likelihood of success is about that of your average gold rush dreamer: 10%.
Knowing the difference between real price reversals and basic market grinding will make all the difference in the world. It requires being able to differentiate golden entries from fake, worthless imitations.
You can either prospect with the pros, or squat by a stream stabbing at anything that’s shiny. One will lead to Hearst-like results; the other will have you heading home with your account in ashes.
Are you falling for these fool’s gold reversals?
The plan for most of the people who raced to California: get rich quick and head back home.
It’s the same in today’s market for retail traders. Millions hang their shingle, set up an account, and buy an indicator (or several) — all with the goal of lounging by a pool and collecting their fortune.
Much of their ‘plan’ hinges on being able to capture the profit that comes from price swings. They’ve watched a video, read a blog, and bought a widget that leads them to believe they simply need to press a button when they see an arrow. Green arrow — buy. Red arrow — sell.
Sadly, the success rate is less than that of the famous gold rush. Why? Because most retail traders are panning for profits without any clue of what they’re up against or what’s really happening in the market. Entries are made for phantom swings that never materialize with any consistency.
Note our ES example to the right. For many swing traders the highlighted sections are missed, entered late, or miscalculated altogether.
This is because the indicators they use are lagging and price-based. Swings are not spotted before they occur, but after — and never with any consistency. Oscillators only tell part of the story.
Most importantly: the institutions, the people that drive 90% of the market volume, are left completely out of the equation. Once they’ve made their move — the moment has passed.
The result? Millions of traders can’t tell the difference between fool’s gold and the genuine article.
Genuine signs of gold to watch for when prospecting swings
When it comes to reversal conditions, a genuine opportunity for a profitable entry can be as tough to decipher as the golden sparkles of faux nuggets. Especially if you’re staring at a blank candle with no visibility to what the institutions are doing — or the price levels they’ve paid attention to (or ignored).
Knowing the price levels institutions are backing away from is your key. This is demonstrated by volume that precedes price — which can be easily spotted.
You can chart this quickly and easily using the Volume Composite tool within the Order Flow Sequence Tracking Intelligence suite. This gives you a long-term view of volume performance at price and will reveal the levels that the institutions are trading at.
Using this, you would evaluate our swing example through a different lens. Specifically:
- Overbought & Oversold: Price levels where volume drops become apparent. Anything above the red line (Value Area High) and we have overbought conditions. Anything under the green line (Value Area Low) and the institutions are also backing away because it’s oversold. These are the zones we want to pay attention to.
- Low Volume Nodes: Within the overbought or oversold zones, we’re looking for price levels where volume has dropped, either to a low — or altogether. Check out 2072.75. We’ve highlighted that and marked it on our chart.
For our swing trade we can now see that we are in an oversold condition AND we’re at a price level that institutions have backed away from. A lot better than checking out a bear candle one second and hoping for a bull the next.
As this plays out, you can see how you can profit from this information all day long.
Using our example, note the additional Low Volume Nodes that were identified and their correlation to price performance at those levels (below). No doubt these Institutional Trading Levels influenced price, creating clear support and resistance areas. Locating your trade and making your entry in these spots would have paid off.
Similarly, you would have steered clear of the sucker trades that could have gone either way. Sitting right in the middle of the high volume zone, it would have been very difficult to tell which direction price would have gone. These are the traps that retail traders fall for every day — eventually busting their account.
Using volume, you can trade with the big prospectors and avoid the traps they set for everyone else.
Steering clear of supposed ‘mother lode’ traps
Perhaps you’ve invested in an indicator designed to tell you when optimal swing conditions are approaching. And are feeling like the 10,000 out of every 10,001 who actually found gold during the gold rush (RSCH the stats).
In reality, many retail traders don’t realize consistent profits because the conventional mainstream methods are price-based. This especially goes for indicators that are lagging and fail to account for the volume levels at price that traders should be watching for.
If you’re interested in generating consistent profits, you’ll need to trade with the institutions. This starts with recognizing their trading levels and the corresponding price rejection points.
Mine the genuine article while avoiding the fakes to build your account
After 1848, it wasn’t the miners who made money during the gold rush; it was the merchants who supplied the bonanza-seeking suckers their tools and hardware. In today’s market, it’s the institutions who are both in the know — and in the driver’s seat.
Don’t risk your capital by trading in the same stream with the same blank candles that retail traders generally use. You’ll see the same barely-break-even, or losing, results many have struggled to get past. Worse yet, you’ll be panning for fool’s gold, only knowing the difference when it’s too late.
See what the institutions see, and move when they move, with Order Flow Sequence Tracking Intelligence. Spot real reversals and toss the fakes aside with sequential decline and institutional trading levels.
When you have sequential decline at an institutional trading level, you’ve got the genuine article. Rear your pick axe back and take aim at a short at the top and a long at the bottom.
Watch profits pile up as your competition heads back with their pockets full of worthless gold dust.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.