Benefit from the Harsh Realities Driving Every Market

Christie’s, South Kensington, London. Next month the Interiors auction will be held – with lots 1-404 going up for bid. If you’re in the mood, you can grab a timeless rug for 50,000 pounds.

Know that when you walk through the door, you’ll be fresh meat for those in the know – namely the house, the regulars, and the seller who’s looking to take home a tidy profit. No, they’re not straightening their glasses to better inspect the merchandise – they’re sizing up the kill.

Just as the rarefied air of South Kensington brings its harsh realities to bear for the uninitiated – today’s institutions push their weight around in today’s market. Millions of retail traders never really know what’s hit them until it’s too late.

You can put these forces to work for you – and profit – as long as you know what to look for.

The guys at the back of the room you should be watching

Attendance at the house of Christie’s for an auction is an absolute must when contemplating one’s ‘social agenda’ for the coming season. Especially for the refined and the exclusive crowd breezing the sidewalks of South Kensington’s billionaire row.

Regardless of how deep your pockets might be, you must ask yourself: When I raise my paddle to make a bid – will I be the hunter or the prey? If 500 people show up at an auction, a pro will tell you that maybe 50 really know what’s going on. The same is true in today’s market auction.

Why? Like the quiet corridors behind the public auction hall – most can’t see and don’t know what’s really going on. For retail traders working with lagging, price-based indicators, staring at blank candles – they might as well shut their eyes when entering the market. The moves made by real institutional forces, essentially working as ‘the house’, go completely unseen.

The result: Millions of retail traders enter trades, or raise their paddles, without a clue of whether price is with them or overwhelmingly stacked against them.

Signs the market shakers are on the move

It’s not the guy in front of you – or directly behind you – that you should be watching. It’s the edges of the room… where the vultures eye their prey. Nodding their heads and chatting quietly amongst themselves. The ‘kingmakers’ of the auction watching to ensure the house takes its rightful rake.

Like the institutional players in any given market – these are the people in the know. They understand the real value of any given item/instrument, and are willing to make the moves necessary to protect the price they’ve committed to maintaining.

When they move, you want to move with them if you plan to come out ahead. With Order Flow Sequence Tracking – you can essentially do this as though you had an earpiece that transmitted each coy comment and move before it materialized.

Looking at the basic footprint below, here are some of the essentials that are revealed if you expect to trade and win with the institutions:

Signs you can't ignore if you hope to profit

  • Delta: The final score after each ‘auction’ or candle as to who won that round between the buyers and sellers.
  • Imbalances: Instances where either the buyers or sellers outnumbered their counterpart by a margin of at least 300%.
  • COT: Commitment of Trade, the place within each candle where the most volume took place.
  • Trapped Sellers / Buyers: Moments when buyers and/or sellers are caught in their own gamble for a breakout.

For 95% of the retail trading universe, these moments and forces go completely unseen when they take place – leaving them completely exposed.

Profiting from the ugly reality

Imagine if one of the players standing at the back of the room broke away from his private conversation with his comrade – and looks directly at you. Pointing to the lot currently for sale, he signals a price and then gives you the ‘and not a cent more’ signal. No doubt you’d pay attention.

When any one of the aggressive moves made by the institutions are revealed – they should grab and hold your attention. As long as you know what to look for, these aren’t sly moves seamlessly made without fanfare – they are bullhorn moments that can’t be ignored.

If you’re looking to locate an entry, they mark moments of support, resistance and reversals that you should watch for. If you’re in a trade – they serve as clear signs as to whether the market (the institutions) are moving with – or against – you.

Trade with the overwhelming force, not against it

Take just one of these instances – an imbalance – in this case a stacked imbalance on the buy side. Looking at a blank candle, you would have no idea what’s transpiring. Raising your ‘sell paddle’ during this auction/candle would have been a disaster.

Instead, as this unfolded, you would have been able to buy with the institutions and come away with a collection of ticks in your favor.

Confirming that you’re on the right side

If price is the ultimate advertisement during an auction, then volume is its best friend. If you’re wondering how you can confirm whether you’re trading with the institutions – simply check volume in relation to price.

Volume performance, or the lack thereof, that precedes price can be analyzed both from a macro and micro perspective. Prior institutional interest in a price level, as expressed by volume, is an indication of future interest. Likewise, prior rejection levels can be leaned on for future rejection (and potential reversal).

Monitoring volume, or institutional hands in the air, is an excellent way to determine if you’re reading the signs of the auction properly. Using the intelligence in conjunction with these levels makes for a solid location and entry strategy.

Take the rake alongside the house

This year, Christie’s will celebrate 250 years in business. The projected rake for the year – pushing $10 billion. A true testament that the house comes out ahead more often than not, and the insiders who have the edge are the ones who make the money.

Take your place right alongside the house, and the institutional investors, that run the game with Order Flow Sequence Tracking. Spot the aggressive moves being made by the big players using deltas, imbalances and block trades.

When the buyers are on the run paying the ask – move with them. When the sellers get the upper hand paying the bid – roll with the tide.

Embrace the realities of the market auction – and take your profits along the way.

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