It was supposed to be nothing but fun and laughs. The next item on your bucket list – a skydive over the scenic Grand Canyon, with a safe landing zone and a picnic waiting. All you needed to do was jump, pull the cord, and glide your way to friends and champagne below.
It was a matter of seconds before you realize something has gone horribly wrong. You pulled the ripcord for the primary chute and it didn’t fully open. You’re now in a free fall and the ground is getting bigger every second. You can either pass out or save yourself with the second chute – as long as you have one.
For retail traders who have jumped into their trade – having a backup chute to minimize risk simply isn’t an option. Using Order Flow Sequence Tracking – you can bring safety to your trades and your profits – simply by using the COT (Commitment of Trader).
Why so many traders jump into entries they can’t save
Since the 1970s approximately 43 people a year have died in skydiving-related accidents. Among the problems encountered – skydivers who don’t pull the chute or simply pull the chute too late. This has decreased over the years, thanks to automatic activation. Using the wrong type of chute, jumping out of the wrong type of plane – or simply passing out.
Every minute of every day, in every market – there is a retail trader that’s pulling their chute too late with catastrophic consequences for their account. While they may believe that their jump, or entry conditions, are ideal – the trade ends horribly. This is often because they’ve failed to line up the landing in the form of their target in advance.
Worse yet, when that landing doesn’t materialize and they don’t have a backup plan – they simply wait. In many instances, this is due to the fact that they’re using a price-based indicator (or signal) that tells them when they should enter – but nothing about when they should exit.
Thanks to COT (Commitment of Trader), you have a signal embedded within each bar that you can use to manage each and every jump.
When something goes wrong, it’s the reserve chute that can save your bacon – as long as you know how to use it.
A ready and waiting safety chute in every bar
When making a jump, if your main chute fails to deploy – the reserve chute and cord can usually be found in your harness. Malfunctions of some sort account for about one-third of all parachuting deaths. Having the reserve chute is one thing – knowing where to locate it and how to use it is what will keep you alive.
The same is true with COT. Simply put, the COT is the level at which the most volume occurred in any bar, during a given time-frame. Thanks to Order Flow Sequence Tracking, these levels can be spotted easily just by keeping an eye on the dark gray tick level. Consider this your safety net within a bar or trade.
Just as with long-term volume performance, high volume at a particular level within a bar serves as an important line in the sand – providing support and resistance. Consider the ES example here. Looking at the COT, you will find:
- They have a habit of clustering together as buyers and sellers go at it across green and red candles.
- Price revisits COT levels with a good deal of frequency, proving it as a strong area of support and resistance.
Using the COT to pull the cord and lock in profits
One of the first steps skydivers are instructed to take when they’re thinking of pulling the reserve chute – get a clean breakaway from the primary chute that just failed. All too often, the safety chute is deployed, only to get caught up in the primary chute and fail as well.
When using the COT to manage your trade, the same is true – you want a clean breakout in price so that you can advance your stop. Using the ES example here, note how price continues along in a consolidation zone with the COT essentially within two or so ticks from one bar to the next.
Say you entered and made a buy entry believing that price would head up.
Your ATM (Advanced Trade Management) stop would stay at its current spot, only until the COT advanced up. When it does, you should then pull the cord and advance your stop. Note – you’re not getting out of the trade, but you are locking in your profits and mitigating your risk.
Just like there’s no stuffing the chute back in your pack mid-air – there is NO moving your stop back mid-trade. Leave it there and let price advance as it will. Even if it goes against you, you will have at least locked in profit and taken unnecessary risk out of the equation. (In this case 9-10 ticks of profit, depending on when you advanced your stop.
Considering time invested vs. profits lost
Many traders will argue that their original target is the final destination and everything else is simply a distraction. The same could be said of skydiving and the ground – the difference being whether you walk away, or are carted off.
When managing a trade, consider a COT that’s advanced favorably as your fall-back position – something that ensures safety rather than money being left on the table. Following our example through, you’ll see that price goes against the buy trade, before it continues back up.
Setting aside the other Order Flow Sequence Analysis related to the Value Zones and the actual intel in the candle – simply looking at the trade poses the question: Do you take the money that’s on the table and add to your account – or do you wait it out? The dilemma for millions of traders around the world.
In the end, the additional ticks gained vs. the time invested in the trade would not have been worthwhile – plus you would have never hit your target. And that’s nothing compared to the ultimate risk that you would have exposed your trade to. Better to take the money and walk away than run the risk of having your trade carted off in a body bag – or a break-even waste of time.
Add another ripcord to your trades and live to walk away with profits
Among the sage points of advice for skydivers who have to pull the cord for the safety chute: don’t panic. Easier said than done. That’s also followed by the pointer to aim for snowy and or marshlands for a softer landing. Good to know when you’re falling 100 feet per second.
Once you’re in a trade, you can simply take a look at where the COT is to know where the most volume is taking place. Follow the dark gray tick and note where it sits at the close of each bar. Once it advances towards your target pull the cord and advance your stop – at least within a tick of the COT, if not right on.
Even if price reverses against you – take confidence that you’ve at least locked in your profits even if you haven’t hit your target. Take greater comfort in the fact that you will have minimized your risk and actively managed your trade – instead of helplessly falling to the ground.
Pull the COT ripcord for profits and safety while others plummet to their losses.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.