The world’s tightly controlled and exclusive truffle market has been turned into a warzone. The genuine article, valued at $2,000 a pound is now in competition with a knock-off — sold at a fraction of the price.
Traditional value is endangered and price is now on the run.
Like futures trading, profiting in these situations is a matter of knowing what you’re buying, what to pay — and who’s really in control.
Pre-trade institutional valuation enables you to spot the difference between a good price entry and the ‘fake’ counterpart that your competition is falling for.
Knowing this will put you ahead of 99% of retail traders, before they’ve even had a chance to turn on their fast-food indicator.
Why should you care about pre-trade institutional valuation?
White and black truffles — the natural ones anyway — come primarily from highly select and highly secret locations in Europe. Likewise, 90% of market volume is driven by institutions — half of which is driven by the world’s 50 largest investment houses.
These institutional traders essentially set the price range they’re interested in commanding. During periods of high volume, price consolidates in this range — revealing the current institutional valuation of that market.
In the middle of this range, you’ll find fair value — the price that they think is a good deal. Understanding this will help you gauge the collective institutional intent on price — something you really need to know at the beginning.
Note the ES chart below, where price is consolidated with a definable valuation zone. While there are fluctuations as demand ebbs and flows, most of the volume obeys the range set by the institutional traders.
Failing to establish this before you contemplate your trade puts you at risk of paying the price the institutions are hoping to command. The equivalent of paying the absolute premium for a truffle — with little or no hope of selling at a profit.
Using institutional valuation for simple, profitable entries
It’s the Chinese that have entered the market with a $35 per pound alternative that has the Europeans on edge. Talk about a price war.
As you’d expect, the introduction of this Chinese blend has had severe ramifications on supply and demand. This challenges the traditional valuation and brings with it huge swings in price.
It’s these same dynamics in supply and demand that challenge institutional market valuation — driving price away from fair value. When this happens, opportunities are created for you to enter and profit.
Using our ES chart as reference, the approach is straightforward:
Buy: When pricing becomes cheap from an institutional perspective
Sell: When demand has driven price up, making it expensive
DO NOTHING: When price hovers around fair value in the range
You can spot these moments approaching with the increase of volume knowing that demand will be tested and price will react.
Just like the European farmers, the institutions will step in and protect their interests held in fair value. As they do, and price returns to the established market valuation — you exit and snatch your profit.
An advantage that puts you ahead of 99% of your competition
Fake truffles have a faint, mushroom-like smell — unlike the mouthwatering aroma of the real deal. Chefs wishing to turn a buck buy the cheaper version and apply a legitimizing scent.
Regardless, most people are willing to pay full price and don’t care to check.
Amazingly enough, 99% of your trading competition also don’t check institutional market valuation before trading. Instead, they grind along with the rest of the market paying the price they’re given.
They fall for fluctuations well within the comfort zone of institutional market valuation, paying full price because they haven’t checked. This is why they’re 6-10 ticks late to profit, often before they’ve even turned on their indicator.
This problem is only compounded when a swing in price takes place and institutional valuation is challenged. The lagging indicators reporting on price after the fact will have them enter a market move when it’s too late.
They end up unknowingly funding your profits, along with the institutions’, as price returns back to fair value.
The simple difference between amateurs and pros
Understanding institutional valuation is the primary difference between the amateurs with limited profits and pros with full-time trading incomes. It’s the gap between those who wait for a signal and those who anticipate the market with pre-trade discipline.
Relying on a lagging indicator for your entry blinds you to who’s really driving the market and the price. Worse yet it disconnects you from the intentions of supply and demand — driven by real people — that impact price.
This approach exposes you to much more than just a limited profit or missed entry opportunity. It leaves you defenseless to a breakout.
If the market pursues a new valuation, it will do so with the institutions at the wheel. Volume that doesn’t just entertain expensive (or cheap) prices, but barrels right through, will be your first warning sign. With your current approach you likely won’t see it coming.
The pre-trade discipline used to establish institutional valuation will also force you to anticipate this by monitoring volume.
Order Flow Sequence Tracking Intelligence gives you the real-time data required to anticipate these developments as they unfold. As institutions respond to any challenge in valuation — you will see if they are with the movement or against it.
This positions you to enter and exit with precision, extracting insight-based profits along the way — in a repeatable, consistent fashion.
Profit with a proven pre-trade recipe
Ignoring pre-trade institutional valuation would be like skipping the rice when making black truffle risotto. Except with futures, you’re going up against 50 or so award-winning chefs in a cook-off for profits.
Start by giving yourself a chance. Establish value from an institutional perspective — revealing the price they want to command.
Use this as your recipe to spot cheap prices to buy and expensive opportunities to sell. Know a bad deal when you see it in the form of fair value — and steer clear.
While the institutions are quietly hoping that you’ll ignore the forces of supply and demand and trust your indicator, watch them instead, with real-time Order Flow Sequence Intelligence — entering early and exiting with ease.
Enjoy the ‘truffle war’ of trading with consistent profits that come from knowing what you’re buying and who’s really in charge.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.