Over the past 15-20 years markets have changed substantially in their price micro-structure, although externally they appear to have stayed the same.
Nowadays Algorithms (or Algos) have an overwhelming presence in Modern Markets and are active in all time frames of high-volume trading instruments.
In certain markets, like the CME futures, well over 80% of overall volume is traded by Algos.
In this context, using the wrong tools, those not capable of capturing the reality of modern markets, cannot lead to success in trading. Traders who keep using traditional technical analysis, including indicators that lag price, or combinations of tools providing weak signals, only contribute to increase the ranks of loss-making retail traders.
If you believe in the self-fulfilling prophecies of moving averages, bands and geometric and other visual tools (e.g. horizontal and trend lines) or keep adding rules to your discretionary trading system, only to end up fitting price data, you are likely to end up being an average, mostly a loss-making trader or a breakeven trader, at best.
Average traders, looking at the same technical tools that everyone else is looking at, can only generate average results. And that in trading mean losing money.
While I am not suggesting that traditional methods cannot be employed successfully, trading statistics show that it is actually very difficult to reach consistency by doing what everyone else is doing.
Statistics show that 90% to 95% of retail traders are not profitable.
If you keep doing what the majority does, the probability of you permanently becoming part of that 95% of traders losing money is very high. It is sad to say, and it may sound blunt, but statistically speaking you are a loser. Unfortunately this is the fate of those who do not learn to think differently and how price moves in modern markets. And, the fate of those who never start doing things differently in your trading.
Non systematic trading and timing techniques not capable of capturing price at turning points while keeping risk low create unsuccessful loss-making traders; looking at Algos on different time frames is like putting a puzzle together, but can be done in a systematic way.
To be able to see the bigger picture – same as the professionals and Smart Money see, the right tools to identify high-probability trade setups and execute low risk timing and must be learned and used. Only understanding what it is happening to price can substantially help the quality of your trading decision-making process.
“Our #1 job as traders it to take only low-risk trades. We are paid for the quality of the decision we take”.
Some classes of Algos have significant (and defining) effects on Modern Markets. Over 45% of volume in Forex is believed to be traded by computer-based agents. Can the presence and effects of Algos be exploited? It can, and by doing so it is possible to identify potential areas of participation by the same Algos and trade with confidence, only after price confirmation, with effective risk management.
Because Algos are Smart Money, understanding what they do can help entering at those very spots where the majority of traders are experiencing fear or pain, and stay away.
The study of price structure brought about by Algos offers the opportunity to trade in a way grounded in actual participation of large players in the markets. There are several classes of algorithms and some of them can have a lasting effect on price and systematically attempt to bring prices to their targets.
Algos work on all time frames, including weekly and daily; and in absence of news, central banks and government decisions and Geo-political events – exert a strong influence on the Markets.
Trading methods that model Algos are “evergreen”, meaning they will keep working for a very long time. In fact, Algos have “incorporated” the Psychology of the Markets (which matches the average behavior of traders taken as a group) as demonstrated in my research work.
Important classes of Algos pass undisturbed “under the radar”. Everyone talks about HFT (High Frequency Trading), too fast to be exploited by retail traders, but very few talk about what really moves the markets (because it can be exploited by retail traders, too?)
As a newcomer in trading, and even as an experienced trader, it is natural to trust and follow the “common practice”, learning and building upon the concepts of traditional Technical Analysis. But that, more often than not leads to average trading results with its consequences.
Building effective trading methods requires leveraging the presence of Algos in modern markets. To do that you must use legitimate models of Algorithmic activity that gauge participation in the markets, and learn to time entries based on the same type of participation.
This is unheard in trading, especially with traditional technical analysis and it is called ‘stalking the market price’ or FibStalking. And although using that sounds like a totally new and unmatched concept , it is just another way to leverage the presence and effects of Algos on price of high-volume markets.
Modeling Algos activity on price also allows implementing “price discovery”, because we can now systematically weigh the involvement of Algos in trends existing on all time frames.
Average results show that methods based on traditional technical analysis have validity only from a statistical standpoint and offer random reliability.
Methods based on traditional technical analysis have a 50% probability of working, which becomes much less when you consider slippage, transaction costs and trading mistakes. Is it no wonder why the majority of traders lose money.
Methods based on traditional technical analysis are not bound in how modern markets really work. These include techniques like supply and demand and price action. An Algorithm, on the other hand, either participates at a specific level or area or it does not. There is little statistics involved, but an effect can be directly observed in price. Algorithms activity on price structure can be spotted and studied very effectively.
Using methods based on Algos effects on price can increase reliability well above 70%, when coupled with effective timing techniques.
Such timing techniques have been defined in detail and are based on existence and activity of Algos on the smaller time frames.
Success in trading requires: identifying more winning trades, protecting your capital, obtaining free-risk trades, timing entries to increase probability of success and increase reward/risk ratios to consistently make money in the markets, while limiting number and entity of losses.
In a nutshell, you need a method with high reliability, capable of identifying low risk trades, capture swing trends, consistently provide valid trading plans with setups that can be timed procedurally and close at breakeven if the market does not follow-through in the direction of the setup.
Such a method exists because powerful classes of Algos exist on the larger timeframes (weekly and daily) in modern markets.
A different solution, whereby a method that works consistently and pushes you into the market right at those spots where the 95% of retail traders are afraid to get involved or are in pain. If that’s what you want, let’s get started…
A complete quality, innovative course in 8 lectures where I explain in detail the following topics that will change the way you look at price forever:
- How to Win the Trading Game Playing in Defense
- How to Model Algos by Analyzing Price Structure in Modern Markets
- How to Time Setups Procedurally (FibStalking Timing)
- HFT and effects on other more important classes of Algorithms
- How Algos have “internalized” the Psychology of the Market
- How Smart Money “Games” Retail Traders
- How to Model the Activity of Smart Money and Professional Traders
- How to Reach Your Trading Objectives Through Money Management
- How to Gain the Same Advantages Institutions Enjoy and Profit From
- Why You Should Stay Away from traditional Technical Analysis and its Fallacies
- The Role of Fundamental Analysis in Modern Markets
- …and much, much more.