Day Trade Like a Millionnaire
Copyright © 2021 by MK Financial, LLC
Author - Maurice Kenny
All rights reserved. Printed in the United States of America. No part of this book May
be used or reproduced in any manner whatsoever without written permission except
in the case of brief quotations em- bodied in critical articles or reviews.
For information contact :
https://www.MauriceKenny.com
Book and Cover design by Designer
ISBN: 123456789
First Edition: Feb 2021
CONTENTS
PREFACE ......................................................................................................... 1
CHAPTER 1 – ICE BREAKER CHALLENGE............................................................ 5
CHAPTER 2 – WHY THE TOP TRADERS WHEN & WHO ARE THEY .................... 12
CHAPTER 3 – UNCOVERING THE HEDGE FUND STRATEGY .............................. 31
CHAPTER 4 – HOW TO DAY TRADE USING SUPPLY & DEMAND ...................... 38
CHAPTER 5 – STOCKS TO TRADE & TECHNICAL INDICATORS TO USE .............. 51
CHAPTER 6 – HOW TO DRAW SUPPLY & DEMAND ZONES ............................. 71
CHAPTER 7 – HOW TO READ PRICE ACTION & ENTRY CRITERIA ..................... 83
CHAPTER 8 – HOW TO USE PRICE ACTION TO ENTER A TRADE....................... 97
CHAPTER 9 – STOP LOSS 101, HOW TO STOP LOSING ALL YOUR MONEY ..... 109
CHAPTER 10 – WHERE TO PLACE YOUR STOP LOSS ...................................... 121
CHAPTER 11 – WHAT YOU KNOW NOW ...................................................... 127
ABOUT THE AUTHOR ................................................................................... 129
Preface
If you’re reading this, I want you to know upfront that this is
not your normal book. Yes, I will teach you how to day trade like
a millionaire & how to successfully make consistent money in the
stock market, but I will not do it how most books will. I will not
tell you some boring story of how the stock market was created.
Also, I will not tell you a random useless story about how when I
was a little kid, I just loved finance & things, and it just clicked at
a young age. I may be wrong, but if you are still reading this book,
know that this book is for you as a person who wants to learn the
details behind how to day trade and not the details around it. So,
the format of this book will continue similar to that. You will
receive as much value as I can provide to you. The best way to
utilize this book is to read it step by step to learn a new concept
and then put the book down so you can try to implement it in the
real stock market. If you have any questions or want to join one
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of my coaching programs to help you more hands-on, then you
can find me on my website www.mauricekenny.com
I am here to help you get away from the statistic, which is
the fact that 90% of traders fail. I will introduce you to how the
top 10% of the traders in the world trade.
In order for that to happen, there are going to be a lot of
details and information. There are going to be many examples.
There's going to be a lot of everything step by step. If you’re more
of a person that learns from watching then, as an example, I have
selected a few free lessons that you can watch from my course
which you can watch “HERE”.
To move on, from a very high-level perspective, there are
four key agenda points.
From an agenda point number one perspective, the first thing
we'll be covering is hedge fund trading strategy & an intro to
options. Whether you are a new trader, intermediate trader, or
an advanced trader who’s trying to pick up some new tricks, this
should help you from an introduction perspective. This will
explain what the hedge fund managers and hedge fund companies
do. More importantly, it will explain why you should care. Also,
it will answer your question of how this relates to the top 10% of
traders.
Number two, from an agenda perspective, we'll be talking
about how to actually predict stock movement with the supply
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and demand zone trading strategy. This is the main core trading
strategy that we'll be talking about throughout this book, and
there will be a lot of chart analysis sprinkled throughout it as
well.
I promise you, it will be one of the simplest things you've
ever finally looked at when it comes to trading. None of the crazy
fancy indicators or anything you may be thinking of. Because my
philosophy is that I would much rather make things simple. If
you like simple & predictable, then you are going to like this
book.
The third point is how to day trade like a sniper. This comes
down to your entries, and it comes down to your exits. This is
where we will talk more about when to enter and when to exit
day trades for flawless profitable executions.
From a detailed perspective, that means we will answer the
question of what price action is and what it tells you. You need
to know the story the chart tells you so you can know what to do
next. No more saying to yourself, “I think I should just enter now,
and when I do, the stock will go to the moon.” No, we're going to
talk specifics. When to enter, when to exit, what is the chart
telling you, and what do I do now because X candlestick looks
like this.
And, number four, we will finally talk about how to lose
money the correct way with a simple way to use stop losses. No,
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that doesn't mean I'm going to tell you, "Hey, put your stop loss
here and risk 5-10%. No, we're going to talk about specifics.
We're going to talk about why you're putting your stop loss here.
Do you put a physical one, or do you have a mental one? What
exactly is the difference between the two? As in, does it relate to
the supply and demand zone where the top 10% of traders put
their stop losses in the first place? Should you do the same or not,
and best case of all, we'll be doing test scenarios to practice
trading and practice losing money in real time.
I will walk through chart analysis through this book, but if
you download thinkorswim, the desktop version for your PC,
that will significantly help you. From a strategy perspective, the
supply and demand trading strategy is risk management first and
trading second. So, that's it for the agenda. Now, let's go ahead
and go to the next part.
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Chapter 1
Ice Breaker Challenge
Before we get into the massive amount of detail behind how
to day trade like a millionaire, let me give you 1 free gift. If you
learn more from watching and listening, then you can check out
a free video I put together by clicking “HERE”. This is a video
from my course, which this book is 100% based on. The catch is
that the course is five-hours’ worth of video content, which is a
lot more than I could jam-pack into this book. So, for more
examples, you can also purchase the course by clicking “HERE”
to learn more.
So let’s get started. Let me do a bit of an ice breaker for you
so you can know a bit more about who I am. For you, as the
reader, this is more of an ice breaker challenge because it’s not
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only for you to pick my brain but also for you to try to answer
these questions yourself. After each ice breaker question, you
should take a pause and answer it for yourself.
Like I said before, I won’t bore you with useless details
because I know you’re here to learn about trading rather than
about me, but the reason why this is important is that you need
to know why I am teaching you in the first place. It is not to earn
a quick buck from you buying a cheap book. It’s more than that,
so in order to kick things off, essentially, there will be five ice
breaker questions.
For number one, it's your "why." Why do I day trade? For
me, life pushed me into day trading as my main source of income,
and I didn’t have much of a choice. I started out in corporate
America, and I did pretty well in IT. I rose my way up to
becoming an IT director in a large fortune 500 company by my
mid-twenties.
One way to say it is I was technically living the “American
dream," per se. The catch was that there was a problem. The
problem was, I kept getting laid off. I kept getting laid off year
after year, after year, after year. So, yes, I'm only 27 at this point
of me writing this book, but it just kept happening no matter
what I did.
I would bend over backwards and do everything necessary. I
would not work 40 hours but, instead, I would work 60 hours. I
gave every company everything I had to give. I got to the point
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where I was the regional IT director, and still, the same thing
happened. No matter what, I just got laid off.
For you all who are reading this, I am not saying this to make
you feel sorry for me. I am just letting you know my backstory.
What ended up happening is that I finally got laid off to the point
that I said, "I can't continue living like this. I have to put my life,
family's life, wife, and everybody’s lives in my own hands. I can't
put my life in another man's hands. My life is my life. So I became
a full-time day trader making all of my income as my main source
of income at the time from day trading because I didn't have a
choice. I needed to be a provider. In order to become a provider,
I had to be self-sustainable. So, because of that, I didn't have a
choice but to day trade. I had to figure this out. I had to do what
I needed to do. I had to win. So, this my "why," to answer number
one ice breaker.
Number two, my six-month financial goal. Now, this is
definitely a question that you should try to answer for yourself
because if you're going to be successful, you will need to define
what success looks like for you.
For my financial goal, it has changed recently because
money-wise, you can call me "comfortable," to say the least, since
I have made a lot of money trading already. So, in that aspect, I
am fine, but my aspirations have changed. From a six-month
perspective, now I'm trying to continue my day trading coaching
program, creating courses, writing books, and everything else so
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I can help create another 100 six-figure income-generating day
traders. That is my financial goal.
It's not me personally, but it's one of the reasons you're
reading this in the first place because you want to make six figures
from day trading, you want to make some kind of passive income,
or you want to make X amount of money so you can live the
dream life you want. I'm trying to help create 100 people to reach
those goals of going from zero to hero and meet their financial
goals. That's my number two.
Number three is defining what my win-ratio percentage
today from day trading is. My win-ratio percentage day trading is
about 80% currently, and it has been that way for a while. So,
that means the best-case scenario, if I day trade five times in a
week, I only take one big trade a day. I win four days of the five.
I'll have a loss on, say hypothetically, Friday. But Monday
through Thursday, I'm winning. So, out of 4 weeks or 20 plus
days, you can imagine how big my wins outweigh my losses.
Which I'll walk through, of course, in much more detail in the
future chapters. To hit on one point again, you did read that right.
Yes, I am a day trader, but I only make one trade a day. The
reasoning behind it is to take a win and then shut the computer
off to keep my profits. Plus, if you only make one trade in a day,
you can imagine how picky I am on the trade I enter, which helps
me keep a high winning percentage.
Number four, my day trading strategy. This is, again, a very
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valuable question that you should answer for yourself. If you
think about it and you don’t technically have a go-to strategy,
then that is the first problem as to why you’re not making money.
In the stock market game, you should not be a jack of all trades.
You just need to be a master of one strategy so you can make
money. Think about it. You’re trying to maximize how much
money you make, not maximize how much fun you have. Pick
one strategy and do it so much that it becomes second nature. Do
not stretch yourself thin.
As far as my strategy goes, like I mentioned before, it is based
on the supply and demand strategy. This is the core concept that
I will be walking through in later chapters with visuals and actual
charts.
Number five is strengths and weaknesses. It will be useful for
you to understand your biggest weakness to know what to work
on, and define your biggest strength when it comes to day
trading.
For one, just be very honest with you. For me, I would say
my strength is that I follow my process to the exact letter. I dot
every I and cross every T. I day trade exactly according to the
plan and don't do anything outside of it to make sure I keep that
80% win ratio.
Now, my weakness, being honest with you, is that I follow
my plan to the exact letter. Now, what does that mean? That
means that, in my plan, I only day trade one ticker, which is SPY
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/ S&P 500. That means there are big moves on there that I am
missing. You know what, though? There is nothing wrong with
that. The way I like to think about it is there are hedge funds,
people, and millions being made on each ticker, so technically, all
you need is one to get rich anyway. Don’t do what everyone else
does. Otherwise, you will get the same results everyone does.
Most traders fail, so do you really want to trade like everyone
else?
You may be asking yourself, “Well, what if Tesla has some
big news? Will you make an exception?” Nope, I won’t, and I
won’t trade it. Maybe I could have made thousands and thousands
of dollars on that. Well, I'm not trading it. It's out of my plan and
criteria.
You may be asking, “Well, what if you can 10x your money,
so what about penny stocks?” Penny stocks can be great if you
know how to trade that market cap since it's not unheard of for
one to start shooting up 1,000%. The catch is you won't know
hypothetically until it's too late. So I may see it shooting up from
100% to 200% to 300% to 400%, all the way to 1000%. Am I
jumping in? No, I'm not because I don’t want to chase stocks, and
instead, I want the chart to prove to me it’s worth taking the trade
now.
My weakness is that I'm almost too good at following my
own plan, but the strength outweighs the weakness, so I am
happy with that.
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So, now it's your turn. If you haven’t already, I want you, on
the notes section of your phone, to try to answer these questions.
1. What is your why?
2. What’s your financial goal?
3. What’s your win ratio?
4. What’s your day trading strategy currently?
5. What are your strengths and weaknesses when it comes
to day trading?
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Chapter 2
Why The Top Traders Win & Who Are They?
First things first, we should define why you should care
about how hedge funds trade. If you notice the top of the chapter,
I technically answered the question for you of who they are. The
top traders are not everyday people trading from home. They are
the hedge funds because big money moves the market. We will
talk about this extensively before getting into a lot of the chart
analysis because the why will help you be patient and understand
why we're waiting for our setups to come to us.
For step number one, we need to talk about why you should
care about the hedge fund strategy period before we start talking
about what is the hedge fund strategy along with how it relates
to the supply and demand strategy as a whole. There are four
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pieces here.
Number one, I buy only when the hedge fund tells me to buy.
That's one of the reasons the hedge fund strategy as a whole is
vital. The hedge fund strategy is essentially a replication of the
strategy that I will be showing you. So, whenever the big guys are
buying, I'm buying, too, which leads into the number two
piece—I only sell when the hedge funds tell me to sell. And that
doesn't physically mean that they're on the phone with me
saying, "Hey, Maurice, I'm with hedge fund ABC, or my name is
Warren Buffett, I'm telling you, Maurice, sell your 100 shares of
SPY right now." No, it's basically reading the chart from a price
action perspective and understanding that the market is telling
me I need to sell now. There is no magic formula necessarily to
it. It's just recognizing what the charts are telling you at that point
in time and on that specific day. Based on all the data, whether it
be price, volume, or just purely how the supply and demand
strategy works as a whole.
Number three, I only enter a trade after confirmation that
the market and I have agreed on the next move. To do that, like
I said, I'm not on the phone with Warren Buffett (one of the best
traders and investors in the entire world), and I am not going off
of my gut assumption or intuition. It is all based on my day
trading strategy. The supply and demand day trading strategy.
If the chart is telling me that, hypothetically, at $324, this is
where the chart will start reversing, then I need confirmation
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that, indeed, it's reversing. That confirmation could be, for
example, a green candle to form coming up, then another candle
to form in that same direction.
Or, if you’re big on using indicators, that confirmation could
come from using that. It could be an indicator which maybe some
of you are familiar with, such as the RSI. The RSI is basically
showing you if something's overbought or oversold. So, if
something's overbought, then maybe you're just buying the
option put so you make money on the stock going down.
Whatever it is, you have been trading, most likely, based on
confirmations before. What I am telling you is that I'm basing all
of my confirmations that we'll be going over very soon on what
the hedge funds trade. So, that way, I am almost nearly entirely
100% sure that, when I'm buying, the price is skyrocketing up in
my favor.
For number four, the last piece here is that I must trade like
a hedge fund by only caring about money for all of that to happen.
What businesses care about is getting a good deal price. They care
about money, not trading like an everyday day trader and only
caring about indicators. Most people care about finding the next
best indicator or the next person to follow that will tell them
when to buy, sell, or when to do everything.
No, that’s not how you should be thinking. You're thinking
like an everyday day trader. You're not thinking about the people
that are moving the market. The people moving the market are
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the people we're going to talk about very soon. They're called
hedge funds. They're called banks. They're called businesses, and
businesses only care about money. They care about getting a good
deal.
So, the whole logic of buy low & sell high from a high-level
perspective does work in that aspect. Technically, the reason it
doesn't work fully is that it's so broad that it does not answer the
question of what's low and what's high. Where am I buying it?
My strategy based around the supply and demand trading strategy
shows you exactly where those lows are intraday so you can
know when to buy precisely. Then, on top of that, where are
those highs intraday, so you make that big profit.
Doing so, I average results of $2,000 in profit to $5,000 in
profit on a daily basis with my current win ratio. So, no, I am not
making billions like the hedge funds, but again, that is because I
mirror exactly what they are doing strategy-wise to get a good
return with much less risk. So in order to buy low and sell high,
yes, it sounds like a pie in the sky idea, but it's not. You just have
to know what it means as it relates to your trading strategy. I can't
wait to tell you all about it.
Now, if these hedge funds are so important, who exactly are
these top day traders? Who exactly are these top funds that are
moving the market? Two examples of hedge funds are Berkshire
Hathaway, which is run by Warren Buffett. He's one of the
leading investors, but he's more of a long-term type. That's just
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one example of a hedge fund (technically, it’s a holding
company). Another more specific example is Bridgewater
associates. Bridgewater associates is much more your traditional
hedge fund. Basically, they're the ones that take money from X
person, they invest it, and they're moving the entire market as a
whole. They're your competition. When you're day trading, if
you buy 200 shares, then maybe they're buying 2 million shares.
Whatever it is, they're the ones that are competing against you.
So, when you're losing, then they're the ones winning. When
you're winning, they're also the ones winning alongside you.
They know what they're doing, and they have that liquidity.
They have all that money in the system to make things move.
Think about it: if Microsoft is such a big company and you
are buying shares, even if you buy a few hundred, you’re not
moving the price up $10. Or, from a numbers’ perspective, you
are buying 100 shares that are $100 each will not move the entire
US market as a whole either. But these big guys are doing that!
Bridgewater associates move the market because of all the
money they have. During the movie The Big Short, which I
recommend you checking out, there was an example of the power
a hedge fund can have on the overall market in the 2008 financial
crisis. Or on the other side of things, people don’t realize that the
banks are involved in this as well when it comes to investment
services. Most people are familiar with JP Morgan. JP Morgan
doesn't just hold your money. They invest the money as well.
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Depending on their size, most banks typically have some
investment service or investment department within their
company.
So, these are the two people that are also in the market with
you. Again, this is the reason it is so important to know because
you are trading alongside Joe and Jill that live next to you outside,
but there are people that do this professionally. So, to trade like a
millionaire, what better way to win and be part of the top 10%
than to do what the top 10% are doing? But the only way you
could do what the top 10% are doing is to know who the top 10%
are. Hence, it is good to know now that the hedge funds are your
friends but also your enemy.
So, if you can literally mirror them and know exactly what
they do, when and why, and understand their mentality and
interpret their psychology behind all of it, then you can
understand enough about them so that you can copy, mimic,
imitate them. Use whatever word you want to use to make you
feel better, but you could make top 10% money, being the small
fish in a big pond.
As one last example, this works because while they're making
$10 million, you can make $200,000. Maybe that’s not as much
money as you want to make but, for most people, that's well up
there. Some of the world's top people make cash flow of about
$200,000 to $300,000 a year. As a result, if you make $200,000 for
yourself at home in your underwear, hypothetically, wouldn’t
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you take the opportunity? Or would you rather go into the office,
listening to a boss, and not being able to take a lunch break
because things are so busy?
Now, let's talk about the flow of the market as a whole. In
other words, how shares flow throughout the market. The flow
of the market takes up about six different segments. The most
interesting part about all of this is that me and you, the Joe's and
Jill's that are learning about the stock market like this, are only a
part of number six, which is the market. We are a part of the
market, but we're not “the market” as a whole. Let me explain
step by step.
Here are the steps.
1. Company – Sells Shares
2. Bank – Facilitates Deal
3. Hedge Fund – Buys Shares
4. Hedge Fund – Wants To Sell Shares
5. Broker – Receives an Order On The Exchange
6. The Market – Everyone Gets The Opportunity to buy
So starting with number one, let's use company A as an
example here. Company A has shares. They want to sell some
shares. The reason why is because this is an IPO (initial public
offering). So, it's a brand new company that wants to join the
NASDAQ or join the S&P 500, and as a result, everyone must
have access to buy their available shares.
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After that, Company A will begin step number two because,
since they are a brand new company, they need to get this access
into the market through a bank, so a hedge fund can buy their
shares.
That means, for part number two, they have to approach a
bank such as, for example, JP Morgan. They facilitate a deal for
this to happen. This, of course, is not seen by everyday people,
and instead, is all behind the scenes. This does not have anything
to do with me or you or anyone else who’s a regular person.
They're facilitating this deal to say, "Hey, we have some shares
for $10, and this is what we think we value our company at. We
want to put this into the market. We're looking for someone to
buy it for $10 because that’s what we value our company as." The
bank just has to accept that they will facilitate this deal so it can
happen.
So, then, number three is where the hedge fund comes into
place. Like mentioned before, the bank is in the middle and
essentially brings this to the hedge fund for a potential deal. This
is where the hedge can, as an example, say, "Yes, we'll buy 3
million shares of Company A, for $10 since you said it's valued at
$10."
Then, there comes the most interesting part that most people
are not familiar with. The hedge funds can continue to buy as
many shares as they want at that $10 evaluation, but again, there
may be news articles about it, but everyday people can’t buy yet.
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What happens next is the value continues to go up because it's
hedge funds versus hedge funds only at that point in time. The
next thing you know is that, two months later, Company A’s
share value has increased. The market says Company A was $10
a share, but with the recent interest, it has gone up to $30 a share.
The catch is that everyday people like me and you are not given
the opportunity to buy thousands of these shares since it’s early
on. Remember, this is only step three of six, and we, the people,
don’t technically come in until step number six, so technically,
we have missed out on a lot of value.
Then, step four, and you can probably guess what happens
next since the value has gone up. The hedge fund says, "Hey, we
want to sell these shares here. Seems like it tripled in value up to
$30, so now we're looking to sell in about two weeks or so."
This is where number five comes in, where the broker, who’s
basically the middleman, says, "Hey, we received an order on the
exchange for the price of these shares at $30." At this point, the
everyday Joe’s in the market can start buying, but what they don’t
realize is those early investors are ready to cash out. They just
need to put their sell orders on the market exchange so the
everyday Joe’s can buy at the high rates to cash them out along
with whoever else.
That's where you and I come in as number six to say, "Okay,
now we have the opportunity to buy X shares of an IPO at $30."
Unfortunately, by this point, typically, what happens more often
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than not is the price drastically drops. If you're familiar with any
kind of IPOs, you buy an IPO, and for early investors, it rockets
up, but for everyone else, by the time it gets to step six, it
plummets down for the most part. Some go up, but most of them,
by the time you can buy, go down in value.
Since we’re within number six, as the market, we have no
idea what we just saw. On the outside, it seemed like it tripled in
value, but when we bought, it dipped. We thought maybe it'd go
up 30%, and we could just get a little meat off the bone, but again
since it was overbought from a RSI perspective, it started
reversing back.
Some people keep holding and holding until it gets back to
$10 in the hopes of it coming back up like a rocket, but by then,
they have lost a lot of money by using the strategy of hope rather
than an actual day trading strategy. That's typically the overall
flow of the market, and that’s why it is important for you to
understand the mentality of the hedge funds since they make the
price move up or down. All the big guys with all the money that
drive the market think the same 1, 2, 3, 4, & 5 steps, but it's up to
you to interpret so you can profit by the time you jump in on
number six.
Another example is when there's an earnings report from a
big company that's coming out. It makes you think that, if
Microsoft has good earnings, you should blindly buy. However,
most of the time, by the time you jump in at the market bell, that
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is already priced in from the pre-market. This happens very often,
but think about it—if it were that easy, why wouldn’t everyone
just trade based on the news someone else told them? It’s never
that easy. So the question is, do you buy in the pre-market? If you
get in, can you ride the price up? Or do you short the market after
because, more than likely, it was going to go down anyway since
the hedge funds are cashing out by then little by little?
You must start thinking about steps one through five in order
to trade like a millionaire in the top 10%. Think differently and
understand this flow of the market, and you can win unlike
everyone else. In this game, it’s good to think differently than
everyone else. More often than not, that’s the right mindset to
have if you want to have a different result than all the other
failing traders.
Next, let's talk about specifics when it comes to hedge funds
versus retail traders. A really quick differentiating factor between
the two is that the hedge funds are the businesses driving the
market, and the retail traders are you and me. Now, here are three
kinds of statistics that would help you understand how the
markets have been changing and shifting from 2019 to 2021.
In 2019, there were a lot fewer retail traders. So, if you want,
you can call it pre-Coronavirus. Pre-Coronavirus, the entire
market made up about 10% of retail traders and 90% of the
institutional investors, the hedge funds, banks, and big guys. So if
you look back at the charts, things were a lot smoother or,
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quoting the institutional investors, “The waters weren't as
muddy.” The reason why they say that is because they played
hedge fund versus hedge fund much more often. That resulted in
the moves being much more predictable and smoother. The
moves were not as volatile because of that certainty factor.
In 2020, the Coronavirus happened. A lot of people,
unfortunately, got hit because of that, whether it be actually
getting the virus or, like most companies, having to work
remotely. Many small businesses went either out of business or
had to make a massive shift. There was an entire economic shift
in every country in the world, and as a result, the retail traders
jumped from 10% to 25%. You can imagine how muddy the
water was—if you want to call it like that in the words of JP
Morgan specifically. That turned out to mean that the market
made up about 75% for the institutional investors, which is
significantly down from before. Keep in mind the numbers on the
other side are in the billions, so this is a massive shift.
So, this is important to know. From 2019 to 2020, because of
the increase in retail investors, the moves became substantially
larger. Retail traders like me and you are not trading like hedge
fund traders. Hedge Funds are buying low and selling high based
on supply and demand strategies—which we're going to go over
to pretty soon in this book—used to fully control where the price
is going since they were the main players in the market. The retail
traders buy based on emotion, based on guts, or based on just
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hoping that it will go up because they need to make mortgage
next month. They need to pay their mortgage, they need to pay
their rent, they need to pay for their car, they need to pay for
their wife or husband to go on a trip, or whatever the reason.
Hedge funds want the same things, but they play with house
money while retail traders play with their money. People turned
to the market because of the Coronavirus because they didn’t
have any money, and they needed to make money to make their
family happy and buy the things they needed to survive.
All of that mixed up, and moves began shooting down
rapidly, extremely fast because, if it didn’t go how someone
wanted it, then people sold very quickly. People were losing
money left and right. So you can imagine how the market shifts,
turns, and swings differently just because more people are
involved. That's why it's important to know how to hedge funds
trade, because whether they take up 90% of the market in 2019
or a bit lower in 2020, you, as a retail trader, need to adapt your
strategy based on the volatility. Their trading strategies stay the
same, but you'd have to be more cautious. Even after 2021 post
Coronavirus, you need to pay attention to how many more
investors are in the market. That’s why what's called the VIX
indicator is important because it’s technically what people look
at. VIX indicator is known as the fear index. That typically is
going to be up much higher during a crisis and can give you a
better idea to know to think that, “Hey, something's going on in
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the world or the US or whatever country you're in because the
VIX is going up.”
If you want to check out that ticker, it is in the US exchanges;
so, you can check out where it is on any brokerage that you are
using. Just remember that the higher it is, it means that the
volatility is extremely high. So that matters for both hedge funds
and the retail traders like me and you. Both players matter.
In 2021 basically, the statistic has been changing more as
well. The retail traders have already dropped to about 20%. The
reason is that a lot of them are losing. A lot of them are losing
their money, they are losing their shirt, they're losing all the
money they've ever had in their account, blowing it up because
they don’t know how to trade and instead want to make a quick
buck. They are not investing like the institutional traders, and
that 20% is more than likely going to drop down to 18% to 15%.
Within the upcoming years, I'm willing to bet that
percentage will continue to decrease because, guaranteed, when
you're looking for a quick buck, you lose. Those people do not
want to understand the system. They want it easy. So, yes, the
supply and demand strategy is easy to understand, but it's hard to
implement because patience becomes a factor over what you
typically usually invest.
That's why institutional investors win because they're
thinking about the bigger picture in the longer term. Retail
traders are thinking short term, and they can only see the little
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picture.
Now, again, look at these three different stats here. The retail
traders have gone from 10% to 25% to 20%, and more than likely,
2022 will be between 15% and 18%. What does that mean? It
means that, as long as you can survive in this market, making X
amount of money now, then you can easily survive the years to
come. The fewer retail traders means the markets are not going
to be as volatile, and the market will become easier to trade. Less
competition is better. So, the more you know how to trade supply
and demand as a strategy overall to mirror the investors being the
hedge funds, the easier it's going to be for you to kill it.
Now, going off of what I mentioned, more investors equals
more losers. This is specifically for the everyday people called
retail investors. One of the reasons the everyday retail trader loses
is that they trade against the market. They don't trade with the
market. Trading with the market is like trading the supply and
demand strategy. Remember, this is important because you need
to imitate what they are doing because they're the ones that move
the market.
If they put all of their eggs into one basket, then you need to
put at least one of your own eggs in the basket so you can follow
along with them. There's nothing wrong with being the small fish
in a big pond as long as you're imitating what the big fish is doing
in that pond. So number one is undeniably one of the most
important points you have to understand. Don't trade against the
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market. Trade with the market.
Number two reason retail traders lose, many of these day
traders, unfortunately, buy based on gut, which I've talked about
a few times here. This is more of a psychological type thing that
can affect you. But you can't buy based on gut alone. You have to
buy based on your confirmation. You have to buy based on your
strategy that you've tested over and over again. Not based on
thinking, “I believe it's going to $3, so this could be easy money.”
Or thinking, “If it starts going up, then I'll buy it because it's going
to be a breakout.” You have to know that this does not work.
Otherwise, you run the risk of blowing up your account and
losing all of your money—which is not uncommon.
Now, I used to do it when I first started. So how I got out of
buying based on my gut? For one, figuring out what strategy
works for me. Two, it's going into thinkorswim and actually
practicing on the on-demand software. Essentially, I would try to
practice days with fake money to just buy and sell in order to be
profitable. The catch is, I only did one single strategy and did it
for multiple days in a row. You can literally do an entire month
in one day as a result of being able to choose what day you want
to trade at a faster pace. Doing so gives you the ability to ask
yourself valuable questions and give yourself more screen time to
think the following thought. How does my stuff actually work
with what indicators? How many days out of one month can I
win? How large are my losses, and what is causing those losses?
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What do I need to tweak so that it can become profitable? What
was I wrong about that I need to admit so I can get better?
You have to be real with yourself and not go based on your
gut. Go based on your strategy and see how good it is and how
does it work in the current market. That's number two.
Number three, you can't afford to lose trades. Most of these
investors start losing because they can't afford what they're
losing. If you have $10,000 in your bank account, and if you lost
all of it day trading, that’s a problem because you still need to
make your payments for everything you have in life.
If you don't have $10,000, figure out what's your magic
number. If your magic number is $5,000, trade with $5,000. If it’s
$500, then trade with that. I've met someone, and their magic
number was $10. She ended up trading with $10. Will it be hard
to trade up from there? Yes, it will be hard. Is it possible? Yeah,
it is. You know why? It’s because trading based on number two
that I mentioned. If you're practicing your trades, you can find
out how to buy something for $10 and make it into $15. Then,
keep doing that strategy so it can go from $15 to $30. The concept
is the same when money gets larger because if you can triple your
$10 investment, then you can triple your 10,000 investment as
long as the trading strategy stays the same and you only have one
strategy.
Now, if you’re thinking, “Okay, I now understand my
methodology, and everything is going smoothly with my $10
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investment, so I think I'm ready. I'm not buying based on gut
feeling, and I'm trading with the market. I can afford to
potentially lose what I have in.” That means you can move to
number four, which is having a plan before you enter every trade.
If you have no planned entry, exit, or stop loss or have defined
the amount of money you’re willing to lose, then you’re not ready
to enter a trade. Until then, you don't play with money you can’t
afford to lose. Also, you sure as heck don't enter a trade without
a planned spot to exit in the best-case scenario and worst-case
scenario.
Put a stop loss on any trades unless it's planned beforehand.
You have to know what to do. If you don't have a plan, you plan
to fail. Let me say that again. If you don't have a plan, you plan,
by default, to fail. So make sure that's set up.
Number five, the more investors are in the market, equals
more losers in the market. Many of them don't have a mentor or
expert to teach them, unlike the institutional investors.
Institutional investors have trading floors full of people to ask
advice from. They've had people that worked there for ten to fifty
years, who have seen everything. They've been trading for so
long. They've seen almost everything more often than not, and
they're just there to help a new upcoming employee that's doing
some trading. Just to learn from someone and sit with someone
like that would drastically speed up your learning habits. Not
having a mentor will, by default, cause the market to become
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your mentor. So, in order for you to learn, you will lose money
from all your mistakes. As a result, that's something you need.
That’s why I am writing this book because I am someone who can
help you have one leg up against your competition. That’s why I
coach people on how to day trade to make $1000 a week
minimum through my program by them visiting my website
www.MauriceKenny.com
That way, you can learn as much as possible with very
detailed hands-on examples. Since I've learned from institutional
investors, you have a leg up against your neighbor down the
street. That way, when they place a buy order, and they lose
money, that means you can make that money on their loss to buy
it at the lower price and sell it for more. The more you know, the
more you can get better than your competition. This is a zerosum game. You win based on however many people lose, and you
win based on what you know against your competition. So, avoid
all five of these mistakes and continue to be one of the top 10%
traders, or make them and be among the 90% of losers.
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Chapter 3
Uncovering The Hedge Fund Strategy
Next, we will be walking through how exactly a Hedge Fund
operates. We talked a little bit about the retail traders, but now
we're going to talk about the big guys' actual strategy. First, how
operations go within the company. Second, the overall strategy
itself. Yes, from an operations perspective, I understand that you
are not going to be running the hedge fund operations, but
understanding how they operate can help you mirror what they
do so you can be profitable when they are too. This is 100%
necessary to understand before trading. If you don't understand
something like this and you’re not profitable, this is one reason
you're not ahead currently.
Now, starting with number one, the first thing that matters
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when it comes to the hedge fund strategy is understanding what
they really care about. Just like every other business, what they
care about is revenue coming in. In other words—money. You
can't do a business without money. So, number one, they have to
receive client money from me or you if we were their clients. The
way it works is you can go up to a hedge fund and say, “I have $2
million that I want to give you as an exchange for something else.
In return, I want you to promise me you'll make X percent back
on my money.” As a result, they will give you hypothetically 5%
back on top of your $2 million with you doing very little to no
work. That's their guarantee to you.
What they get out of that are fees, commissions, etc., on top
of it all. So, the hedge fund managers typically make a lot of
money based on these deals alone. But that's the typical kind of
way they get revenue.
Then, the second piece here, and the blue one is the cash
flow—that’s the king for them. So, what they do is using that
money as liquidity. And, as a result, they can now trade 24/7, not
with their own money from their pocket, not those commissions,
not those fees, not any of that, not their salary, their 401k—they
use the client's money to trade. So, let's say they make 2% in one
day on that $2 million somehow. That's great, but it doesn't
matter. They need liquidity as much as possible. They're going to
sell so many shares so that they can get X money back and be able
to give them a return and buy shares. So, they can always have
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money coming in and coming out. They care about cash flow.
They need the client's money to trade as much as they want, or
as little as they want, and by anytime they want to move the
needle to move the market. If you look at the image here,
actually, that's them moving the market in a sample chart.
You can just say, hypothetically, the blue is them buying 2
million shares each. Two million shares going up and then a
yellow candle that's them saying, "Well, okay, we made some
money, let's go ahead and sell some." That push back is a different
hedge fund selling against them to say, "Well, we need to sell this
now." And that's where those reverse candles start coming down
in the yellow. But that's the whole premise behind that they need
their money from clients as liquidity to be able to move the
market when they want, how they want, and however much they
want to within legal grounds, of course.
The third piece is an essential piece where you need to start
to pay attention much more; while the first two are behind the
scenes and it's great to understand them, they are not the most
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important. The third thing and the fourth thing, or the most
important, because in the yellow here, that’s where the market
maker comes in, they have market makers in their companies that
set the target price. And I'll say that again, they have market
makers, individual people, that set the target price. So, if the
current price is, say, $200, and the market maker says, "Hey, we
have enough liquidity to push this price up to $205," that's our
target price. Then, they're going to use the second bullet point
that liquidity as their manipulation. They're manipulating the
price to push itself up to that $205, their target. And, that way,
they're actually selling high, and they're just going to sell it off.
So, they bought low and sold high there, technically. There's
much more to it. But that's the general idea.
And, then, the last piece here is hedging. So, that's essentially
kind of wrapped into what I already talked about. But hedging is
buying and selling to reach the target. So, they're manipulating
that market to push it up. Basically, they could have 10,000 shares
constantly buying to push it up each minute on each candle. But
whenever they get to the top of their target of whatever that price
is, they're hedging against it. They may be selling half of their
shares, but they're still selling. They're selling at a profit. So
they're hedging against themselves. They're hedging against the
other hedge funds at this point. As far as this kind of flow goes,
this is hedge fund versus hedge fund. It's not even a hedge fund
versus you or me. They're just fighting the other hedge funds to
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get as much liquidity as possible. They know where they're
because they see it in the system, which we'll go over very soon
in this course. But it's really hedge fund versus hedge fund
because they move the entire market.
Now, let's walk through an example. There are five pieces
here, just like before, but we're going to walk through an actual
kind of example of how a hedge fund would be trading. So,
number one, as we mentioned before, the most important piece
to all this is the market maker. So, first, the market maker chooses
a cheap price target below its current price. So, hypothetically, if
there's a price currently at $200, they could say, “We have a target
price to buy low, not at $200, but $195. Once it gets to that, we'll
shoot it off.” But we'll get to that very soon. So, they have current
prices of stocks at $200 in a price target at $195.
So, number two, they simply just draw a zone down there.
Draw a little rectangle, or draw a circle, whatever it is, in that
target zone of $195. And the great thing about this is that they're
traders on the trading floor; they can see this. This is the goal
we're trying to get to sell enough shares to push it down.
Now, number three is, like I mentioned, they're selling
shares, they're selling stocks, they're selling options to push the
price to this zone. It's hard to do it because, when they're selling,
they're moving the entire market. But that's hedge fund A. Hedge
fund B is buying to push the price up. That's why you see this
constant friction between candles going down, candles going up,
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candles going down twice, candles going up points to different
hedge funds having two different strategies as a very basic sample
explanation.
And, number four, that manipulated zone that was already
just arbitrarily picked, whether it be arbitrary or specifically
picked by the market maker based on how much money they're
trying to hit. It's hit as the lowest price that they're looking for.
So, that's great; they hit their zone, they hit their price target,
they hit exactly where they want to go.
Then, to move to number five, they hit the low. Now, they
just buy many new shares at the lowest price there, and the stock
skyrockets up. That's where you see those big moves happening.
No matter what the company is, especially the large-cap
companies. If you see it pushing down, coming up a little bit,
pushing down, coming up a little more, pushing down, hitting
this weird area where you feel like there's nothing there, but out
of nowhere, it shoots up an entire severe crazy amount, that
means that was a zone. You just weren't aware of it. And you
didn't have an understanding of where the market maker chose
this price.
But when they choose the price, it's very apparent. And I'll
show you, like I mentioned, how apparent it is. Once you see it,
you can't unsee it. All you see is zones. All you see is money at
that point in time. But we'll get to that. This is an example of how
hedge funds trade. In the next lesson, we'll be talking about how
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exactly the retail guys trade.
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Chapter 4
How To Day Trade Using Supply & Demand
Now, the next piece is the supply and demand trading
strategy. We've finally made it to this. To start out, I want to give
you a very good introduction of just really reading out the
definition of supply and demand. Reading out, supply and
demand is the equilibrium between price and the volume of
shares traded. Any imbalance is profitable. Any imbalance is
where the profit lies. That's where you're going to be trading it.
Now, the supply zone, from a very basic perspective, you'll
see down the line actual examples of it being drawn. But the
supply zones are typically a red rectangle that's going to be at the
top. This actually signifies a high number of shares and a high
price. And, basically, this is the buyers and sellers saying that this
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price, currently, hypothetically $200, is not worth more than the
price as it is now. So, let’s say a market went from $200 down to
$190 and then slowly back up to $200. At that $200, there is
friction because of the big spike downward originally, so as a
result, when it gets near again, it will reverse drastically. That
zone where this happens is called a supply zone. Again this means
that, at $200, the markets agree this is the highest it's gone at this
moment intraday. And currently, it's not worth any more than
$200 because the buyers and sellers have agreed on that. As a
result, this is a supply zone.
It’s almost the same thing on the flip side, but it’s called a
demand zone. This is typically a green rectangle if we draw this
out. Now, this is almost like defying the opposite. It is signifying
that there's a low amount of shares at a low price. So, in other
words, it's not worth less than, say, $190.
Supply zones capture the top of the line, while demand zones
capture the bottom of the line. And it's a real quick reference.
This is not just simple support and resistance levels. It can be seen
like that, but you'll see very soon why it's not. As one little quick
example, if you've charted just support and demand lines
indicators on your chart, you can easily put 30, 40, 50, sometimes
80 support and resistance lines. When it comes to supply and
demand zones, typically, when it comes to the ones I'm talking
about, which are called major zones, there's maybe four, maybe
two max, sometimes at the most six. But, other than that, there
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aren’t many, especially at one time within probably a four-hour
window.
So, if you want to think about supply and demand zones,
they're very simple to understand, but they're an advanced
version of support and resistance. And we'll talk about that very
soon.
Since you have a better understanding of what supply and
demand is, let's talk about the retail strategy as a whole and how
it relates to the supply and demand strategy. The supply and
demand strategy mirrors the exact hedge fund strategy that we
talked about, just a lot simpler.
So number one, first, we identify the market makers' price
target. And that could be whatever, be it $200, $210, $200.01, or
$205. We typically can spot that exact price target to the tee
within a 10% margin. You can technically predict where the
market maker has priced the set because of the supply and
demand strategy.
Number two, let’s say you guessed the price correctly. So let's
go ahead and just draw the respective zone. That's basically you
drawing that hypothetical red or green rectangle. So the red being
the supply zone, and the green being the demand zone, just
respectively on the chart. And, again, if this isn't making much
sense now, trust me, we're going to go through many examples.
Technically, fifteen examples of how to draw supply and demand
zones on different charts, how they work, how they don't work,
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when to draw them certain sizes, when not to draw them certain
sizes, the colors, and every possible detail. So that's coming up
pretty soon.
Number three, after you've drawn it, you basically just wait
for the zone to be hit. The market makers are doing all the
work—they're buying to push it up, selling just to get some
liquidity trying to figure out, “Okay, well, we're beating this
hedge fund.” Now the hedge funds may be thinking that there's
a big amount of stop-loss orders below at a lower price, so they
will intentionally push the price down and then push it back up
there. The hedge funds are doing all the work. They're doing
everything. All you have to do is:
1. Find out if $200 is the price target,
2. Draw a little rectangle that looks nice and colored,
3. Wait for it to come back and retest.
That's it. That's literally it, just waiting for it to come back to
retest it. The reason why it's different from support and resistance
levels is that, as you know, if you draw support and resistance, it
doesn't always get hit. Sometimes, there's a margin between it.
That margin between it is the supply and demand that you're not
aware of basically; the more precise you can get, the easier it is to
win on these trades. But, again, sometimes you're waiting for
maybe five minutes at minimum for the zone that you've drawn
to be retargeted and re-hit, or maybe you're waiting for three
hours. And the zone gets hit. And there's a beautiful huge push
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back, and you say, “Well, I waited three hours for a huge trade.”
You don't have to physically wait for it. All you do is just set an
alarm, wait for the alarm to turn off on your phone, walk back to
your computer, put on the trade, $3000, $5000, $8000, and call it
a day. That's what I do. People make trading way too hard. It's
not as hard as you think it is. It's figuring out where's this price
target, draw the respective zone, wait for it to hit, and earn $3000.
It's basically where you're saying to buy on that reversal and just
make the profit. Simple as that.
Now, let's go ahead and walk through an example of what I
said. See this physically and understand how exactly the flow
happens for us as retail traders. So let's just say, hypothetically, at
number one, a zone is identified at 9 AM CST at $100 flat.
Number two, the price moves above $100 and fluctuates between
$100.01 and $102 throughout the day.
And, now, think about this as an FYI: if I go back to one, the
$90 of the market has been open. I'm in Texas CST, so I'm
typically used to the market opening at 8:30 AM. But this is at
9:00 AM. Sometimes, I wake up at nine; sometimes, I wake up at
9:30 AM. I don't have to trade that morning kind of power hour
volatility. You can if you want it, but I don't want to. For one, I
want to sleep a little longer if I'm just really frank with you. And
I know many you don't necessarily want to just stare at charts
eight hours a day. And this is why I wanted this strategy here.
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You don't have to trade for a 40-hour workweek. You can trade
twenty. You can trade five. Some weeks, I trade for about five
hours. Honestly, depending on the week, I may trade for about
an hour, just because I come back to the computer when my
alarm goes off. And that trade, I'm in and out within twenty
minutes. And if I do that three times, maybe four times out of the
week, that's my $15,000 profit, as an example. And I'm done after
just trading less than an hour for an entire week. And I have all
this free time to myself. So, this strategy works 100%. But the
strategy only works if you make it work.
So, back to this example, number one says zone was
identified at 9 AM as $100. Number two, the price fluctuates
between $100.01 and $102; you're just watching, then on number
three, you start doing a little bit. A little bit, meaning that you
simply wait for it to come back to $100 for the retest. Number
four, you let the retest happen and wait for confirmation that it's
actually reversing whatever that confirmation will be for you.
We'll talk about that very soon, and, later in this course, on what
exactly confirmation means. But you don't just enter the trade
because it hits your only $100 zone. Maybe you entered at 100
points something else. You don't just go and buy just because it
touched it. You need confirmation. You need price action to tell
you something, which is why number five is that you enter the
trade based on price action and exit at your defined target. This
goes back to one reason why many day traders, swing traders, and
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long term investors lose. They just trade based on gut. They just
trade based on intuition. They just trade based on a friend or a
family telling them that they should enter this trade. But if
something goes against you, you have no defined target of when
you're entering and when you're exiting. And when you're
stepping out, you're going to lose. You need a price target. And
specifically, what tells you that is price action. You need to
understand the story behind the candles and what they're telling
you at that moment on the one-minute time frame chart. We'll
go over how exactly to understand what the story is and read the
candles' language. It's not just the candle forms, whether it’s
green or red, or it’s formed. The candle’s intricacies in itself, from
the candle itself, its size, its length, and wick size, whether it be
at the top or the bottom, signify a lot of where the movement is
going next. Just seeing a long wick at the top and a small body
below it can signify easily that that's just the company's getting
liquidity.
So it can reverse back in the opposite way. That's why the
wick is so long. There are not many buyers in X amount, and the
X wick up above that. They're just getting liquidity. That's why I
didn't stay there, hypothetically. That's why those long wicks are
there. They don't plan on buying that. They're just pushing it up,
getting what they need to get, and getting out quickly. There are
not enough buyers there. The thicker the candle, the more buyers
there are. The smaller the candle body is, the fewer buyers there
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are. See the following image. The same can be said for the wick
because the majority of the buyers/sellers are in the body of the
candle. You can think of the candle wick as the hedge funds
trying to align on the price together before it comes back to form
the candle's body.
The candles mean something extremely important. Now,
again, this is just a simple example. The best-case scenario is that,
when identified at 9 AM, you waited for the retest to happen at
four.
Let's say that the retest happened at maybe 10 AM. And from
09:00 to 10:00, you didn't do anything but wait. The retest
happened at 10:00, you entered the trade at 10:00, and you're out
of the trade at maybe 10:10, or 10:20, depending on how slow it
is from a volume perspective, but you're done. You've technically
traded for about ten minutes, and the hour was just you waiting
on a computer on Facebook, Twitter, Instagram, Tick Tock,
whatever it is, watching a video. Sometimes, I go back to bed and
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go to sleep until the alarm pops up. Maybe I had a long day the
day before that. Just being honest with you—you don't have to
make trading so hard. It's really, really simple. It's just that you're
a part of the 90%. Right now, that overcomplicates it. Now, I'm
trying to help fix that for you.
Now, you may be wondering, this sounds almost too good to
be true, while I'm trying to tell you that it's not. The catch—
because there's a catch with everything since you think it's way
too good to be true to trade just ten minutes a day—is that the
only way this works is that your trader psychology has to be on
point. You have to trust the process. You can't just day trade first
and think risk management second. That's how trading works.
It's risk management first, and then actual trading, second. That's
how trading works, not the other way around. Your psychology
and risk management are the most important part.
So, that waiting is the most difficult part. Because you're
thinking the entire time you’re missing out on a trade, or “Oh, if
I had taken this trade in the morning, I would have made bank
already.” You may think it’s easy, but it's pretty hard just to be
patient. Some people are so picky about wanting to jump into a
trade just to chase it on its way up, catch a big winner, catch a big
runner, use scanners, and use all the tools you need. You don't
need all of that. So, the only way it works is to trust the process.
And I'll show you why you should trust it and how you should
trust it. And not only that; after you finish this course, you will
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100% trust this process because it works. And not only just
because I'm saying so. That doesn't mean anything, right? You're
going to trust this process because, by the time I'm done with you,
after more than sixty examples of trades that we're going to be
walking through, you will be confident in the process. I’ll go
through explaining, and you’ll get your homework done down
the line on how a lot of these things work. You’ll document
where's your entry, your exit, the supply and demand zones
period, the major and minor ones, where exactly is your stop loss.
Then, you’ll figure out why did this happen? Asking the "why"
questions will separate you from being a part of the 10% instead
of being a part of the 90%.
Number one, the only way this works is if you’re picky about
when you trade. So, yes, you only traded for about ten minutes in
the previous example and waited for an hour, all while being in
the room watching TV. But that's because you have to be picky
about when you trade. You only trade when the trade comes to
you. You don't trade otherwise.
And, on that same extension for number two, if you're doing
all that, you have to give the trade wiggle room. Just because
you've bought at an X price, and it doesn't immediately go your
direction, even if you've waited for that hour, you need to give
the trade wiggle room. That's the whole point of the supply and
demand zones in the first place. It may start going 100% in your
direction, which typically it does. And I'll show you examples of
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things that could have broken it down to easy, medium, and hard
trades. So those days where it's extremely easy, you buy, and it
just runs based on the supply and demand zone. But there are
other days when you buy, it pushes back a little bit, and you
might be negative $50. But negative $50 freaks some people out;
or, maybe, you're negative $200, and then you sell it. Since you
didn't give it that wiggle room I told you about, you may sell too
early. Like you’ll go ahead and sell, then, as soon as you sell, it
just rockets off in the other direction, and you would have been
not negative $200 but plus $1,000. And that's because you didn't
give it wiggle room, you didn't trust your process. This is the only
way it works 100%.
Now, number three, you have to know how much you're
willing to lose. We've talked about this before, but I wanted to
bring it up again because this is the most important piece that we
could talk about now. You have to know how much you are
willing to lose, how much you are willing to put in each trade,
and what's your magic number. Are you okay to trade with
$1,000? Are you okay to trade with $5,000? Are you okay to trade
with just $10? Whatever it is, define that number. Put that, if not
a little more, into your account, and trade with it. But I will tell
you this, especially if you haven't tried it at all. Here's one thing
I'll guarantee you, you're going to lose—100%! You're going to
lose a trade. Maybe two, three, five, or even ten! But I'll tell you
what, it doesn't matter. You know, no one wins 100% of the time.
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That's the beautiful thing about trading. You can lose five times,
but there are 20 days you can trade. So, you lose five, but you win
15; it doesn't matter. You had a whole bad week last five, but you
won the next three weeks. That's pretty great as long as you've
cut your losses pretty quickly, right? So it means nothing. So,
with number three, know how much you're willing to lose so you
can win off of that.
And, number four, only trade after confirmations. We're
going to go specific over confirmations because, before entering
any trade, I only enter based on X confirmations, and I have a
couple that I go to. But, whether you take my strategy or another
person's strategy, or you modify a little bit of it so that it works
for you, you need confirmations. You can't enter just because you
feel like it. You can't enter just because of one confirmation,
either. You need multiple. So, if anything, I need to change the
sentence to only trade after multiple confirmations. That's the
truth of the matter.
Now, let's move on number five. Number five is to let the
stock prove to you it's worth trading right now at this point. You
only enter the trade again, as this is an exception based on
number four when the trade comes to you. So it's a supply and
demand strategy. There's a lot of waiting, and just hoping it comes
back to it. And, if it doesn't come back to your zone, you don't
trade. If it comes back, you trade. You'll be waiting five minutes
for your phone to go off with an alarm. Honestly, you could be
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waiting. Worst-case scenario, I don't wait more than three hours.
But worst-case scenario, I think, one time, I've waited the entire
day until the very end of the day, the end of the power hour. So
right before from two to three o'clock. For one to maybe two
o'clock or so, or whatever the time zone I was at the time, but
you wait for it. And here's why I'd rather "wait and win" than
"rush and lose," and you'll have the same mindset because the
trade will work, but you have to let the chart, the stock, the ticker
itself prove to you that it's worth trading and it's worth, you put
your hard-earned money into so you can win. You don't rush
things. Otherwise, you lose. We all know that. Don't rush
anything, whether it's training or in life, career, anything. Be
patient, and you will win. That's a guarantee here.
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Chapter 5
Stocks To Trade & Technical Indicators To Use
Now, this is one of my favorite slides because it typically
always freaks people out a little bit. This is where I'm going to
start covering what stocks to trade and how to make trading ten
times easier—an arbitrary number of ten times, but it's true:
whether it is two, three, five, or ten times, it doesn't matter. But
this is how you make trading a lot easier. Here's number one, for
me and for a lot of the big guys that trade in the first place,
especially independently, I didn't realize until I just started doing
it by accident.
Only trade one ticker. All I trade is SPY. That's it. Nothing
more, nothing less. I don't trade Tesla even though everyone talks
about it, their mom, on Facebook, Twitter, and Instagram. Even
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in the news nowadays, everyone's talking about Tesla. Don't get
me wrong, Elon Musk is a great guy. I really love his invention
and love everything about the guy, extremely genius. One of the
best people that's been alive in a long time because he's making
such big moves in the market, for his company, for humanity, and
for the stock market as well. But that doesn't mean I'm trading
him.
The same thing for Apple. Apple's a large conglomerate.
They do so many things well, do a few things unwell, but you
can't argue that they're one of the leaders and a lot of a few things
that they actually do right and they do what they do. But just
because, hypothetically, it is supposed to be all green candles
upward, that doesn't mean I invest them. Small examples, NIO,
smaller company. People say it has big potential. That doesn't
mean I'm buying it. I'm not buying the hype. I don't care. Maybe
it's good. Maybe it's bad. I have no interest at all. And here's why.
Why should I trade multiple tickers if all I need is one to get
rich? Ask yourself this question. Just please answer this to
yourself. Let's say you can trade SPY, and you can make $1,000
today, make $0 tomorrow and make $2,000 the next day. Is that
okay? Or do you feel like, "Well, I'd prefer to trade SPY one day,
get $1000 then trade Tesla on Wednesday and then get $2000 and
then the next day trade Apple and then get $500 and then go to
NIO, continuing so on and so forth?”
Now, here, you may be saying, "Well, I'm fine with that. It's
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increasing my odds." Here's the problem with that. Now, you're
bouncing from chart to chart to chart. That’s how I traded in the
past. I don't use scanners. I've been using a scanner for a long
time. I don't go to the scans on thinkorswim, click high percent
gainer and find the high percent gainers, or find the next person
with earnings. I don't trade based on earnings. I don't trade on
high percent gainers. I don't trade based on what the next
company is doing when it comes to a new product. If Apple has a
new product, cool, that's great. I don't care. Why should I?
I want my screen to be static, and the only thing changing to
be the candlesticks because those tell me the story of what's going
on. There are millions of dollars being flown through each one of
these tickers here. You're telling me you just can't make money
on one, how cocky and how greedy are you? To think that you
need to trade every single ticker just because so? Trade just one.
Companies are making millions and billions of dollars on just
trading one single ticker, but you want to trade everything? If
they have teams of people to trade multiple stocks, why should
you trade all of them?
Put it even simpler, this can be a factor why you’re not
profitable as a trader. Before, I used to trade much more than 80
tickers. To be honest with you, I used to think, “Well, I can't trade
any ticker to become a consistently profitable trader. Let me trade
five.”
This is how I got the mindset: I chose five, that didn't work.
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I did five for a whole month, it just didn't work. I kept popping
chart to chart to chart, it didn't work. Okay, move to four, that
was a little better. Then, I moved to the three, then to two, then
to one. I trade only SPY now. Do you know what that did?
Increased my win ratio because I kept seeing the same movement.
Like any other chart here, SPY moves as they have their own
personality, and they move similarly every day. After a while,
you start seeing a pattern. No matter what pattern you may see,
there are different ones that constantly happen over and over
again. That's why I trade one ticker. I don't want the
complexities. I don't care. I'm not in the stock market game just
to have fun. I'd rather be happy and bored trading slowly than
poor and having fun by trading hundreds of tickers. Now, pick
which one you want to do.
Now, let's break down what exactly is an option contract
because the strategy that I mostly do, which is the supply and
demand strategy that we're learning here, is built around the
option contracts. So, here’s what an option contract is. That is an
agreement between a buyer and a seller that gives the buyer the
right and, specifically, the right to buy or sell a particular asset at
a later date at an agreed-upon price. So, the reason why the right
is underlined is that you can, hypothetically, buy 100 contracts
for $10,000 or one contract for, say, $200. But you don't have to
necessarily sell that entire contract as a whole and buy those
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contracts outright.
So, let me go more in detail on that. Basically, what a contract
is, is the right for you to buy that one contract. But that is an
agreement for 100 shares. So, if one share is worth, say,
hypothetically, $300, and you're buying one contract at X price,
you're agreeing that you're going to buy hypothetically 100
shares at this X price. So, what some people try to do is that if
they're betting on the price going up, they have their price that's
going to be lower, so they can hypothetically lock in how much
that stock price is going to be before it rises. Once they have that
price, if the difference is $500 or $5,000, they usually sell it right
away or hold it depending on the strategy. That's the definition
from an option contract perspective.
And breaking it down just a little more. If you look at the
second piece, there's the math formula behind it. So it's just three
core pieces. You don't have to necessarily know this, but it's a
good thing to understand. So you can track things in a spreadsheet
to know exactly how the calculation happens on how much
you're buying one contract for. So, the price is this, let's say the
option costs $1.20 per contract. That doesn't necessarily mean
you're buying one option that’s only $1.20.
That's what people misunderstand here. So one option
contract costs $1.20 times one contract, which is 100. Remember,
like we mentioned earlier, one contract is 100 shares. So, right
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now, it's $1.20 times 100. The last piece here is the number of
purchased contracts. So, that could be one if you're buying that
one contract, or it could be fifty if you're buying fifty contracts,
whatever the number is. If it's 100 contracts, at about $1.15, that's
about $11,000 to $12,000 worth of an option price. So when you
go into thinkorswim or Robinhood, if you're buying 100 options,
as far as the contracts go, you can use this math equation that
would equal about $12,000. Or you can just let the system do it.
And depending on which one you're using, it should show out
that this is how much it is before you buy. And this is that math
equation beforehand.
So if you want to calculate what works for you, how many
contracts you could typically buy at this rate of, say, $1.20, you
can play with these numbers and put in 20 times 100 times 2 or
120 times 100 times 30. Simply play with the calculator until you
get the calculation and formula. But you can see how high these
numbers can go just from that alone. So it's a little bit different.
The third piece here is the option contracts’ variations. There are
three types, and they are: ITM, ATM, OTM. Breaking all those
down, it's basically, In The Money, At The Money, and Out The
Money.
First, we’ll start with ITM or In The money. We'll break it
down, walking through six examples of what this looks like. But
when we show you on thinkorswim, these are the prices that are
going to be highlighted in purple. These are the ones that are, for
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the most part, the closest to the price because they're in the
money. They're the closest to ATM or At The Money's exact price
of what it's worth. The last one, OTM or Out The Money, is
things that are very far out there. They're not anywhere near
what the current price is. So hence it's out of the money. An
example for in the money is if something has a strike price and
the strike price is more than the stock’s price. Let’s say the stock’s
price is $376. Any number above that, say, $377, $378 etc., is In
The Money.
The At The Money is the same price that it started at. So if it
started at $370, the ATM would be $370.
Last, Out The Money would be anything below that. So,
instead of $370, which is at the money, any number below that,
say, $369, $368, etc., is Out The Money.
There are two options that you should be aware of. CALL and
PUT. An option CALL is you betting that the stock is going to go
up. So, if the stock’s price goes up, which are the green candles as
an example, then, if you did an option call, you're making money
here.
On the flip side of things, if you do an option PUT, you are
basically betting against the market, saying the markets will go
down.
So, if you hypothetically bought at the top, bet that the
market was going to go down, then you're making money because
you're on the right side, saying the stock will go downward. On
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the other hand, if you have bought so and it doesn't work your
way and goes up, you're losing money. If you buy a call and it
goes down, you're losing money. So you have to make sure you
have those differences kind of defined. CALLs are when it goes
up, PUTs when it goes down. And in a nutshell, from a very basic
perspective, that's an option contract.
This is a very interesting slide because this goes against the
other one, against the grain of what most people do. So the
question here is, do you rather trade with any indicator, or do
you just trade on a naked chart? What's better, a naked chart or
having a few indicators on your screen to help you out? Like the
RSI, or if you see on the image below, the MACD, and vwap. And
then, I'd make indicators. There are probably thousands and
thousands of indicators. I could probably make a whole other
course on its own self just on indicators alone and which ones are
the best and how Fibonacci works and different things like that.
But here's the difference. How do hedge funds use technical
analysis? The answer is, they technically don't.
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The above image is the chart of how I used to technically trade
when I was losing. I had like eight plus indicators on the screen
at any point in time. And those were my "confirmations." My
confirmations weren't that good. Because there were so many, I
could only make a trade maybe once a week, make some money,
but it was just horrible. It was the worst way to trade. And I just
hated every minute of it. So I had to start picking things. I had to
say, "Okay, well, they're all technically saying the same thing.
When you really think about it, so why do I need all of them?"
A perfect example is if you look at Apr 9th from the initial
image at the very bottom: the stoch RSI is saying is it's
overbought. The basic way the RSI works is that once this turns
green up here, it's overbought. So, it needs to start reversing
downward. So, if I go up on the screen here, see how this it's
overbought. And if they're reversing downward. So I made sense.
"Okay, so that means anytime that happens on the RSI, I can just
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buy a put option, which is betting the markets will go down and
then make money off of it. Cool." That makes sense. But here
came the problem.
The RSI indicator told me what the problem was. If you can
tell this red line above it, here is the top of the line for the vwap.
So the way vwap works, as far as the top of the line, is that it
should get relatively close and then bounce back downward. So,
if that's the case, aren't they technically saying the same thing?
Well, yeah, that's true. And there are numerous examples that I
could continue on. But, at the end of the day, they all say the
same thing. And, usually, you don't really recognize this
happening until it's too late. That's why these are called lagging
indicators.
And what the hedge funds use and what I use, and what I
will teach you is the supply and demand trading strategy. In this
course, here are real-time indicators. All you need is price and
volume. They'll tell you every single thing you ever need. You
can completely take off all these indicators and trade on basically
a naked chart, just candlesticks and volume. The candlesticks tell
you the price, and the volume tells you how big the candles are
going to be generally, including the wicks. That's it.
Now, the question you have to ask yourself is, what
indicators are you using right now and why? One way I like to
try to push people a little bit is if you are using the RSI and many
people are very familiar with the RSI. Then, if you take it off, can
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you maybe just do a circle on the chart where it is overbought?
Where's the top? Where's the bottom? If you do that, then, you'll
realize that "Hmm, if I just read the chart, it's telling me what the
RSI would say anyway. So I don't technically need it." And after
a while, depending on what you're looking at, they all kind of do
the same thing. The only things that are different are price and
volume. And this is why real-time indicators matter. You only
need price and volume.
The hedge funds are the ones that are pushing all the volume
in the first place. So they care about the volume because they
need to know how much the other hedge funds are putting in and
if there are more buyers or sellers. So we need to pay attention to
this. When the hedge funds, their competition, need to know
that, you need to know that, too. What’s the price? Well, they
have the market maker set the price. So they need to know if it's
going to get to $270, for example. If the market makers set the
$272.5 price before a reversal, they need another price. They
know how much you're buying it for their business. All I care
about is money. That's it.
So you need to care only about what the real-time indicators
show you, which is price and volume, because the hedge funds
show you that. And that's it. Nothing more, nothing less. You can
completely change your game just from doing that alone. And it'll
force you to look at the candle. Ask the candle. What are you
doing? Where are you moving? Why are you moving like that?
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When you ask those questions, "Okay, it's moving up, the
candlesticks are moving up." You may look at the chart here at
the top. Well, why did it basically have a wick at the bottom and
a wick at the top? But there's a middle candle here, basically,
what does it say?
Well, when you think about it, it's right before downward
reverse. So maybe it's saying that there's a balance between the
buyers and sellers, and there's a reversal downward, then this
wick is a little bit longer. And this candlestick’s a bit thicker in
the first place. That means there were a lot of sellers here, kind
of a stepping stone. But there is this wick going downward. Hence
saying that there's pressure, there are sellers coming down. So the
wicks tell you that there is movement. It's basically an arrow
pointing downwards, saying exactly where it's going to go. As far
as this stock here concerns, which is SPY, the same thing
continues until it bottoms out here.
And, if you want to look at the RSI from the initial image, it’s
the same thing, but look at the candlesticks at the top of the chart
itself. I mean look how long the candlesticks are. If you look on
the side, some of them move about $1.50 downward. That's a
huge move, just purely red. So, of course, it's oversold, and it's
going to reverse. Of course, it tells you exactly what you need to
know. It's just that you're not paying attention to what the charts
are telling you. Read the chart, read the story, understand the
language, and you won't need indicators at all.
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Now, wrapping up hedge funds as far as strategy concerns,
you need to understand how important is level two and time and
sales. Now, when it comes to level two, you should understand
that level two is down here at the bottom, level two is the blue.
The reason why level two matters is that the hedge funds need to
understand what their competition is doing. And in relation to
you saying what's your competition is doing, which is the hedge
funds. Now let's walk through exactly how level two works. And,
in the next lesson, we'll talk about time and sales.
Now, level two basically is broken up between the exchange
here, the bid, and the bid size. Now the bid here is the price. And
this is an option put; the price that's going for this option put at
the moment is $1.16 an option. And it should be at the money if
I remember correctly. For this next exchange, it’s $1,15. So some
people are trying to get cheaper and cheaper rates. So, more often
than not, these guys aren't going to get bought out. But these will
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because this is the current price of the market, give or take.
Hence, if we scroll up, the little gray box is the current price. The
current price is $1.17.
And now here's what's definitely interesting, that's where we
are from a pricing perspective, but almost from a volume
perspective, because again, price and volume are the most
important aspects here. Most important components, most
important indicators. Here, it's showing 59. This 59 does not
mean option contracts, only 59 option contracts; you have to add
a zero to this. Surprisingly, it's 590 option contracts that are being
bought. This is thousands and thousands of hundreds of
thousands of dollars altogether for this being put together. So
some people in this exchange are buying 590 contracts at $1.16.
Some are buying 500. Some people here are literally buying
thousands of contracts, which shows on level two, so you can
imagine how big of a flow this is. And this is visible for
everybody.
This is all basically saying, "Hey, this is how my competition
is doing. If we're only buying 30, maybe there are enough people
to push the price up." Or, on the flip side of things, when it comes
to the ask, which is the people selling, you need to know well
how many people are selling, because here's the catch when it
comes to level two. And when it comes to buying and selling,
overall. Just because you're buying, it doesn't mean you'll get
filled. Like Apple, these people are at $1.14, if they're trying to
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buy at $1.14. If there's no $1.14 over here, they're not going to be
able to sell it for that price if it got a sell for a little higher, which
is great for them.
But on the flip side of things, let's say the one down here,
they're trying to sell for $3.36. But the price is $1.17. Currently,
they're not going to be able to sell this. They can keep it there as
long as they want until it maybe gets that price. But, until then,
it's not being sold. They have to drop it to $1.17, if not $1.16, to
be sold immediately because this is what people are buying it as.
So, on the left, these are the buyers’ offers. You, the other market
participants, express the wish to buy SPY at this price of $1.16.
The people over here are willing to sell right now but for $1.17
or more. That's what the sales are coming in as.
Now, in this example image, you can see a lot more sellers
than buyers just by looking in the red since there is a higher
number there than on the green side. This is because people are
trying to get out of these tickers, especially with the price going
up so quickly. Some people don't typically like looking at level
two, just for the pure fact that some people can put up lies. Hence,
like this one here, it has hypothetically 3000 sell orders at $1.20.
So this could be kind of a fluff order to say that, "Hey, someone's
selling at $1.20." That technically means there needs to be $1.20
over here of about 3000 orders. If there are not about 3000 orders,
so 300 over here at a bid of $1.20, it can't go higher than that
because you'd have to buy all of those shares before it can push
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up. So the buyers have to win over the sellers. If that's the case,
they need to actually do that. That's the only way for it to move.
And, with that being said, you have to ask yourself, "Is this a
real order, or is it fake order?" Sometimes, they can technically
put up $1.20 at 3000, and then, two seconds later, take it down
and put it back up again. Then, five seconds later, take it down
just to make sure that it isn't actually executed. But that can
happen. It often does or vice versa. They could do it on the bid
and buy at this price to scare the sellers away, whatever it is. But
whether it's the buyer trying to scare away sellers or the seller
trying to scare away buyers, it happens both ways.
As the retail trader, watch what the hedge funds are doing
and react accordingly. You can react ahead of time because you
have fewer things to look at than the hedge funds. But this is your
window here to understand what's going to happen next. This
level two shows you what's happening in the future. Based on
that, you can make your prediction: do you stay in or do you not?
We'll be talking about a lot of that later on. For now, you can
ignore the middle piece here. This is what's called an active
trader.
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This is where you're buying and selling shares, just in and out
in seconds. So I love the platform just purely because of that,
because essentially, you click the green buyer area, you click the
red sell area as long as it's at the money high amount of volume,
you're in and out within two seconds.
So, something starts rubbing against you extremely quickly,
and you're afraid to be down, say hypothetically, $10000,
whatever the number is. You could just click one time, and you're
out. Compared to other platforms where it's starting to come
down, and you have to flip to the next screen, open up the options
chart, and say that you want to sell at, hypothetically, $1.14.
When it gets to $1.14, you want to sell 20 shares, but by the time
you put the order in, it's at $1.11, and there's no order to fill yours,
and you have to go back to the chart and all that mess. With this,
you click the area where you're buying the price as you get filled;
that's great. Then, when you are ready to sell, click the order over
here on the right side, and you're good to go. That simple.
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Now let's talk about the time and sales window. The time and
sales window here is broken up into three different areas.
The first one is time, the second one is price, and the third
one is size. Now, the time is exactly when this is being executed.
So here's the date and hour. The price is the price that
everything's being executed for. The size, similar to before, if you
add a zero, that's 40 option contracts, 20 option contracts, 100,
etc.
Now, you may be asking, "Well, these are much lower. So
that's interesting." The reason why there's so much lower, even
though that can join to the level two down here in the blue, is
because these are real-time, this is real-time flow, showing you
exactly what orders are being placed successfully executed in
your system at that point in time. So, usually, if you open this up,
these prices are flying through. You see $1.16, $1.17, $1.17, $1.16,
$1.15, $1.14, $1.18 just back to back different colors is revving
everything. And that's basically if you get your order placed, let's
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say hypothetically $1.20. It pops up here $1.20 and then flies
down. See your order here live, basically, but you'll maybe see it
down here in level two as well. But it would probably be grouped
in with the batch size down here. If there is, say, a $1.20 right
here with also another 50 or 500 contracts down here, you'll be
filled in, and they’ll be filled here. So this is the bucket. And these
are the real-time executions.
Now, here's the breakdown of what the colors mean. From a
color perspective, the green is the ask. That’s why you see $1.17
on level 2 and then also $1.17 on this Time & Sales. Like this top
one here, a recent fill was the $1.16, which are the bids over here.
So you can see the live transactions going back and forth. The
reason why those are first is because they are near the current
price.
So if you were to scroll down further to see more of the level
two on the platform, more than likely, there would be $1.14 there
because the price was originally that low before. So you can
clearly know that because one, the time in sales says so if we did
scroll down, but also in level two, there are orders sitting at $1.15
currently that did not get filled. This is extremely valuable from
a hedge fund perspective because it shows you at any point what's
your market, what the other market makers are doing, what the
other hedge funds are doing. And, for you, you can say that you
want to buy at $1.17, which means you need a whole bunch of
other people to buy at $1.17, $1.18. You need those orders being
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filled in.
So if you buy a $1.17 and start seeing red orders above yours,
that means, more than likely, your stock will start shooting up.
Or if you see $1.17 orders as well. You see there's some movement
there, and you have a stable backbone. But if you're saying, “Well,
I want to enter at $1.17, I entered my play.” And I see all of this
blocking me, 300 or 3000 1000, so on and so forth. That's going
to scare you. These orders haven't been placed necessarily yet.
That's why they're sitting here. These are coming up soon. That
means those are going to transfer over there. You need to pay
attention to those orders. Maybe it's not going to bounce as you
want it to, but it's a good indicator to be able to watch and a
reference to so you can know what the hedge funds are thinking
and why they think what they think before you act.
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Chapter 6
How To Draw Supply & Demand Zones
As an added bonus, if you learn from watching me walk
through it, I put together a free 10 min lesson where I show you
how to draw these zones. You can watch that lesson from my
course by clicking “HERE”.
Now, let's talk about drawing our first supply zone and what
will be called, more specifically, a major supply zone. In the
following image is what’s called a major supply zone. It is
essentially the red rectangle & the blue line above it, which
together create the zone.
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The concept is that, from a high level, you're essentially
drawing this zone here, waiting for it to retest. Buying an option
put in this case means you're making money on the way down.
So, the way it works is: first, you check out the five-minute
chart of SPY. For SPY, on this specific day for November 20, the
way we draw this is by looking at the chart and waiting for this
to happen versus the red five-minute chart. There's a Doji candle
coming afterwards; then there's the first green candle, which
means the buyers are pushing up. And then, there's the red candle
with the sellers trying to push it back downward. And then
there's this movement coming back downward. So, a large
number of sellers to more candles and a large number of sellers
coming down, and it kind of continues on before it comes back
up to this for retesting.
Now, this here, if I get my circle, is extremely important.
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This is the core principle behind the supply zones being created.
This is the buyers and the sellers agreeing that this is the price it
should not go above. And they agree that $357.64 is the highest
price that this stock should be. And, then, as a result, they're
pressing it back down. So what that means, again, they're a
business like we've talked about, they care about money, they
care about price, which means, if it ever comes back to that price,
which is essentially over here, they've agreed that, “Hey, we've
agreed that it's not going to go any higher than the top of this
zone. See the following image.
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As a result, if it gets near there, that's the highest we can sell it
for at this point.” We're shooting this price back down because
they care about money. Essentially, they're buying down at the
bottom and selling up to the top, for the maximum amount of
profit for the hedge funds.
Now, let me show you how exactly I drew that. For one,
there is a blue line, which I get from clicking my mouse wheel to
pull up the settings, and then I click the price level. Or you can
go over to “drawings” and then “drawing tools,” and you can
choose it over here as well. And you just basically click it one
time. You can drag it to wherever you want to, for this kind of
price level. And you can do it this way. So just price level. And
it's basically at the top of these candles here.
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So this is important because the buyers and sellers have to
agree. This is basically the market makers that I talked about. The
market makers are saying, “Hey, this is the highest price that both
of us have agreed to.”
Let's draw a line going from left to right, basically about the
top of this zone. This blue line we have drawn is a resistance line
in its most basic form. The next piece we're drawing is technically
the supply zone, which is a combination of a little red rectangle
and this resistance level. The way that you draw the supply zone
is this price of $357.64 minus 10 cents. So that'd be $357.54,
which is the price of our line, by the way.
So we need to get to .54, and .54 is exactly where the zone
will be from the earlier images where the red rectangle was
drawn
Also, on your settings, if it’s your first time, yours may be
gray. So if you want to match the red I have from a color
perspective, you can right-click on your zone to choose edit.
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Then, you choose red and click ok. You can also change the
transparency if it’s too bright for you as well by clicking more,
going to what's called HSV, then transparency. This helps you
clearly see the wick.
So this is a supply zone. A supply zone is a 10 cent margin for
error covering this resistance zone and its self down here because
if you're familiar with resistance levels period, they're typically
perfected 100% of the time or 90% of the time, to say the least.
And they reverse back. The catch is that they don't always touch.
But it works because this is exactly what the market makers agree
to. So the market makers let the market open up. They set a price
target of $357.64, give or take 10 cents of a margin, a margin of
error. And, then, once it gets back over here, there's a retest. They
make money on their way down, essentially. And this is a big
move.
I've taken this move myself, and this was about, if I
remember correctly, a $4,000 win, which I'll show you, of course,
down the line, how I made a lot of money, and how many
contracts I bought, where they had the money, when I entered
with their confirmations and so on. But that's the concept. And
now, if we draw this out, this is a supply zone that was on this
chart. Well, there are other components of this chart, and they're
telling you the story of what's going on. The next piece is the
demand zone.
The demand zone is the opposite. At the bottom of the chart,
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the demand zone would be hypothetically here. And that is what
is $356.28. And that would add the same thing, but it'd be green.
So you can click on this exact price, plus 10 cents. So, it would be
$356.38. And you may be saying, “Whoa, okay, that works. That
was great. But look, it didn't touch here.” It didn't have to. You
know why? Because this entire chart shows you demand and
supply zones outside of the top and the bottom.
This is because if I open up my text box here, this is a major
supply zone up. Down here is a major demand zone. So here is a
support level. The blue line is the resistance level. This whole
thing is a major supply zone. There's a support level down here.
And this whole thing has a major demand zone. But the amazing
thing is that this is where you'd maybe hypothetically buy and
sell on these big reverses. But the entire chart shows you the
movement of what's called minor zones.
So those minor zones could be minor supply zones or minor
demand zones. Here's a perfect example.
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There's another zone that's drawn out here. You can basically
see the market was above and then came downward to even out
here where this zone is before another drastic drop again. Again,
this means that there's an agreement between the market makers
that this is a zone even at this spot. It comes down a little bit;
there's an agreement that this is the top at the moment for the
most part, before it revs down to the major demand zone.
Now it touches exactly this. And you can see what's
interesting, it popped up a little bit through, but it still reversed
back down, which is one of the reasons why confirmations are
extremely important. For me, I have four confirmations I need to
know before I enter a trade. For example, I would have never
entered on a trade like this because, for one, it shot through, and
two, my confirmations, which I'll show you down the line, were
not met. Therefore, I would have never even gotten caught in this
kind of trade. This is exactly the kind of thing that happens when
people say, "Hey, I was right about this kind of resistance level.
But it sold me out here because of my stop loss.” And then it revs
back down.
Well, that's intentional. Remember, they are hedge funds.
The great thing about hedge funds is that all of this is intentional.
Hedge funds can basically see where are your stop losses. For the
most part, they can see your stop loss, use that as liquidity, buy
you out, and then push the price downward, much faster in the
first place. That's one of the reasons why there are these huge
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green and red candles. So those huge green candles coming up
push directly through it with almost no friction, buying out all of
your stop losses. They, getting all these stop losses from you and
me, the Joe's and Jill's, the retail traders, say, "Okay, cool. We got
all their stop losses. Let's reverse this, using it as liquidity to push
the market back down.” And it revs downward.
That's why it barely didn't. If you notice, it didn't
hypothetically go all the way up here and touched this or went
up here and then started consolidating a bit. It intentionally
barely went above it in reverse. That's why it's intentional, you
can tell. And then, there's another thing. If I draw this out, this
is a minor demand zone here. Based on what we just said, as well
here, if I do this as $356.56, plus 10 cents, so $356.56, that is about
here. And that's a minor demand zone. See the following image.
Now, here is the great part. This essentially allows you to
predict exactly where the stock is going. Because if you look at it,
the market opened up, came here, and created this major supply
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zone. It did what it needed to do if you had a fundamental
understanding of where the market was going based on these
minor zones. But it came up, retested it, you bought in at this
price. And you don't have to sit here and wonder, "Well, where
is it going to go? Should I sell here? Or here? Or, maybe, here?"
You don't have to wonder at all. You simply sell when it gets
down to the next bottom zone. Which, in this case, is the green
minor zone.
That is mainly because these zones, especially the minor
zones, act as magnets. You buy at a major zone and sell it. The
next minor zone is where all the profits are; it tells your entries,
and those are your exits. And it's telling you precisely when to
exit. It's just a matter of you reading the chart exactly like this,
with this kind of level of analysis that will show you, "Hey, this
is where I'm entering this is where I'm exiting, and no matter
what, I'm sticking in until the chart tells me to sell."
Now, if I go to the one-minute chart here, it will be the same
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thing; everything should be drawn in the exact same way. You
can see exactly what we drew here. Now, look at the full picture
of what you just saw on this 5 min chart we have been reviewing.
It came up, the zone was created that we've drawn, did what it
needed to do by coming down, then it barely came back up to
touch it with just one candle before it reversed down. Here's an
example of the 1 min chart where you would actually do the
entries/exits.
You could have bought literally at almost any time. But,
again, you wouldn't because you need to enter based on
confirmation, which we'll go over soon. It came down to huge
candles on the last two and bounced directly off this minor
demand zone, almost pushing to the next kind of major demand
zone down here.
Again, this is labeled here because the major demand zone,
major supply zone up here, touched it and did what it needed to
do. You may be saying, "Maurice, look, I could have sold here.
That's bouncing off," That could have been a price target as well.
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If we go back, where is it? Yep, about here or so, there is some
friction here. As you can see in this line, this kind of support level,
there was some friction here, which was definitely interesting
because that's a small minor zone before it bounces up and vwap.
Be careful that you need to exit based on confirmation as well,
which, again, we'll go over in later lessons.
But there was only that. Now we're jumping back and forth.
There was only one green candle that was very small. There was
no need to sell. I would have sold here for sure if there were two
green candles coming directly out of it. Then, I also would have
said, "Okay, I don't want to lose any profits," just in case of me
getting "greedy" and going to sell, but it was just one green candle,
not very much friction, and it didn't even come above the
following one. And it just rubbed down there afterwards.
If you want to know if you would’ve bought in there, you
can hypothetically go back on November 20. At about 10:34 or
so, buying an option put on here. Play it out, see what you get,
see what happens, see what doesn't happen, and just play it
constantly. This is exactly how to chart the SPY for November 20
for the supply and demand zones.
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Chapter 7
How To Read Price Action & Trade Entry
Criteria
Next, let's talk about price action. Price action is arguably one
of the most important fundamental things you can technically do.
This replaces the need for all other technical indicators. This
replaces your need for, mainly, the majority of your fundamental
analysis—also known as news—or understanding where the
markets go from a high level. Basically, this replaces any kind of
fundamental understanding of you trying to predict where the
market is going by actually reading what the market is doing and
telling you. In other words, as far as my personal definition goes,
price action is the act of reading the chart’s story that the candles
are telling you. So, each candle is telling you a specific story that's
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happening at that particular point in time. And that can be
broken down into, as an example, from a hedge fund perspective.
Let's just say there are these green candles moving up. There
is this kind of consolidation period that's basically bottoming out.
And you can see it kind of reverses backwards before it comes up.
So, in other words, the movement is purely upward. But the
story that the chart is really telling you is that, “Look, it's a green
candle, buyers are winning, green candle, buyers are winning,
red candle, but there's a green candle. And it's topping out with
one, two, three, four candles here that are saying that, no matter
what, the price is not going any higher than this. As a result, as
the hedge fund, I have to sell some of our shares to press down to
get more liquidity at a cheaper rate. And, as a result, we're getting
those stop losses from the retail traders, such as myself or you. So
they're buying things that are cheaper right here. And then look
what happens directly after, they're pushing the price back up
with almost 100% green candles, except for this kind of one
middle candle here, where they're trying to do the same thing.
And it continues to push up.
So, essentially, the perfect example is, say you bought here at
the high, it came down, now you're at a loss. Some people might
have technically held on, and it came up. You're riding it up.
Some people are up here like, “Man, I could sell when I want to,
but I'll sell if it goes maybe two points higher, one point higher,
or whatever it is. But the idea is that this is their breakeven point
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at this level here. Hence they let the candlesticks come down to
this exact level. Get your stop loss where you've put it, where
you're at your breakeven point, and it rides back up so it can
continue running upward. That's the whole idea behind price
action. You don't need all this stuff down here. You don't need
the RSI. You don't need MACD. You don't necessarily need
VWAP, especially not all three levels of VWAP. You don't need
Fibonacci levels. All you need to know is what the candlesticks
are telling you at that moment, and then, on top of that, not panic
just because you see a big candle like this. Because, for all you
know, if you're doing a call, an option call, the chart is going
exactly the way you want to. But you just have to interpret what
the candlesticks are telling you in the very first place.
So entry criteria is the next kind of step here. There are four
entry criteria based on the supply and demand strategy that we've
been basically walking through step by step. There are four things
here, and I'll give you an example coming up of what that really
looks like, as it relates to price action as well. This is a
fundamental piece of price action so that you're looking for these
exact things to happen. You basically need four candles to
happen. Let's say, hypothetically, in this scenario, the zone—the
candles—are coming down to touch a green demand zone,
whether it be major or minor. And this all has to happen before
you enter a trade. So, there has to be a lot of patience with this.
So, for one, a zone candle has to happen, and these are all
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things I've technically coined and came up with myself. A zone
candle is, essentially, when the candle comes down to the green
demand zone, and it has to be the final red candle that touches
that green demand zone. That's your zone candle because it's
touching the zone. After that, there's a second candle that needs
to form, which is called the reversal candle. So that's essentially
the same scenario. There'll be a green buying candle, a green
candle coming upward, saying that this is reversing. So if we go
back, basically, if the stock is coming down, it touches the zone.
There, to me, is a zone candle because it touched the zone. After
that, there'll be a green reversal candle, which is the first candle
coming up. From that zone, you can think, “Hey, this is
confirmation that it's reversing.” So this is the first reversal
candle. Then, a third, you have what I call a confirmation candle.
A confirmation candle is a candle above that reversal candle that's
already formed. Within the one-minute timeframe, we saw a
candle saying that “hey, above this is another confirmation,”
called the confirmation candle, saying that this is green and is
100% going up at this point in time. Hence, this is going to be
your third confirmation. And on the fourth one, as long as the
next fourth candle is forming above the fault, that precursor, that
pre candle, is called the confirmation candle, the reversal candle,
and that zone candle. Then, you enter on this at this entire
candlestick here, you enter right as it's forming. You don't wait
till the end, but you enter right as it's forming. So, this is your
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entry point, hence your entry candle.
So these are the four steps:
1. Zone candle because the candles touch zone.
2. Reversal candle because it's the first candle that's coming
up from the zone.
3. Confirmation candle because it's another candle, the same
color showing a further reversal that's about to happen.
4. Finally, your entry candle; the candle that you're entering
on the trade because it's continuing this trend.
This is the four-part entry criteria for day trading when it
comes to the supply and demand strategy for SPY.
Now, when it comes to this, you can tell that a lot of this is a
big waiting game. So, you create the zones of, say, 9 AM, which
is 30 minutes after the market opens, and you're waiting for
hypothetically an hour for everything to come back down to
touch your zone. That's kind of step one of what we did earlier.
So, drawing those zones, they will be our supply and demand
zones. And then, there's step two, which is waiting for our four
confirmations to happen—from the zone candle, to the reversal
candle, to the confirmation candle, and finally, the entry candle
being formed. And, again, you can see that's a very big waiting
game. So, you don't need to stare at the screen the entire day.
Have a software to set an alert, which I've talked about
before, to announce you when this stock gets to X price. You need
to have an alert set to give you a notification. That could be in
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text, that can be on the phone, or a notification on the internet,
whatever it is, but you need an application to tell you to do so. So
you can go ahead and do other things you want to in life. You
don't have to stare at the chart all day, every day, reading price
action constantly.
So two software that I've played around with that do get the
job done and are just fine are:
Stock Alarm, which you can download as an app or use on
the internet. It's 100% free, so use that basic feature of the stock
alarm. But if you want to remember correctly, at the time of
writing this book, in early 2021, they have a paid version. If you
want to buy, you can have more than five alarms that you can set.
But, if you're like me, you only need to set one alarm per day,
maybe two. And that's all you need so you don't have to pay. So
the free version worked 100% well for this.
Weeble is the second option here. You can use it if you
already have an account with them. I think some other brokers
are decent when it comes to this. But I don't trade on the Weeble
platform. I can basically set alerts or alarms on there to announce
me when SPY gets up to X price, and give me a big bell sound so
I can come running back to the office to trade if I have the volume
up pretty high. Or you can do it on the phone since there's an app
as well.
For day trading, I use thinkorswim. The previous platforms
are just for setting alarms, or that’s the only thing I need from
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them. The only reason I don't particularly use thinkorswim, from
an alarm perspective, is that it’s not the best to use. Since you can
go in there, you can put your alarm by right-clicking and going
to alarm and setting the price you want to. But if it's too far away,
for example, more than 20 to 30 cents, it doesn't let you do it
because it gives you an error, saying it's too far away. So because
of that one restriction thinkorswim has, these are two alternative
options. You don't have to set an alarm, but I highly recommend
it. So you can set it, forget it, have no FOMO, walk away, forget
about it and just come back only once your alarm has sounded,
turn the alarm off, and get ready to trade. These are my two
recommendations, so you don't have to stare at the screen all day.
So here, this zone is called zone and reversal candle
movement.
This essentially shows you, no matter what, these are the
three main ways when the candlesticks hit these zones what
happens next. The only fourth one that's not displayed here is if
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the candlesticks touch the zone but run straight through it and
never come back up. That means that the zone you picked is not
strong enough. It wasn't a very sturdy zone, if you will, having
many orders sitting there, or it was too tight between one demand
zone and one supply zone, especially if they're minor zones. And
the bounce could not necessarily happen. Or, worst-case
scenario, you can also say that from a holiday volatility
perspective, which is one chart we've gone over for the analysis
perspective. Things act a little iffy when it comes to holidays.
When it comes to days like that, there are much more people
involved in trading than normal. So some wild moves can happen.
But other than those special occasions, these are the main three
things of what can happen. So let's walk through that.
So these are all one-minute charts, but we can walk through
them step by step, starting with the top one. We can go step by
step to show you the candles from a price action perspective and
what they tell you. So, what happened here, on the overall chart,
there was a zone formed in the past before as a demand zone.
Then, we waited for it to come back to retest with one candle to
touch it. Now, the first red candle to touch the zone here is what
we're going to call the zone candle. And, essentially, the reason
why we're calling it the zone candle is that it's the last candle
closest to the zone—or even touching the zone—before a reversal
starts happening. So this is your final zone candle here and the
red here. The next candle here is going to be your second candle,
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which is called the reversal candle. This is called a reversal candle
because it's the start of a new candle color before the trend ended.
So, the trend was red candlesticks coming down, so that was the
zone candle, then the new trend starts, which is supposed to be a
green candle. And that's this reversal candle.
After that, we finally have the next candle here, which will
be called the confirmation candle because it's a continuation of
the trend that happened before. So, we have a red candle for the
zone candle, then a green candle because it's reversing, so this is
a reversal candle. The next candle is this confirmation candle,
which is confirming that, yes, it's still green. So, it's still going up.
And yes, it's actually above the candle before it. So this is that
green kind of confirmation candle. The candle after that, you
guessed it, is the entry candle. And you're not waiting for this
entire candle to form here, you're waiting for it the first maybe
one to three seconds, five seconds max of this candle, and then
you're buying in as long as that final confirmation that that candle
is being formed above the previous one, which shows that it's still
a movement upward. And then, two, it's a green candle that tells
you can start buying it. So you'd hypothetically buy here and get
all your money on the upside as well. From a five-minute chart
perspective, I would imagine that kind of zone’s probably about
right here. If we go over to the right, it's probably ended at about
$337.2, depending on what the chart said. But from a price action
perspective, that would have been kind of our targeted exit from
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that perspective. And imagine it pushes down to about this so we
would have exited about probably at this kind of wick here.
This makes sense because you can see the red candles starting
to come down, a green candle that goes up a little bit, almost
meeting it. And then, just kind of constant friction as far as we
can see of a little bit above this but basically below it. A few Doji
candles that are upside down etc. But this is the flow of what the
confirmation looks like. There's a zone candle, reversal candle,
confirmation candle, and then your entry candle.
Now, this is the best-case scenario. The second scenario is
down here in the middle of the original image above. This is a
little different, but it's about the same. The five-minute chart
actually had a zone created here, came all the way over, and
there's the candle that finally touched it. So, this first candle here
will be your zone candle because it's the last, and it's the end of
the trend. It's the final candle that's finally touching this green
demand zone here. The next candle here, this small little guy, will
be called your reversal candle because it's the end of the trend
before. So, this is finally that new color coming into the market
that's bouncing off the demand zone.
The next candle here is also your reversal candle. These are
both reversal candles mainly because they are going parallel next
to each other, they're side by side. This is not necessarily telling
you more news from a price action perspective than this little guy
over here. As a result, these are both reversal candles. So, that
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means you have to wait again for the next candle to form above
it. Remember, our following candles for the confirmation need to
form above the candles, which is the reversal candle. So that's
what happened here. This next candle form is finally our first
confirmation candle that we would be saying we're going to enter
this. We actually wanted this to happen because it's above our
previous reversal candles. That's great.
After that, we have our entry candle, and we technically
would have entered at the bottom, if not somewhere in this
candlestick period. It also proves it because the previous has
proved to us that it's going to go up. So it's going to go up. As seen
on the chart, there is a significantly large red candle here on the
chart that finally touches the green demand zone. So you may be
a little worried, but it's only one red candle in the first place. So
it's not necessarily the worst news in the world. The good news
is that there have been four candles to prove that it's going up.
And it was finding one candle to say, well, there's a little pressure
to push down. So it may not be the easiest trade like the one up
here, which you can call an easy trade since it just runs up for the
most part. This is more of a medium trade, per se. So there is a
little friction. But, again, it's all upside from here. You can see
how high it goes and even goes off the chart for the most part,
even up to the top of the chart, depending on which wicks you
look at, which is above the supply zone over here in the first
place. Again, we'll walk through actual examples very soon, very
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quickly. But this is kind of the second scenario of what can
happen.
Now, if we go again to the bottom chart from the original
example, this is another one-minute view where we would be
reading price action, but drawing the zones on the 5 minute
chart. It moves over to the right, and here's what starts to happen.
We have our first candle that touches the green demands on, and
what will be that called? The first candle that touches the green
demand zone is called the zone candle. As a result, that's good
news. So far, we don't know what the rest is doing. Let's just
pretend we can't see it. So this is good news. This is the zone
candle. The following candle after that will be your reversal
candle because it's a new color. It's a new trend that will form
after that. So, so far, it's good news. The next candle after that is
supposed to be our confirmation candle. The catch is that it's
supposed to be above the following, the candle from before as a
green candle, and it's supposed to be green as well. But,
unfortunately, there was a huge red candle, small waves, but a
huge red candle coming down, so the price action said “No, we're
not going to be able to get that constant moving up yet.”
From a hedge fund perspective, we need to get some of that
liquidity and get some little stop losses from the retail traders if
they have some of that there. And let's just start pressuring them
out because some people want to enter purely based on this. So,
some people enter here, they're getting their stop losses taken out,
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and that's one reason why this body of the candle is so long in the
first place when you look back at the chart. And you can see
there's this casual, small build up back to go above the zone where
it should have been going in the first place.
So this was to panic you out to sell. This is them trying to
push their way back up, which they can only do slowly. So that's
exactly what the price action is telling you. So, let's kind of
review, and I can show you where the actual true entry is. So, for
one, this is the zone candle. Two, this is the reversal candle.
Three, this is a failed confirmation candle, so you don't worry
about it. So you need a new confirmation candle and a new
reversal candle. You need the whole pattern to show and prove it
to yourself. As far as a reversal candle goes, it will be the first
green candle coming outside of the zone. Then, the next one will
be the confirmation candle. Followed by the final next green
candle will be your entry criteria.
The good news is that if you can get on one of these kinds of
hard entry points on a SPY trade, you can easily see how easy it
is to enter as long as you're waiting. The catch is that you have to
wait, have to be patient, and wait for those candles to form. I’ll
show you in the next lesson coming up what it looks like on live
and how patient you have to be as a trader for this to work. If
you're not patient, you're going to enter too early or get caught
on false breakouts, false pullbacks, and it's not exactly the best
scenario you should be in. So, without further ado, let's go ahead
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and jump into the next lesson.
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Chapter 8
How To Use Price Action To Enter A Trade
Now, as an added bonus, if you learn from watching me walk
through it, then I put together a free 10 min lesson where I show
you how to enter a trade using price action. You can watch that
1 lesson from my course by clicking “HERE”.
Playing out November 20th, we can walk through the entire
criteria for entries, which will be the zone candles, the reversal
candles, confirmation candles, and the entry candles. Starting off,
if we look down here, we have this chart we went through before
when we were drawing our supply and demand zones.
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Initially, this was a red supply zone, just like that. And this is
that five-minute window. Remember, there was a zone created,
went over waiting for this retest to happen. And this is what
we're drawing those zones, but now, we're finally jumping into
the phase where we can go on the one-minute here, and plan our
entries and plan our exits, and plan all waiting for the
confirmations to exactly happen.
So, on maximizing sales, basically draw on a few things out
here for you to get a better idea. These supply zones are
essentially marked with this little circle because what touched
here is exactly our zone candle. It's a green candle that touched
the top. Since this is a supply zone, it's going to be a green candle.
And what we want is a reversal candle, which is this red candle
coming down after. This would hypothetically be our reversal
candle. But you can see, right after that, there was not a next
candle forming to look like this but red, going downward. Hence,
that would have been a perfect entry for us to start following
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along. But, instead, it became this green candle. This is basically
X-ed out because it kind of cancels itself out, it has to start over.
See the image above where the red X crosses out those two
candles.
So, first, there is a zone candle which is labeled at 0, the next
two candles form ^ they essentially canceled themselves out. So
neither one of these reversal candles would be #1. Then, the
following one is our first reversal candle. This is labeled #1
Next is our confirmation candle. And here's where we're
entering on our entry candle, here at about 10:41 AM if you look
at the bottom of the image. So we can let everything play through
step by step. Starting with before the candles touched the zone.
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So you can see, it touched our zone candle. So what we want
next, best-case scenario, is our next candle to start coming down,
but red rather than green. And you can see that's what it's doing
here. So we want this red candle to start coming down.
This next candle would be the reversal candle. You can see
these are pretty decently-sized from a volume perspective even
before as well. So, this is the key piece; we're just waiting for the
next one starting as red.
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So it almost looks like it's going to be our confirmation
candle. If it was, we needed to start forming exactly like that, but
just red. Look what's happening. Now, it's coming back up, so it's
essentially, for the most part, canceled out, which is exactly what
we've talked about.
Now we're waiting for our actual confirmation candle from
the next one.
So we're waiting for the true reversal candle. So this is a
reversal candle now according to plan. We know this because it
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directly formed after our zone candle and is our next candle since
the previous two were canceled.
So we're hoping this next one forms when it's closed at
somewhere down below the previous candle so that'd be our
confirmation candle. As seen here.
And now, we just kind of wait for this to play out here. And
that, played out, that's a confirmation candle. This is going to be
our entry candle, and we'd be essentially entering at about this
price.
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So let's go ahead with an example. We're doing a put at the
strike price of $357, and we hypothetically would choose 0.82
which is the current price in cents. And let's say we're buying 75
contracts. It's about $6,100 or so. This is what it would look like
So the more it goes up, the more we win. And so, you can
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see, it's going back and forth a bit of a Doji candle, it's moving up
a little bit, you don't have to panic necessarily, just because it's
doing it.
The idea is that there's been so much confirmation before,
and it will be pushing down afterwards. So there's a little pressure
as well, going upward. We already know exactly what happens.
The candles are constantly going downward. If we're at 89 cents,
hypothetically, we're up $300 at this point.
The entire idea would be that we're entering here, best-case
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scenario, and we're looking to figure out if we are going to exit,
say, hypothetically here. Whatever the case it is, it should have
already been pre-planned. But let's draw this outward.
So our exit could be right here at VWAP (pink line), just for
this example, because there is an overlapping zone over it.
Or it could be right down here.
Either way would work because it's zone to zone, essentially
because they act as magnets again. Now, let's go back here. And
you can see clearly that it's about to touch that zone exactly. So
worst-case scenario, really because we know it's going to blow
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through.
We can go to our charts on the right here, and if we sold, this
would be up about $900 in profit, essentially.
We can keep letting it play because we know that it will keep
pushing down past that, much past that. See, there is a little
pressure to push back up through this green demand zone in the
image here.
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There's a little bit of a huge wick there going upward. But
pushing it back through the demand zone, there is a possibility
you could sell here if you're worried. For me, I'd personally rather
wait for at least two candles, or it will be green kind of give me
that that confirmation for an exit that it's going to be pushing
through. As you can see what happens here, it's clearly trying to
press to the bottom, it touched our zone. This is our exit point.
Now, if we sell that, it's for a profit. You could sell it just by
clicking the price in active trader a profit of about $3,000.
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So this process works only when you respect the zones by
drawing them before you enter. You need planned entries, exits,
and know where the chart is going from reading the candlestick
price action.
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Chapter 9
Stop Loss 101 On How To Not Lose All Your
Money
When it comes to risk management, you have to know how
much money you can lose per trade. What I mean by that is to
choose your magic number, if you want to call it that. So per
trade, how much money are you willing to lose?
Here's a perfect example, let's say you are in a trade, and you
have $10,000 in that trade. You have to be willing, for one, to
have your stop-loss, which we'll talk about very soon of what it
is and where to place it exactly. But, from a financial perspective,
you have to be willing to say, “If it ever gets to this zone, this is
where I'm stopping.”
From my perspective, as an example on a $10,000 trade, I
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don't want to lose more than $700. My upside is way more than
that, so I'm okay to typically earn twice that amount.
Find out how much you are willing to have into your account
and make a day trade over as an overall number. So if you have
$10,000 in your account, are you willing to trade all of your
$10,000 per trade? I hope not. Otherwise, your money could end
up just burning money. If you have $10,000, your account, scale
down a bit. From that perspective, maybe trade with about
$5,000, maybe trade with about $2,000 until you get more
comfortable with your win ratio percentages.
The perfect example is, let's say you're trading with $2,000,
and you make $500, which you trade now. You would make
another trade with another $2,000 and make another $300. You
take another trade, you make a loss, but it's only $200. So it's kind
of net positive regardless. But you have that one ratio that's
continuously growing, maybe then start upping your trade from
trading with $2,000, maybe trading with $3,000, and so on.
Because I can tell you this, trading with $2,000 is a lot different
than trading with $10,000. And it's a lot different than trading
with $50,000.
Don’t think that if you had more money, you could make
better trades. The problem is, the more money you have, the
harder trading becomes. That's because if you put in $2,000, and
a trade goes against you, you're only negative, let’s say, $100,
maybe $200. But if you have $10,000, and it starts going against
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you, that same amount of change could be saying that you're
down $500, you're down $700 or $800. And it's a psychological
shift that you have to get in your head to say, Hey, this is going
down crazy. Well, wait, no, it's not going crazy. It's just that my
numbers are higher. So you can only imagine the amount of stress
that you can go through if you’re not used to trading a higher
amount yet. If you trade with big numbers, you have a big upside
but a large downside as well. Sometimes, people can lose a lot of
money, but sometimes, they can earn a lot of money. Don't get
caught burning your money like this on this picture on the right
and have some risk management. Find your magic number, how
much you want to make per trade, and how much you are willing
to play with per trading account.
Now, let's talk about where to place your stop loss when it
comes to using the supply and demand trading strategy. When it
comes to the supply and demand trading strategy, there are only
two real places where you can set those losses for the stops—it's
either going to be at the top of the zone or the bottom of the zone.
If you're a little more on the conservative side, you're going to
place it at the top of the zone. And that would be a perfect
example if there's a major demand zone. So the price is coming
down to your green rectangle, which is in the green demand
zone. You have a red candle forming a zone candle, a green candle
forming a reversal candle, another green candle above that
reversal candle that’s the confirmation candle. Then, you're going
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to have your entry candle you're entering, which is your entry
candle. You do all that perfectly as it shows you waited exactly as
you should wait for the confirmations to happen. You entered the
trade hopefully thinking it's going to go net positive up above the
candles formed there. But, sometimes, it goes reverse and goes
down to the image here.
What you do then is one of two things. One, if you feel you
want to be more on the conservative side, make sure you have a
tight stop there to ensure you don't lose a lot of money. You're at
the top of that green demand zone; the top of the zone is where
your stop-loss is. It touches that zone with the entire candle itself,
not necessarily just the wick but the entire candle body itself,
then you're selling. If it doesn't, then you're fine and let it run up.
Consequently, on the flip side, on the bottom zone, the
bottom of the zone is where you're actually swinging for a home
run.
So, now, we have to figure out which stock to use. This is a
little controversial, depending on who you ask. But it's still a
personal preference for me, a personal preference for most
people. It's your money, after all. So you choose how you should
actually interact with that, of course. When it comes to stops,
there's either a physical stop loss or a mental stop loss. I
personally use mental stop losses and think it works perfectly for
supply and demand trading strategy. But it's up to you. Well, let's
talk about the differences. A physical stop-loss in the TOS system
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is the indicator that shows you that you can buy at the price you
want and sell at a price above it. But there's a tab in the
thinkorswim platform, which is what we discussed earlier as the
Active Trader window. The catch about that is that it's seen in
the system. You can see where it shows you almost a chart that
says, “Hey, price, hypothetically at $1.20 per option contract, this
is all we're selling if it comes to this level.”
So, if they say the price is at $1.30, you can place a stop loss
at $1.20. If it ever gets to that price, it is not below your execution
to sell at a loss, so it doesn't continue losing. But it's physical, so
you can see it in the system.
A mental stop loss is basically in your head. You know
exactly where to exit your trade. So, rather than saying, “Hey,
once it gets to $1.20, $1.21, or whatever that magic number is,
you go based on the zones—the supply and demand zones we’ve
learned. Once it hits the top of your zone, you're selling
conservatively. That's the difference between the physical stoploss versus the mental stop loss. In the next lesson, I'll walk
through why I should actually choose the mental stop loss.
In continuation of the previous lesson, one of the reasons I
don't use physical stop losses, and I use mental stop losses, is
because of what's called “stop-hunting” by hedge funds. And
that's essentially a lot of manipulation by the hedge funds where
they move the candlesticks' price action to steal your physical
stop losses.
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As an example of that, let's say the option contract is at $1.20,
you have your stop loss at $1.10. You have an exit of, let's say,
$1.40. But your prices are that you entered it as $1.20. And your
exit for a stop loss is at $1.10. What happens here is that the hedge
funds can technically see the level two data and time and sales
just like you. But they can also see the level three data, which is
technically your actual stop losses. So if you place a stop loss at
$1.10, what typically can happen if a lot of people do the same
thing, the hedge funds can look at this price, $1.20, and rock the
price to $1.40.
But, before they do that, they want to do it as easily as
possible. So they're going to press and sell their shares down to
$1.10 or $1.09, whatever it is, and then start using that money as
liquidity so they can buy at a lower price and rocket the cost of
the share or the option contracts upward to that target at $1.40.
So you were technically right about where the stocks were going
to move. But you're wrong from a profit perspective because
you're in the negative since you sold for a loss at the stop loss side
of things. And that happens pretty often for many people. So
that's one of the main reasons why I use mental stop losses. Now,
if you're new to trading or early on, you can go back and forth
between maybe using physical stop losses and giving mental stop
losses a try. But you have to have some form of risk management
in place not to get hit by this at all times. So, maybe, if you have
a physical stop-loss, it may not be the best to place it above that
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top zone from a conservative perspective.
Maybe you place it at the bottom, place it so if it goes a little
bit against you, maybe you get a little worried, you can always
move the stop loss to the top of the zone and just sell immediately
if you would like to.
Whether it's physical or mental, you need some kind of risk
management in place.
Now let's talk about a few examples of trades gone wrong.
These are trades that I've personally done myself and had a loss
on both of these coming up. What we will be referring to is the
following image.
These next two trades are trades I got wrong. And we'll start
at the bottom here. The bottom one was a potential trade that I
had. Unfortunately, I had a loss of about $700 or so mainly
because I was trying to trade based on the news and not on my
actual criteria of how to enter and exit. I didn’t pay attention to
the zones, the flow of the market, and things like that. I did
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something completely out of the blue, which was one trade based
on news, which I never do. But just my high of thinking that I
was the one going to be right about the news here. So let's walk
through this example gone wrong, unfortunately, so easily
predictable. This is the one-minute chart, and you can see this
was December 21st, 2020.
The prices opened up and rocketed downwards on that 2nd
chart above, which you can see because of all the red candles
moving. As you can see on the chart, I went ahead and drew two
supply zones, which are the red rectangles. For the most part, the
market was trending down early that morning. One of the things
I wanted to happen here was that I thought this was in the US
market. I thought the entire market was going to be down
trending completely 100% negative because of two reasons. One,
because there was a new string of the Coronavirus in the UK that
had come out. So I thought there would be a mass hysteria mass
panic all over the world, and not just in the UK. So, as a result,
because of just that alone, for the most part, I thought the cost of
everything from a SPY perspective, which was going to be down
trending the entire day. But look what happened, it was up
trending. And I didn't even pay attention to the uptrend here.
You can clearly see this downtrend in the morning, but
afterwards, it was up. I was incredibly confident that everything
was going down.
It gradually started to move back up slowly, but I didn't pay
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attention, unfortunately. And what ended up happening was, it
came to the zone. I was so confident that it would touch this zone,
and I didn't follow my entry criteria, which would have helped
me. When you look back at the chart again, you will notice there
was a zone candle and the reversal candle, which is great. But
then, there was a Doji candle, which does not count as a
confirmation candle. As result, I went ahead and used it as a
confirmation candle and entered the next trade. Then, as you can
see, it just started reversing backwards and hit the zone and just
continued to run up for the entire rest of the day. It was up
because, from a news perspective, there was some positive news
about the stimulus check being passed.
It hadn't passed the moment during this time, but it was some
good news about it, per se. I thought the negative news of COVID
would override it even if it wasn't different, not in the United
States. Regardless, here's how I stopped out, unfortunately, but
fortunately, I still followed some of my rules. So I entered this
trade incorrectly, and it started reversing on me, unfortunately. I
gave it some time to possibly work, and I basically exited at the
back of this zone for a small loss. Now, remember what I
mentioned, You can exit with a stop loss at the bottom of the
supply zone. Or you can exit at the very top of the zone worstcase scenario to give it some wiggle room. The good news is you
can see how tight of a move that is, so I didn't lose very much
money at all. Just $700, But usually, my moves are so large that
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they out beat that loss by three times, minimum.
Other than that, I was stopped out for a pretty decent loss,
which was not significant. Now, let's talk about the same image,
but at the top.
You've probably already seen this in one of our earlier
lessons. It showed a false breakout, and then it came back to
reverse this way. Now, on the left, you can see a green demand
zone was created. Flow-wise, it had to bounce up from that zone
and came back down to re-test the zone on the right. Here, again,
it was one of the few times I got caught listening to the news.
There was some positive news again. I don't remember what day
this was. It was a little bit before December, probably November
or October. I can't remember the news precisely. They were
positive for the United States, anyway. So I thought if the news
were positive, everything would be running off.
So they got started up and came to the creative zone. I was
hoping that it would touch this and just rush off again.
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Unfortunately, I was so confident that things would pop and push
that I did not follow my criteria at all. So here's what happened:
a red candle coming down, which ended up being the zone candle
here. This was a reversal. And then, I was so confident that I
didn't wait for any confirmation candles, I didn't wait for an entry
candle, I ended up just entering right there on the very first green
candle that touched the zone on the right. My thought process
was thinking that was the bottom so, because of the zone, it
would perfectly bounce. The reason why I thought this is that I
didn’t have my full strategy at that time. So I did not have all the
correct confirmation candles in place yet. Everyone does this
sooner or later. So it's just a normal part of trading. And look what
happened. Nevertheless, this happens to some of my students
now if they get too eager to enter a trade. In this case, I didn't
follow my rules. It basically went completely down quickly. I
ended up selling it fast.
You can see it basically bought them out for the most part
here and froze up. So it's another kind of idea behind what I
mentioned before that I was wrong about the entry. I was right
about the overall direction of the market that day. But these are
two examples of trades gone wrong. So, all to say, follow the
actual criteria, all the methods, follow the strategy, and you'll be
fine. It's harder to lose when you stick to your plan. When you
start skipping out and adding things to this whole strategy of
doing the news, looking at pre-market, and things like that, you
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start losing money. Or when you start taking away things and not
doing all the entry candles, all the criteria for entries, and things
like that, you start to lose. This strategy is created to the point
where, if you follow all of it, more than likely, you're going to
win at a very high percentage rate. When you don't follow it, you
will likely lose, unfortunately, or get lucky. Avoid my mistakes
from these two trades gone wrong; ignore the news and stick to
your trading rules and plan.
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Chapter 10
Where To Place Your Stop Loss
Now on the chart we will be going over is November 20,
2020. I'm going to show you another potential trade gone wrong.
I didn't take this trade myself. But this is another idea if you don't
follow the rules exactly, you can get caught, especially if you
don't look beforehand at what's going on. This was a minor
demand zone here in the green.
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The major zone is down here at about 9:10 AM CST, and this
is a minor demand zone at about 10:40 AM CST. It touched your
perfect demand zone, came up a little bit, and it touched it
numerous times, for the most part. It touched it here and touched
it here for a big reversal to push upward. With that being said,
this typically means that the zone has been touched once or
twice, but usually, once is enough. As a result, once it comes back
down to it, it can bounce again. But the lower, the more it
bounces, the lower probability that it actually will bounce.
So, that's why over here, on the right, it didn't bounce
necessarily from a five-minute candle perspective, and it just shot
straight through.
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Now, let’s see what exactly that looks like and how you could
have gotten caught on this chart here. So this is where that failed
bounce happened.
The market was consolidated onto the side, and it finally
came down and touched the zone. So, this here is our zone candle,
this one red candle coming down. Because it's such a zone, it's the
red candle at the end of the trend. This next green candle is our
reversal candle. And that's because the green candles are the
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reverse of that red one here. The next one here is our actual
confirmation candle. If you notice the next one, the next candle
here is not an entry candle because it's not green. And also, it did
not start above the next candle like this fake green candle I drew
here.
You want this, and then you can enter. If there's not that,
then, more than likely, it's not a good entry for you.
As a result, let's just say, hypothetically, you entered this
trade because you got a little trigger happy. So the way you would
get out is to have your stop loss either at the top or at the bottom
like the following image.
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So this is the top of the zone here where you place your stop
loss or the bottom of the zone here where you place that stop loss.
Since this is somewhat fairly close, the best place to place your
stop loss would be at the top of that zone. Or vice versa, let's say
the three candles formed as it should, but it only got to get a line
here. The height was very small, so it would be okay to stop out
at the bottom of that green demand zone to give the trade some
wiggle room to work.
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What you need to remember is that the more a zone is
touched, the weaker the zone becomes. The less usable it
becomes. But, essentially, that's where you would stop off in a
typical kind of demand zone here. The good news is that they all
are about the same relatively. So if you create a zone as a 10 cent
zone, you're either stopping out of the top or stopping out at the
bottom. There's nothing more to it. Following this, showing you
where exactly to stop out because, as long as you have your good
entries and good exit targets, and you place your stop loss at the
top of the zone or the bottom of the zone, you're set and ready to
go.
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AUTHOR NAME
Chapter 10
Conclusion
I'm happy to say that you’ve finally completed the book on
how to Day Trade Like A Millionaire. You should be very proud
of yourself because not everyone can complete a book on how to
day trade. As an overview, you've learned how the hedge fund
trading strategy works, you have a basic knowledge about
options, and how to predict stock movement with the supply and
demand trading strategy. Plus, you now know what major and
minor zones are, how to use the minor zones to identify where
things will go. You can also get your exits and entries based on
the major zones, which means you can trade like a sniper by being
picky with your trades. So being picking with your trades is a
good thing. Last but not least, you’ve learned how to lose money
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the correct and right way using stop losses within the supply and
demand trading strategy.
You should definitely be proud of yourself. I'm proud of you
for completing this. I'm proud of myself for doing this and my
team that's allowed me to be able to provide you with this level
of content and this level of detail.
Without further ado, I just want to say thank you. Hopefully,
that's helpful for you, and you can continue making big money
and become one of the top 10% of traders like myself and enjoy
the life of the ten percenters.
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About the Author
Maurice
Kenny
is
a
world-renowned Day
Trader,
Investment Coach, & Author of his latest book, Day Trading
Millionaire. He has helped people from the US, Canada, Europe,
Australia, & more reach their financial goals.
After learning from Maurice many people worldwide have
been able to quit their jobs, reclaim their freedom, and take back
their precious time.
He offers one on one coaching, an online course, and more.
Schedule a 30 min call with Maurice to see if he can help you
reach your financial goals.
www.MauriceKenny.com