Premium & Discount Price Delivery in Institutional TradingGreetings Traders!
In today's educational video, we will delve into the concepts of premium and discount price delivery. The objective is to provide you with a comprehensive understanding of institutional-level market mechanics. Before we proceed, it is crucial to define what we mean by "institutional level" and "smart money," as these terms are often misunderstood. We will also address the common misconceptions about who the liquidity providers are in the market.
By grasping these foundational concepts, you will gain a new perspective on the market, realizing that its movements are not random but calculated and precise, orchestrated by well-informed entities often referred to as smart money.
If you have any questions, please leave them in the comment section below.
Best Regards,
The_Architect
Fairvalue
Mastering High Probability Trading EnvironmentsIn this educational video, we'll delve into High Probability Trading Environments and introduce a simple yet effective concept to confirm their presence . Understanding these environments will empower you to confidently navigate the market with consistency and success.
For a comprehensive understanding, I recommend watching my previous video on Understanding Trend Analysis, SMT, and ICT Concepts below.
If you have any questions, feel free to leave them in the comments section.
Happy trading!
The_Architect
Stock Market Logic Series #5We are going to discuss the concept of FAIR price and how it is related to momentum.
This is also a missing piece of the puzzle related to the guppy moving averages. Which never explains the logic of fair price behind the moving averages. Just saying "traders are selling" or "investors are buying" without giving you the psychology behind the buying and selling.
The psychology behind buying and selling:
When you want something, you are willing to pay a premium on it, just to get it.
When you don't want something, you are willing to give a discount on it, just to get rid of it.
The Significance of Moving Averages in Stock Market Trading
In stock market trading, moving averages play a significant role in determining the fair price of a stock. Fast moving averages represent the short-term fair price, while slow moving averages indicate the long-term fair price. These moving averages serve as important indicators for traders, helping them understand the price trends and make informed decisions.
Trading Above the Fair Price: Strong Buyer Interest
When trading is above the fair price, it signifies that buyers are highly interested in acquiring the stock, even if it means paying above the fair price. This increased buying pressure drives the price up, as individuals value the stock and are willing to pay a premium to secure it. This scenario presents an opportunity for traders to benefit from price appreciation. Go with momentum.
Buying Opportunities: Trading Below the Moving Average
Conversely, when the price of a stock falls below the moving average, it indicates a potential opportunity for investor buyers. In this situation, the previous owner of the stock may become anxious to sell and is willing to do so at a price below the fair value. This creates a favorable buying opportunity for investors, as the stock can be acquired at a discount or fair price.
Trading Below the Fair Price: Anxious Sellers and Discounted Stocks
Trading below the fair price implies that the old buyer is motivated to sell the stock quickly. They may be eager to get rid of their position, leading them to offer the stock at a price lower than its fair value. For trading purposes, this means momentum is down, and you should look for an opportunity to sell. If the price is dramatically traded below the fair price (away from MA) this could FLAG you that a trend reversal may just happens. Remember the psychology of buying and selling. Ask yourself, if someone wants it, how come this price is so cheap?
Unfair Prices in a Downtrend: Waiting for Confirmation of a Decline
Moreover, when you are in a downtrend, when the price is above the moving average, it indicates that the stock is trading at an unfair price. However, if you have insights or analysis suggesting that the price will decline in the future, it may be wise to wait for the short-term trend to shift. By observing the stock's movement and waiting for the price to fall below the yellow fair price (moving average), traders can confirm that selling is indeed happening before making their move. Getting in too early, with the wrong trading technique, will get you hurt.
Assessing Market Conditions: Understanding Fair Prices and Moving Averages
By understanding the dynamics of fair prices and their relationship with moving averages, traders can better assess market conditions. They can identify when prices deviate from their fair value and use this knowledge to their advantage. This insight allows traders to make informed decisions based on price trends, helping them maximize potential profits and minimize risks.
Comprehensive Research: Beyond Fair Prices and Moving Averages
If you could couple of other factors that support your view of FAIR price. You can consider various factors such as company fundamentals, industry trends, and market sentiment to complement your understanding of fair prices and moving averages.
Enhancing Trading Strategies: Incorporating Technical Indicators
In addition to fair prices and moving averages, traders should also consider other technical indicators and tools to enhance their trading strategies. These may include volume analysis, trend lines, support and resistance levels, and oscillators. By incorporating multiple indicators, you can gain deeper insights into market movements and improve your ability to identify profitable opportunities.
Adapting to Market Dynamics: Continuous Learning in Stock Market Trading
Understanding the concept of fair prices in relation to moving averages is just one piece of the puzzle. Successful traders continually adapt and refine their strategies based on market conditions, new information, and evolving trends. By staying informed, conducting a thorough analysis, and employing sound trading principles, you can increase your chances of success in the stock market.
Hope this helps you, follow for more. Like this post to save it to your ideas for future reference, so you will not forget this principle.
Taking advantage of day gamblers and bagholdersDay Gambling & Bagholding makes up most of the activity in stocks I reckon.
Not as big with Forex but still here. They allow people to optimise their returns.
If markets were always fairly valued you couldn't really make more than 5% a year.
And I say 5%, but to get there you'd have to not make any mistake. Perfection ==> 5%. No thanks!
Day & swing gamblers, and bagholders, are here to transfer wealth. I describe how in this idea.
I cut to the chase, I try keeping it as short as I can, but the subject does take a bit of explaining and I try to not skip important things.
What do day gamblers do?
- Exacerbate short term moves, move the price away from its natural longer term trend for example.
- Hope to make money while paying to their brokers 25% of the money they risk as spread or commission. Roulette wheel takes 2.5%.
What do bagholders do?
- Sell out of their winners very quickly. The behavior of holding losers goes in pair with getting rid of winners.
- And of course hold their losers. Bagholders that bought near the top do not add sell pressure to the pullback.
- Bagholders also love to "buy the dip", when the price of something goes down, they buy.
- Finally they sell at breakeven both when they hold a loser recovering, or when they are in the green and it pulls back.
Can't really say for a fact this is what happened, but that's how I see it in a concrete example:
FXCM says its traders average risk-to-reward is 1-to-0.57, on EURUSD in the period 2014-2015. That takes into account all those that have a high RR.
FXCM typical gambler risk to rewards is probably closer to what I see on myfxbook, something ridiculous like 1-to-0.25.
Even on Bitcoin that goes down 80% and up 8000% I can bet the typical gambler risk to reward is poor.
People also "average down", sometimes they call it just that, sometimes they call it "dollar cost averaging".
When they average down they increase their risk, all they care about is getting their money back.
This is what we call a Martingale strategy. And yes, it is very stupid. And wipes out life savings once in a while.
Academics polled people and found that in the general population - or maybe it was in a population of students - about 85% of people would rather take a small guaranteed win than a chance to get a much larger win (with of course odds multiplied by the amount were bigger than the flat win), and the exact same percentage would rather risk an enormous loss than simply take a loss. Prey ruminant mentality. They go for leaves (small wins), and they want to avoid losing at any cost because that means likely death. Compare this to a tiger that has a win ratio of 5 to 10% but gets huge meals providing several orders of magnitude the amount of calories he spent to hunt it, and they don't take silly risk, you'll never see a tiger jump in the violent river to go after prey.
And this is why you have the famous:
Wave A: A pullback with the majority still bullish (Mainstream media in the case of a bubble...).
Bagholders that got in late are in complete denial. Bagholders that got in early enough often breakeven.
Not an exact science, they do all kinds of things. I don't know many things that are 100% true in trading.
Wave B: Bagholders are quite stressed out. You hear them scream things such as "DIAMOND HANDS", "LAST TIME THEY SAID", "THE BULL MARKET IS BACK".
Price does not simply continue up in the presence of bagholders. It tops usually at 78.6% to 100% fibonacci retracement.
Wave C: Most bagholders admit we are in a bear market. By the bottom of C, nearly everyone realizes (even the slow ones) that WE ARE IN A BEAR MARKET.
Typical extensions are of 1, 1.618, 2, 2.618 (commodities).
Wipes out the bagholders, in mainstream markets this is very often "the little guy" and they whine about manipulation
(natural selection => great traders end up rich)
It has always been like this and data shows they are the ones selling. But they still cry "manipulation" and whine and never learn.
This is very typical. Not that entries matters that much, but avoiding getting sucked in "back to normal", and expecting lower prices, can help.
I can point out plenty of other examples:
Wave C has many names. Capitulation, "AAAAAAAAAAAH", make it stop god oh make it stop, this is BS, as well as when will it stop?
When it stops is when it finds the majority of bagholders breaking point.
Take a slow trend that went parabolic, the breaking point of the baggamblers will often be spread between the top and the start of the vertical move.
This is not precise at all but to get an idea:
In theory if 71% of the market is made up of bagholders and 71% of those "take their profit" we can estimate a retrace of 50% (71% of 71%).
90% of people are bagholders I think, but survival selection means the number will be lower in the markets.
Day gamblers also have their trends and ABCS. No need to repeat what I already said about bagholders, much of the same applies to day day gamblers.
So with much research, knowledge, practice, in theory one should be able to take advantage of day gamblers to get really good precise (enough) entries and exits. Thank you day gambler! Not only do they feed brokers ridiculous amounts (10 times the roulette wheel amount) allowing MY costs to go down, they also improve MY bottom in another way which is with better entries and exits.
Thank you day gamblers! You truly are altruists.
In this case...
We can note that the price after bouncing between 1 and 1.618 dropped and bounced again on the "1" level. Bagholders breaking even?
Rather than just buy at a vague price, it is in theory possible to use swing bagholders and day gamblers to have a very good entry.
Does not always work. And no point being greedy here, it's already tight enough. Enter at a likely reversal price = better entry = better RR.
Stop can be put way way far, further than the day gamblers capitulation, and even the swing bagholders, giving it many chances, and on a high timeframe it will still be a high payout for a small risk.
The goal is not to look for perfection, but to progressively improve risk rewards thanks to others mediocrity and gambling mentality.
On top, I repeat, of already all being at an advantage compared to decades ago, thanks to daygamblers taking the volatility in the teeth and cratering spread costs.
Warren and me, deep down we do the same thing:
In a concrete example, a trade I posted recently:
