Trading

Disclaimer

The information provided on this page does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the provided content as such.
You understand that you are using any and all information available here at your own risk.

The market does not run on chance or luck.
Like the battlefield, it runs on probabilities and odds.

David Dreman

Classification

Asset classes:

Derivatives:

Traders by time frame:

Investors with sole intention to make profits are actually traders.
People who understand the value and the business and invest their money with intention to support the business are investors.

Options

Think about options as way of renting assets for a set period without significant cost associated with a purchase.

With options, potential loses and profits are not symmetrical. Loses are limited and profits are unlimited.

Market mechanics

What truly moves the price is AGGRESSION.
If the price goes up, then the buyers are more aggressive (they use market orders).

Traders become aggressive because of fear of either missing out or losing.

Even if a trade entry had a resoning logic, after the entry, trader often sucumb to the emotions of fear and regret and end up selling winners and hanging onto losers.

More risky assets are sold and the money is moved into safer assets (market rotation).
It is not because the safer assets have room to advance, but because they are likely to hold their value better in an economic downturn.

What traders are looking at

Traders are looking at price

Once price increases - they experince fear of missing out and buying in (jumping into the train).
Once price of asset drops - they experience fear of losing.
Once price is close to a significant price level (1$ for example), there is more excitement than if price gets to 0.95$. Also support/resistance, ath, atl, moving average works similar.
If price is not volotile enough and do not produces opportunities in the chosen timeframe - traders move money to more promising instruments.

Traders are looking at PnL

Once a trade PnL moves to negative - traders try to exit the trade at break-even or a small loss.
If they didn't exit at a small loss/profit and moved to a large loss - they try to keep assets (don't sell at loss).
Once price rallies again and get's close to break-even - they exit.

Traders are looking at volumes (loocking at top assets = top volume assets)

The more volume - the more traders are looking at the asset, and so more are ready to jump in/out.

Retail traders

The more visible setup (more clear, more time since formed), the more participants to expect.

Study candlestick patterns, price action.

Retail traders are scared of large volume clusters in order book, by projecting their own trading volume they miscalculate the amount of effort required to break through a limit order wall (and often the wall is a fake one).

Put stop loss orders right after support where they are easily hunted by larger players (stops are not given enough space to breath).

Emotional, averaging down, taking losses personally and fighting back an asset, jumping in on a signal/news without proper analysis and plan.

Large volume traders

There are institutions, whales, coordinated groups of traders, insiders.

A large amount of an asset under management causes trouble for them because they can not buy or sell at a specific price and fast.
Large limit order in order book will show their intent and they don't want this.
A large market order would move price significantly and the final price will be much worse than initial.

They need time and other traders willing to sell at lower prices.

Sideways market is a great place for them for buying in.
Low volatility and relatively small volumes make many retail traders move money to other assets, selling to the large traders who are accumulating.

The large traders are monitoring supply in the range, once there is no more retail traders are willing to sell - the price can be pushed lower looking for more selling (testing).

Large drops in market price scare off participants invested in the trading instrument, causing them to sell their holdings and exacerbate the drop.

Large traders may block large price advances by adding large fake sell limit orders. So they can make sure the price will not start a rally until they will have enough asset accumulated.

Once the asset has low liquidity and the large player accumulated enough of it, he can easily create a small pump, that can be picked up by the retail traders. There can be a positive news to give a reason for the price increase.

Large market rallies generate investor confidence, causing more participants to buy more, recursively causing larger rallies.

Then the large trader sells the accumulated asset to the retail traders.

Large traders like liquidity:

Institutional activities signs:

Wall street

Selling scalable products (10% annually is considered a very good result) to wealthy clients. Charging fee for looking after their money.

Bots impact

Bot classification:

Bots are like startups: obviously some succeed; also obviously, most don't.

Jacob Eliosoff

Some bots are designed to get profit from market inefficiency (not enough liquidity to process orders efficiently, not enough time for incoming liquidity to keep up).
Algorithmic market making is an example - a strategy that smooths out large orders on a single exchange (provides liquidity at a worse price).
Another market making strategy implemented by many bots is grid trading.

Arbitrage (one exchange or cross-exchange) also just reduces inefficiencies (balances prices between markets).

They are basically not impacting price much, they are waiting for others to move price, jump in and make a profit.

The flashcrash bot is one of our best bots.
A flashcrash is when prices on an exchange change very rapidly, and the bot exploits this by buying up cheap coins and selling when the price returns to normal levels.
This bot can do between 5 and 15 percent a day, on average. Exchanges love this bot, too: It makes their order books more liquid.

Stephan de Haas

Other bots could trade based on TA indicators, news, etc. They are just adding to the retail traders crowd.

TA

A technician is someone who cuts right to the chase and studies actual prices and behavior
instead of puzzling over the causes of prices and behavior like everyone else.

John Brown

Phases

Phases (Charles Dow):

Smart money taking profits and selling to an increasingly eager public.

Price action

When only price (candles) is taken into consideration.

The charts don't lie.

Charts really are the "footprint of money". What some talking head on a financial news network might say becomes immaterial when you can look at a chart and see what the "money" is saying.

Charting and Technical Analysis by Fred McAllen

Charts allow to see:

Support/resistance: price has memory. This is because humans (who make up the market) are susceptible to "anchoring bias".

Support/resistance can be:

The more times price touches support/resistance, the weaker it becomes.

There is no such thing as a quadruple bottom/top.

Volume

Volume reveals whether the price action is valid or false.

Wyckoff laws:

Market weakness early signs:

Trend change signs:

Volume Price Analysis concepts:

Buying climax - when the market has moved sharply lower in a price waterfall and bearish trend,
supported by masses of volume. Wholesalers are buying and retail traders are panic selling.

Selling climax - at the top of a bull trend, where we see sustained high volumes.
Wholesalers are selling to retail traders and investors.

Why markets move sideways:

Divergence between volume and price: the volume of trading stops expanding and starts to shrink as the averages move to their final highs. Normally at the beginning of a move, the volume of trading continually grows. But then, at a certain point, the market makes new highs but the volume contracts.

Volume profile:

Order book, large volume at price:

Fibonacci

Fibonacci retracement is a tool used to predict the pull-back of price after a period of growth based on a set of predetermined percentages: 23.6, 38.2, 50, 61.8, 78.6.

Fibonacci extension is a tool used to find targets for growth after a pull-back. Commonly used 161.8, 200.

Combine fibonacci with trendlines and moving averages.

Trade plan and risk management

Success parts:

Trading is about probabilities, never certainties.

Following a consistent set of actions leads to consistent results.

Do not set expectations on a trade, it will ruin the trade (robs ability to appreaciate current reality).

You can lose your opinion, or you can lose your money.

Adam Grimes

Risk management

The most important rule of trading is to play great defense, not great offense.

Paul Tudor Jones

Attention to profit - a sign of immature, attention to losses - sign or experience.

Managing risks:

Improperly sized positions affect the ability to be disciplined:

Historical success is a necessary but not a sufficient condition for concluding that a method has predictive power and, therefore, is likely to be profitable in the future.

Evidence-Based Technical Analysis by David Aronson

Booking partial gains as the asset is becoming profitable and raising stops to ensure profits do not become losses.

Taking action to prevent a small loss from becoming a big loss should be considered a victory.

Stop price can be calculated based on volatility (Average True Range can be used as a volatility indicator).
Give some breath for stop price.

After a losing trade - take a break to reduce emotional decision-making.

Psychology

Trading becomes easy once a trader learns to ignore her own personal opinions, stops trying to be right, stops focusing on making money, and instead focuses on the process of trading.

The Tao of Trading by Simon Ree

Focus on enjoying (and getting good at) the process, without having any specific objectives in mind, the outcomes will be all-the-more rewarding.

To grow: objectivity, impartiality, discipline, focus.

This is not a trader's job:

Automated trading

Client algorithmic trading infrastructure:

Definitions

Gambling - when odds are unknown and wishing for luck.

Strategies

Strategies:

Market making:

Arbitrage:

Momentum:

TA-based:

OB based:

Volume clusters:

Pair trading:

Investment:

Buy when there's blood in the streets,
even if the blood is your own.

Barron Rothschild

Other:

Platforms

Exchanges:

Brockers:

Charting:

Treminals:

Scalping:

Journals:

Open source:

Data

Data providers:

Analytics:

Signals:

Articles and videos

YouTube:

Articles:

Training:

Books

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