I Was Born 20 Years Too Late…

I was born 20 years too late…

When I first got bitten by the market bug in the early 90’s…

I started off as many do with the culturally accepted and “conservative” fundamental analysis approach to stock market investment.

It took a few years, but I began to realize that this “buy and hope” style of money management was ANYTHING but low risk.

This reality was slapped home hard at age 17 when an account that I was managing for a family friend went from +30% YTD to flat in just a few weeks.

I had done the work, (Hard and boring work!) and found a new sector that was about to catch fire (Cell phones...it was 1995). I was right, and I still didn't make any money.

More to the point, I had let my profits slip through my fingers.

Act II:
I'm interning at an asset management firm, and they are in trouble...Their "Value" approach is "only" up 10% YTD, and the clients are pulling their accounts because the Internet bubble is here and they see crazy P/E stocks like CMGI and INKT running 10% per week.

I started to realize that while stocks eventually were connected to their fundamental value, the price action on a day to day level was driven by order flow.

Thus the seeds of a price action driven "Tape Reader" was born.

I realized after I achieved consistent profitability and had been trading stocks full time that the skill of trading is a universal one, and can be applied to all markets.

I branched out and began to trade futures and currencies as well.

As I started to learn more about the futures markets, I fell in love with open outcry. I am a highly competitive person, played sports at an elite level, and I wished I could end up on the floor in Chicago as a "Local" flipping contracts.

But I was born too late...the electronic trading revolution had arrived, and the pits were dying.

With them has died their trading style which I hadn't realized until recently.

I have been "Flipping" like a pit scalper for a long time, and never saw much discussion in the online communities about this fun and consistent style of active trading.

I am going to change that here.

First you have to define the goal of a "Flipper".

To start trading, the Flipper defines a bullish or bearish bias, then seeks to find areas where order flow is undergoing the process of change, where the orders are waffling back and forth from the bid to the offer. The Flipper accumulates inventory from those who are buying, and "flips" it out for a few pips/ticks/pennies of profit to those who are selling or vice versa.

This is blue collar trading, stupid simple in concept...but takes focus and commitment to do it well.

The payoff?
* Unparalleled daily consistency of profits.
* The ability to create exceptional levels of return which allow for rapid compounding of your account capital.
* The ability to reach into the order flow and access a steady stream of opportunity virtually at will. (As long as their is steady liquidity, you have opportunity and edge.)

The goal here is to make a million dollars by taking 100,000 trades.

This is a high accuracy, high volume, instant gratification way to trade...

The best way to introduce you to it is to offer some examples, from a "diary" series I did a while back, which will show you a bunch of example trades...

I was trading the EUR/USD the other day.

I went through my analysis, and drew out Accumulate (GREEN) and Distribute (RED) boxes to define my trade and its "spread".

I was trading this with a short bias into that lower high on the right.

This was a short, and I sold some 35's, and 36's. My offer at 37 had no takers, so this was a small trade with just 2 "Levels" of my order "ladder" flipped.

As you can see, the price came down into the green zone, and because this was a short bias trade, this meant that I was buying to cover in this area.

I got my fills at 33 and saw the momentum building to the downside, so canceled the balance and was able to cover in full at 31.

Pips of Profit or Loss: +7
Time in the trade: 9 minutes

This trade was a long bias trade:

I was able to buy 35's, 34's, and 33...

Flipped out at 34, 35, 36 as the liquidity was drying up and I needed to unload my inventory into the little pop you see in this chart...

Pips of Profit or Loss: +3
Time in the trade: 25 minutes
Third and final trade from yesterday. (Long Bias of course)

Only got 37's for a flip at 38.

It was late and I wanted to go to bed so that was it for me.

You have to think like a merchant to trade this way...
Grind grind grind your small margins to end up with big profits.

It isn't as sexy as a 150 pip trend trade, but you can flip any time you have interest or energy to trade.
This style works FOR YOU, not the other way around.

I was trading 10 lots, that day.

This flipping style is universal, took screenshots during a session with one of my trainee accounts.

Deeper time-frame, so the order entry doesn't come as fast and furious...
Better for a student, but all the concepts are the same.

He got 22, 20 and 18's.

Flipped out 22, and he made an order entry error and put 2 lots at 24 so missed a few pips in potential.

Fills (mini lots, so worth a buck a pip)

Profit (10.46/1455.01=0.71% gain on that opportunity...rinse and repeat)
A lot of people are afraid of the HFT or High Frequency Trading Robots or "Algos" that are currently EXTREMELY active in all the world's financial markets.

The nice thing about being a passive liquidity provider (Entering with limit orders) is that when the algowhips enter the market the market the robots are paying YOU for the liquidity so they can play their games.

Sold short 22,23 & 24's, as an algo whip "whoosed" the markets up and down...
The market filled me and then paid me in one burp of order flow. See how neatly it went down into the green liquidity accumulation (Buy to Cover) box before reversing?

Covered at 23, 22, 20.

Attached Image

Pips of Profit or Loss: +4
Time in the trade: 8 minutes
One of the big keys to success with this style of active trading is to NOT trade when there is too little liquidity...
Remember, your edge is coming from the aggression and willingness of other traders with deeper time-frame profit expectation to pay you a premium for your liquidity...
Your willingness to let your positions go for small profits when they are all focused on home runs is your advantage with this style and this is the reason why the odds for a profitable outcome are so high.

So as important as examples of success and failure are, so too are charts of low opportunity markets...

The EUR/USD is drifting and listless at the moment. Home sales at 10:00 eastern might wake things up, as would a breakdown below the 1.3380 support zone.
But without the evidence that there are traders with deep pockets active in this market, I will stay on the sidelines.

The drifting and sponsor-less nature of this day's action is even more clear in the USD/JPY.

This is another great pair for flipping. BUT...See that violent algowhip around 4am?

It really takes something violent like that or a shock news release or rumor to deliver a full stop loss for this style.
You must be super vigilant with this style to avoid trading during scheduled news (Check here for the scheduled calender of events).
If you are diligent about avoiding news and listless markets you can easily go days and hundreds of trades between losses with this style.

So, for this day, I will be staying on the sidelines until the "pit" wakes up.
There are stories from the CME and the NYMEX of traders in corn and sugar playing cards while they waited for orders to start flowing through the market again...
This is just one of the normal and natural rhythms of this trading style.

The USD/JPY woke up after the 10:00 numbers and I took my first trade for the day, working with my students in a trainee account.


Attached Image

Pips of Profit or Loss: +6
Time in the trade: 2 minutes

Next, I had a hectic morning as I took a bunch of live trades with students in a trainee account...

Let's walk through the trades as they offer another look at flipping with a merchant's mindset.

Remember, your edge with this style is all coming from your ability to anticipate immediate spikes in demand for liquidity....

Step 1: Find your customer base.Click to Enlarge

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As we started the LIVE training session at 10:00 eastern, I saw a head and shoulders forming in the EUR/USD.

This is a classic technical pattern that "everybody" knows and is watching. If I can build up inventory on the cheap, I know the odds are extremely high that I will have a crowd of hungry shorts waiting to sell when the H&S sets up.

This is my customer base, the liquidity pool I am serving as a liquidity provider.

I dropped to the 1 min chart to see if I could get a setup for confirmation...Click to Enlarge

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Bingo! A double top gave me what I needed, so I took the short at 41.

The trade set up the H&S, and I surfed the liquidity burst that followed. I bid back my trade at 38 & 36.


Pips of Profit or Loss: +3 & +5

Time in the trade: 5 minutes

Next trade was a little "Bo-mentum" trade like I have been showing you throughout this posting.

Click to Enlarge

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Got filled at 67 and 65....Click to Enlarge

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Size: 47 KBFlipped those out +4 and +2 at 69 (Red arrow)

Then I immediately reversed my stance and put on a short at 69 after a double top formed (Yellow arrow)Click to Enlarge

Name: eur_8_22_3.jpg
Size: 50 KBCovered that short +3 and +6 at 63 & 66

Then I took one last short after the bear flag formed but only got filled at 55, covered at 52 for +3

Fills for the LIVE trading session (2 hours)

Attached Image

Results in the trainee account: (26 pips Gross)


$72.30/1,407.99 =5.14% for the day

Been a solid week, grinding and flipping and trading actively...

This rhythm of activity is about what you can expect from this style....

Remember, that the goal of a "flipper" is to accumulate inventory on the cheap, mark it up and then sell it to the crowd that you have predicted is right over the horizon.

The USD/JPY was forming a complex reversal pattern on the 3 min chart, which was in my view leading to a reversal candlestick on the 30 minute chart.

If the pair closed with a "pretty" candlestick 6 minutes after I took my inventory, I knew the odds would be EXTREMELY high that the candle would at least set up, and that there would be a lot of demand at that point.

So, having identified my customer base, I took the trade...

Then flipped out my position to the hungry crowd for a nearly 2% profit.

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Then I just...
Rinse and repeat....
Same concept, but this time I built inventory into panic, and sold into the 3 min crowd's burst of buying interest.
 One last one for this morning of training....

Same concept, built inventory and flipped it out to the setup (15 min in this case)
Most of these flip trades are only open for 10 minutes or so as you all can see, so real time posting is awkward.

My current trade is a rather rare deeper timeframe one, if you want to follow along...

I am building inventory into a lazy pullback in the USD/CHF and plan to flip it out for a profit if/when a 90 minute candlestick reversal bar forms. (Piercing pattern, engulfing bay, hammer etc...)

Got filled at 9310 and 9305, just closed out the trade on my phone at 12 so +2 +7.

Working with a student in a one on one session, and we just closed out the following in the trainee account.
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Classic "Bo-mentum" Flip trade...Built inventory at 64,63,62 into support...Marked it up and sold to the breakout customer base at 67.

+5, +4, +3 = 12 pips or $21.75 or 1.19%

Time in the trade, 3 minutes.

Hopefully, this series of trades will open your eyes to a new way of approaching intra-day trading in the markets.

It can be a lot of fun, and as you see the returns are very attractive for the time invested.