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.
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.
* 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
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
Deeper time-frame, so the order entry doesn't come as fast and furious...
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)
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.
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.
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...
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.
Got filled at 67 and 65....Flipped 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)Covered 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)
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....