2.0. Learning to Profit from Futures Trading with an Unfair Advantage! Trading Success Principles Market Flow Analysis Method

Transcription

1 2.0 Learning to Profit from Futures Trading with an Unfair Advantage! Trading Success Principles Market Flow Analysis Method

2 Trading Success Principles Market Flow Analysis Method Market Flow Analysis Method (MFAM) - Introduction One naturally assumes that the more a trader knows about the various technical indicators, the higher the probability is that this trader will earn income. Some traders use charts filled with indicators, squiggles, lines, fans, ellipses, and so forth to the point where the actual price action barely can be discerned! This is backwards! ALL commercially available technical indicators are derived from price and volume alone. Therefore, technical indicators are lagging; this means that any signal generated from an indicator will come after the signal generated by price and volume alone, if you know how to read it. My charts are relatively simple, and they are not overcrowded with what I consider to be useless information. At its core, the Market Flow Analysis Method (MFAM) is really just understanding price movement. My METHOD works in ANY TIME FRAME, and the concepts that I teach really are at the core of what I use in the market to help build an EDGE for my trade entries and exits. This module will reveal a few very simple keys to understanding how the MARKETS truly work. Trading Concepts, Inc. 2

3 Trading Success Principles Market Flow Analysis Method Principles of the Market Flow Analysis Method The following principles form the cornerstone of any and every sound trading methodology or system that exists today. There is really only ONE major market cycle (movement) in existence; the market can do nothing else but comply with this one basic market cycle. I call it the Market Flow Analysis Method or MFAM. The Market Flow Analysis Method (the MFAM) is the core price structure and rhythm of how the MARKETS move and trade at all times, no matter which market you are trading. There is no other movement or motion possible in the markets. You also may believe that the markets move in a random fashion; they do not. There are three primary waves or TRENDS in the market (or three ways the market can move): 1) UP, 2) DOWN, or 3) SIDEWAYS! Identifying which wave or TREND a market is in is vital to successful trading, and that s what this module will teach you. Trading Concepts, Inc. 3

4 Trading Success Principles Market Flow Analysis Method The UP TREND Market Flow Process UPTREND: Defined simply by a series of higher highs and higher lows. Trading Concepts, Inc. 4

5 Trading Success Principles Market Flow Analysis Method The DOWN TREND Market Flow Process DOWNTREND: Defined simply by a series of lower highs and lower lows. Trading Concepts, Inc. 5

6 Trading Success Principles Market Flow Analysis Method The SIDEWAYS TREND Market Flow Process SIDEWAYS TREND: Defined simply by a series of relatively equal highs and equal lows. Trading Concepts, Inc. 6

7 Trading Success Principles Market Flow Analysis Method Understanding the Underlying Movements and Rhythms You need to understand completely how ALL markets move and trade in terms of the natural flow and rhythm of the market. As you already know, all markets either go UP, DOWN, or SIDEWAYS. What we are about to teach you here will show you WHEN and WHERE each of these three market TRENDs BEGIN and END, with high probability. The next two trading principles are the core to understanding HOW all freely-traded markets move and trade at all times. Two Key Market Foundation Principles of Trading Mastery 1) Market Flow Analysis Method (MFAM). This market principle is the core price structure and rhythm of HOW all markets move and trade at all times. 2) Support and Resistance. These two trading concepts are vital for you to understand when applying the high probability trading strategies taught in this course. Trading Concepts, Inc. 7

8 Trading Success Principles Market Flow Analysis Method The Market Flow Analysis Method Process The Market Flow Analysis Method (MFAM) is based on the upside penetration of market highs and the downside penetration of market lows. Highs and lows are being formed continuously in the market. We must try to identify these important levels to help us map out what the market is probably going to do next. Identifying critical highs in a DOWNTREND and critical lows in an UPTREND will enable you to know with high probability that the market is probably going to change directions and reverse. Trading Concepts, Inc. 8

9 Trading Success Principles Market Flow Analysis Method Starting the Market Flow Analysis Method Process In order to begin the MFAM, you must begin somewhere on a chart in order to define important highs and important lows in the market so you can start defining the TREND. We will call this initial move the initial swing. Once a market makes a move off either the high or low of the initial swing and proceeds to penetrate the high or low of the initial swing, the MFAM then begins in the direction of the penetration. We will assume that the penetration UP through the high or DOWN through the low of the initial swing will be the beginning of a NEW TREND in that direction. Trading Concepts, Inc. 9

10 Starting the MFAM Process - UPTREND If the HIGH of the initial swing is penetrated to the UPSIDE, assume an UPTREND has begun. Trading Concepts, Inc. 10

11 Starting the MFAM Process - DOWNTREND If the LOW of the initial swing is penetrated to the DOWNSIDE, assume a DOWNTREND has begun. Trading Concepts, Inc. 11

12 Trading Success Principles Market Flow Analysis Method The UPTREND Market Flow Process Once the initial swing is established, if the high of the range is penetrated to the upside, you must assume an UPTREND has begun. Once this occurs, two (2) lows on the chart become significant. These critical lows are the Lowest Low (LL) and what we call the Active Low (AL). The Active Low (AL) is the most recent low in an UPTREND. The UPTREND remains intact as long as the active low is not penetrated to the downside. is formed only when the previous high is penetrated to the upside. You cannot have an active low unless the previous high is penetrated first. You will assume that higher highs and higher active lows will continue to the upside until proven otherwise. If the Most Recent Active Low (MRAL) is penetrated to the downside, then the UPTREND potentially has reversed to the downside. Trading Concepts, Inc. 12

13 The UPTREND Market Flow Process A series of higher New Highs (NHs) and higher Active Lows (ALs). 13

14 The UPTREND Market Flow Process A series of higher New Highs (NHs) and higher Active Lows (ALs). 14

15 Trading Success Principles Market Flow Analysis Method The DOWNTREND Market Flow Process Once the initial swing is established, if the low of the range is penetrated to the downside, you must assume a DOWNTREND has begun. Once this occurs, two (2) highs on the chart become significant. These critical highs are the Highest High (HH) and what we call the Active High (AH). The Active High (AH) is the most recent high in a DOWNTREND. The DOWNTREND remains intact as long as the active high is not penetrated to the upside. is formed only when the previous low is penetrated to the downside. You cannot have an active high unless the previous low is penetrated first. You will assume that lower lows and lower active highs will continue to the downside until proven otherwise. If the Most Recent Active High (MRAH) is penetrated to the upside, then the DOWNTREND potentially has reversed to the upside. Trading Concepts, Inc. 15

16 The DOWNTREND Market Flow Process A series of lower New Lows (NLs) and lower Active Highs (AHs). 16

17 The DOWNTREND Market Flow Process A series of lower New Lows (NLs) and lower Active Highs (AHs). 17

18 Trading Success Principles Market Flow Analysis Method MFAM Considerations Law of Diminishing Returns UPTREND The longer an UPTREND continues with higher New Highs (NHs) and higher Active Lows (ALs), the more likely a market is to turn and potentially to change either to a DOWNTREND or to start moving into a TRADING RANGE (SIDEWAYS TREND). The optimal SHORT entry is at the very beginning of a new DOWNTREND when the MRAL is penetrated to the downside. A market can only move so far so fast without some sort of rest or reversal. Law of Diminishing Returns DOWNTREND The longer a DOWNTREND continues with lower New Lows (NLs) and lower Active Highs (AHs), the more likely a market is to turn and potentially to change either to an UPTREND or to start moving into a TRADING RANGE (SIDEWAYS TREND). The optimal LONG entry is at the very beginning of a new UPTREND when the MRAH is penetrated to the upside. A market can only move so far so fast without some sort of rest or reversal. Trading Concepts, Inc. 18

19 Trading Success Principles Market Flow Analysis Method Retests and Failures These two concepts are very powerful when trading the E-Minis or any other market (i.e. stocks, options, or commodities). These phenomena of retests and failures occur continuously on every timeframe, in every market, at all times. Retests are exactly what they imply; they are simply when the market tests (retests) a previous HIGH or LOW in the market. I like to call it a Bullish Retest when the market makes a NEW HIGH, comes down off that level (retraces down off that level), and then comes back up to retest that same HIGH. I like to call it a Bearish Retest when the market makes a NEW LOW, comes up off that level (retraces up off that level), and then comes back down to retest that same LOW. Wait for a retest before attempting to enter the market when trying to trade counter-trend moves or against the current trend (as discussed in detail in the Counter-Trend Trade Set-Ups module). Retests indicate that the market is at least trying to settle down. Trading Concepts, Inc. 19

20 Trading Success Principles Market Flow Analysis Method Failures can only occur after a retest. The market first must retest a HIGH or LOW before it can fail off that level if it is going to fail at all. Failures are exactly what they imply; they are when a market is unable to take out a previous HIGH or LOW with any real force, thus creating the term failure. A Bearish Failure is when the market is unable to take out a previous HIGH (double/triple tops). A Bullish Failure is when the market is unable to take out a previous LOW (double/triple bottoms). A failure generally occurs within a few price bars of the actual HIGH or LOW. If a market takes too long to come off these levels, tighten up your stops because the market possibly could be basing for a relatively large move through the particular HIGH/LOW that it's testing. 3 Types of Failures Marginal New Highs/Lows: When the market takes out a HIGH or LOW marginally. Matching Highs/Lows: When the market matches the HIGH or LOW to the exact tick. Failure to Reach the High/Low: When the market actually fails to reach the HIGH or LOW that is being tested at the time. Trading Concepts, Inc. 20

21 CONTINUATION of TREND on a Retest of a HIGH A Bullish Retest is when the market retraces down off a NEW HIGH followed by a move back up to Retest that same NEW HIGH. If the market penetrates up through that same NEW HIGH, a CONTINUATION of TREND is likely. CONTINUATION of TREND on a Retest of a NH (Bullish RETEST) HIGH LOW 21

22 CONTINUATION of TREND on a Retest of a HIGH A Bullish Retest is when the market retraces down off a NEW HIGH followed by a move back up to Retest that same NEW HIGH. If the market penetrates up through that same NEW HIGH, a CONTINUATION of TREND is likely. CONTINUATION of TREND on a Retest of a NH (Bullish RETEST) HIGH LOW 22

23 CONTINUATION of TREND on a Retest of a LOW A Bearish Retest is when the market retraces up off a NEW LOW followed by a move back down to Retest that same NEW LOW. If the market penetrates down through that same NEW LOW, a CONTINUATION of TREND is likely. LOW AH NL CONTINUATION of TREND on a Retest of a NL (Bearish RETEST) 23

24 CONTINUATION of TREND on a Retest of a LOW A Bearish Retest is when the market retraces up off a NEW LOW followed by a move back down to Retest that same NEW LOW. If the market penetrates down through that same NEW LOW, a CONTINUATION of TREND is likely. LOW AH NL CONTINUATION of TREND on a Retest of a NL (Bearish RETEST) 24

25 FAILURE on a Retest of a HIGH A Bearish Failure is when the market Retests a HIGH and FAILS to take out the previous HIGH with any real force. Retest FAILURE (Bearish FAILURE) HIGH LOW 25

26 FAILURE on a Retest of a HIGH A Bearish Failure is when the market Retests a HIGH and FAILS to take out the previous HIGH with any real force. Retest FAILURE (Bearish FAILURE) HIGH LOW 26

27 FAILURE on a Retest of a LOW A Bullish Failure is when the market Retests a LOW and FAILS to take out the previous LOW with any real force. LOW LL Retest FAILURE (Bullish FAILURE) 27

28 FAILURE on a Retest of a LOW A Bullish Failure is when the market Retests a LOW and FAILS to take out the previous LOW with any real force. LOW LL Retest FAILURE (Bullish FAILURE) 28

29 Trading Success Principles Market Flow Analysis Method An UPTREND Reversing into a DOWNTREND In order for the market potentially to change from an UPTREND to a DOWNTREND, a market must penetrate down through the Most Recent Active Low (MRAL). Once the MRAL is penetrated to the DOWNSIDE, you can expect the market to REVERSE from an UPTREND to a DOWNTREND. Trading Concepts, Inc. 29

30 An UPTREND Reversing into a DOWNTREND Once the MRAL is penetrated to the DOWNSIDE, the market is reversing from an UPTREND into a DOWNTREND. HIGH LOW 30

31 An UPTREND Reversing into a DOWNTREND Once the MRAL is penetrated to the DOWNSIDE, the market is reversing from an UPTREND into a DOWNTREND. HIGH LOW 31

32 Trading Success Principles Market Flow Analysis Method A DOWNTREND Reversing into an UPTREND In order for the market potentially to change from a DOWNTREND to an UPTREND, the market must penetrate up through the Most Recent Active High (MRAH). Once the MRAH is penetrated to the UPSIDE, you can expect the market to REVERSE from a DOWNTREND to an UPTREND. 32

33 A DOWNTREND Reversing into an UPTREND Once the MRAH is penetrated to the UPSIDE, the market is reversing from a DOWNTREND into an UPTREND. HIGH LOW 33

34 A DOWNTREND Reversing into an UPTREND Once the MRAH is penetrated to the UPSIDE, the market is reversing from a DOWNTREND into an UPTREND. HIGH LOW 34

35 Trading Success Principles Market Flow Analysis Method An UPTREND Moving into a TRADING RANGE When the market is in an UPTREND and is unable to take out the Highest High (HH) or the Most Recent Active Low (MRAL) for a given length of time, the market has entered into a TRADING RANGE. If a penetration occurs to the downside (through the MRAL), that would change your bias from an UPTREND to a DOWNTREND. If a penetration occurs to the upside (through the HH), that simply would indicate a continuation or resumption of the already-existing UPTREND. Trading Concepts, Inc. 35

36 An UPTREND Moving into a TRADING RANGE When the market is in an UPTREND and is unable to take out the Highest High (HH) or Most Recent Active Low (MRAL) for a given length of time, the market has entered into a TRADING RANGE. HIGH LOW 36

37 An UPTREND Moving into a TRADING RANGE When the market is in an UPTREND and is unable to take out the Highest High (HH) or Most Recent Active Low (MRAL) for a given length of time, the market has entered into a TRADING RANGE. HIGH LOW 37

38 Trading Success Principles Market Flow Analysis Method A DOWNTREND Moving into a TRADING RANGE When the market is in a DOWNTREND and is unable to take out the Lowest Low (LL) or Most Recent Active High (MRAH) for a given length of time, the market has entered into a TRADING RANGE. If a penetration occurs to the upside (through the MRAH), that would change your bias from a DOWNTREND to an UPTREND. If a penetration occurs to the downside (through the LL), that simply would indicate a continuation or resumption of the already-existing DOWNTREND. 38

39 A DOWNTREND Moving into a TRADING RANGE When the market is in a DOWNTREND and is unable to take out the Lowest Low (LL) or Most Recent Active High (MRAH) for a given length of time, the market has entered into a TRADING RANGE. HIGH LOW 39

40 A DOWNTREND Moving into a TRADING RANGE When the market is in a DOWNTREND and is unable to take out the Lowest Low (LL) or Most Recent Active High (MRAH) for a given length of time, the market has entered into a TRADING RANGE. HIGH LOW 40

41 Trading Success Principles Market Flow Analysis Method Support and Resistance Levels Support and resistance levels are very important concepts to understand; they are powerful occurrences that happen in ALL markets and ALL time frames. Understanding (and using) support and resistance will help ensure that you will trade on the same side as the professional market makers and market specialists, thereby increasing the probability of any trade you decide to place. Since most professional traders understand and use support and resistance levels in their trading, these levels prove to be very reliable and predictable. SUPPORT is a price level (or general area) where buying overwhelms the selling of a market. Where demand for a market overwhelms the existing supply. Provides good BUYING opportunities. RESISTANCE is a price level (or general area) where selling overwhelms the buying of a market. Where the supply for a market greatly overwhelms the current demand. Provides good SELLING opportunities. Trading Concepts, Inc. 41

42 Trading Success Principles Market Flow Analysis Method Area of Price SUPPORT (Demand) SUPPORT is a price level (or general area) where buying overwhelms the selling of a market. SUPPORT is where demand for a market overwhelms the existing supply. SUPPORT provides good BUYING opportunities. SUPPORT is a price level (or general area) on a chart under the current market price (value). SUPPORT areas are the lows (or troughs) of a SIDEWAYS trading range market Trading Concepts, Inc. 42

43 Trading Success Principles Market Flow Analysis Method Area of Price RESISTANCE (Supply) RESISTANCE is a price level (or general area) where selling overwhelms the buying of a market. RESISTANCE is where supply for a market greatly overwhelms the current demand. RESISTANCE provides good SELLING opportunities. RESISTANCE is a price level (or general area) on a chart above the current market price (value). RESISTANCE areas are the highs (or peaks) of a SIDEWAYS trading range market Trading Concepts, Inc. 43

44 Trading Success Principles Market Flow Analysis Method Points to Remember The longer the SIDEWAYS trading range, the stronger SUPPORT and RESISTANCE will become, and the bigger the breakout will be when the market does start to move outside the trading range. RESISTANCE becomes SUPPORT when broken to the upside. SUPPORT becomes RESISTANCE when broken to the downside. Find price levels (or areas) which were turning points in the past to help with finding SUPPORT and RESISTANCE. Don t squint to try to find SUPPORT and RESISTANCE on the chart. If you can t see it, no one else will; only use the most obvious SUPPORT and RESISTANCE on your charts. Trading Concepts, Inc. 44

45 Trading Success Principles Market Flow Analysis Method Minor Support and Resistance Levels Typically, when RESISTANCE is broken to the upside, it then becomes minor SUPPORT. Trading Concepts, Inc. 45

46 Trading Success Principles Market Flow Analysis Method Minor Support and Resistance Levels Typically, when SUPPORT is broken to the downside, it then becomes minor RESISTANCE. Trading Concepts, Inc. 46

47 RESISTANCE Becoming SUPPORT in an UPTREND When RESISTANCE is broken to the upside, it then acts as SUPPORT (potential BUY zone) in an established UPTREND. 47

48 RESISTANCE Becoming SUPPORT in an UPTREND When RESISTANCE is broken to the upside, it then acts as SUPPORT (potential BUY zone) in an established UPTREND. 48

49 SUPPORT Becoming RESISTANCE in a DOWNTREND When SUPPORT is broken to the downside, it then acts as RESISTANCE (potential SELL zone) in an established DOWNTREND. 49

50 SUPPORT Becoming RESISTANCE in a DOWNTREND When SUPPORT is broken to the downside, it then acts as RESISTANCE (potential SELL zone) in an established DOWNTREND. 50

51 Trading Success Principles Market Flow Analysis Method A Recap of the Market Flow Analysis Method (MFAM) The Market Flow Analysis Method (MFAM) is meant to help you put the market into perspective in terms of being able to identify an UPTREND, a DOWNTREND, and a TRADING RANGE (SIDEWAYS TREND) in the early stages. Understanding the MFAM will allow you to know what the important market highs and lows are, which we have termed as Active Highs (AHs) and Active Lows (ALs). Understanding the MFAM will help you know with high probability WHEN a market s TREND has begun and WHEN and WHERE the TREND should end. Understanding the MFAM will help eliminate any indecision you may have about the markets, and it will help make the markets seem less random and much more predictable in nature. I feel that the MFAM comes as close to anything out there in capturing what the markets are all about in terms of the continuous movements of the markets. This is what makes the MFAM so reliable, consistent, and predictable. The MFAM is meant to help give you an understanding of the core macrostructure of how markets move and trade at all times. Trading Concepts, Inc. 51

52 Trading Success Principles Market Flow Analysis Method Market Flow Analysis/Price Action Summary Hopefully by now, you ve seen the logic and power behind the Market Flow Analysis Method. You should be able to decipher ANY CHART in ANY TIME FRAME after some practice. It won t come easily at first, but stick with it; you ll soon be reading swings like a pro. If you understand the rhythm and the flow of the market, then you can gain the EDGE in trading in the markets. Trading Concepts, Inc. 52

53 No claim is made by the Trading Concepts, Inc. that the Futures trading strategies shown here will result in profits and will not result in losses. Futures trading may not be suitable for all recipients of this Training Program. All comments, trading strategies, techniques, concepts and methods shown within our Course are not and should not be construed as an offer to buy or sell Futures Contracts they are opinions based on market observation and years of experience. Therefore, the thoughts expressed are not guaranteed to produce profits in any way. All Opinions are subject to change without notice. Each Futures trader/investor is responsible for his/her own actions, if any. Your purchase of the Trading Concepts Comprehensive EMINI SUCCESS FORMULA 2.0 Mentoring Program constitutes your agreement to this disclaimer and exempts Trading Concepts from any liability or litigation. Trading Concepts, Inc. 53

54 All rights reserved. This Training Program, or parts thereof, may not be reproduced in any form without the prior written permission of Trading Concepts, Inc. Trading Concepts, Inc. 54