One of the few things we have some control over in the markets is in defining our risk. We don’t want to use some out of touch arbitrary stop method to define risk. There are no perfect formulas but if we can develop an understanding of volatility and market structure, we can come up with logical places to place stops. In this video, I show 2 simple methods for calculating stops using swings and ATR, and these are based on price flow itself and adapt to its everchanging volatility. Traders seem to devote all their time to entries but we should study everything we can about stops because a well thought out stop can also be an entry idea. It’s a matter of seeing where buyers/sellers made effort and where that effort got reversed. will often look for where I might place a solid stop in a market and then use that for an entry.
In this video, I will show you a simple visual way to read the flow of the market. Big Gaps are easy to see on the chart, our eye naturally gets drawn to them. A gap is a quick supply-demand imbalance that pushes all the guessing traders (contraction) into or out of their positions (expansion). Use this simple framework to make observations then create your own ways to trade it using those observations.
In these blogs, we have done a lot of work on mapping markets with swings. In this post, we will look at how minor swings grow up to be major swings and ways we can read and trade this dynamic. These will fall under the category of type 2 trades, expand then continue. Its a type of waiting outside the immediate price action that can be very relaxing. You can read about “The 3 Types of Trades” options on the Language of Markets home page.