Thinking Like An XLT Trader

Today, I want to share a trade taken in the Futures Extended Learning Track (XLT, our Live Trading Room) on October 20th, last week. The XLT is our live online trading program. The purpose of the article is to point out how important it is to keeping trading simple. I received some important questions regarding a recent trade from a recent article so I thought I would share all the details of what made this trade work to help answer those questions. Not to add complexity, but instead to dive into the psychology of what made this and many of our trades work. Always remember, not all trades are going to be profitable but that is part of trading and that’s ok, let’s begin…

Understand a simple truth, most retail traders and investors are not very successful when speculating in markets. Short term traders especially tend to lose money over all. Banks/institutions/market makers tend to do very well overall when it comes to short term trading. So, if you’re a consistent losing retail trader, it’s likely because you’re thinking and trading like one. Let’s take a look at this buying opportunity in the NASDAQ and get inside the mind of an XLT trader.

Live XLT Trading – Oct. 20th, NASDAQ Futures: The Setup

Notice the demand zone on the chart above. We know demand exceeds supply at that level because price could not stay at that level and rallied higher from it. First, the pattern told us banks were likely buying at the level as we had a Drop – Base – Rally. Second, Odds Enhancers 1, 2, and 3 also suggested there was a strong supply / demand imbalance, much more demand than supply. So, XLT students know to buy at that level with a protective sell stop just below it and our appropriate targets above. Next, once that session got going, the NASDAQ was still above the Globex low. So, let’s now think about how a retail trader is going to think in that situation. Retail traders who are going to buy that day are likely going to buy at the Globex low with a protective sell stop just below it. Retail traders who are going to sell short that day are likely going to sell short once the NASDAQ breaks below the Globex low. Our plan well before the market gets going is to buy at our demand level for all the reasons mentioned above (Odds Enhancers) and one more, the presence of a retail Bear Trap and here is how it works. Once price declines and reaches the Globex low, the retail buyers buy and place their sell stop just below. Once price declines and makes a “new low” into the level as it did on the chart below, the bearish retail traders sell short and those who bought at that low are now stopping out for a loss as their sell stops are triggered and filled. What has just happened is both retail buyers and sellers just sold when banks (and XLT traders) are big buyers. In other words, we have just caught both the retail buyers and sellers on the wrong side of the market. As institutions are buying at the demand level, retail is on the sell side which is why XLT students are buyers as well. If institutions are buying there, we want to buy.

Live XLT Trading – Oct. 20th, NASDAQ Futures: The Result

The ResultAgain, retail traders tend to perform poorly when speculating in markets. The key for you is to stop thinking and trading like a retail trader and start thinking and trading like a financial institution. Do all institutions make money, no. Overall however, they are significantly more profitable than the retail trading and investing world as most day traders lose money and most longer term investors never achieve their financial goals. As you can see on the larger time frame chart on the right, the NASDAQ ended up rallying strong, reaching all three of our profit targets and well beyond. By using our strategy that quantifies real supply and demand in the markets, we are able to predict market turns and market moves in advance with a very high degree of accuracy. This then allows for minimal risk and maximum reward whether you’re a short term income trader or longer term investor. The Bull and Bear Trap are two setups that occur frequently in markets. Learn how to properly identify and trade them to avoid falling for the trap which will cost you money and instead, get paid from the trap. As always, my hope is that this information will help lower your risk and increase your reward.

Have a great day.

Learn to Trade Now