Thinking Like an XLT Trader

The XLT is our live online trading program. After learning our core supply and demand strategy in the classroom or online, students then spend time in the XLT, in the live markets with our instructors, watching them setup trades and execute orders. One of the keys to the XLT and successful trading is to keep things simple. This is also the purpose of this article. I received some important questions regarding a recent trade so I thought I would share all the details of what made that trade work. Not to add complexity but, instead, to dive into the psychology of what made that and many of our other trades work. Always remember that 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 overall. 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 a recent buying opportunity in the NASDAQ and get inside the mind of an XLT trader.

OTA Supply/Demand Grid: 5/13/15 – Nasdaq Futures

Notice the blue line extended from the red circled low on the chart. This line represents a recent Globex (US overnight) low prior to the day session and our early morning trading session. Sitting just below the Globex low is a key demand level from our Supply/Demand grid. Note that the demand level is NOT seen on this chart. The green lines are extended from that demand zone. We know demand exceeds supply at that level because price could not stay at that level and rallied higher from it. It scored out very high with our Odds Enhancer scoring system. So, XLT students know to buy at that level with a protective sell stop just below it and our appropriate targets above. 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 or buy a breakout of the Globex high. Retail traders who are going to sell short that day are likely going to sell short once the NASDAQ breaks below the Globex low or at the Globex high. 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 strong retail Bear Trap. 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 below the Globex low as it did (see chart), the bearish retail traders sell short and those who bought at the Globex 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 on the break of the Globex low, just as price is reaching our demand level where we (and institutions) are very willing buyers. In other words, we have just caught both the retail buyers and sellers on the wrong side of the market. As banks and institutions are buying at the demand level, retail is on the sell side, which is why XLT students are buyers as well. If banks and institutions are buying there, we want to buy there as well.

Again, 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 executing like an institution. Do all institutions make money? No. Overall however, they are significantly more profitable than the retail trading world as most day traders lose money and most longer term investors never achieve their financial goals. Our version of the Bull and Bear Trap, which is very different than the conventional versions, are two setups that occur frequently for the short term trader and long term investor. Learn how to properly identify and trade them to avoid falling for the trap which will cost you money; instead, get paid from the trap. As always, my hope is that this information will help lower your risk and increase your reward.

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