Regardless of whether you are a long-term investor like Warren Buffett or a high-frequency trader like Ken Griffith, there are only two primary methods for trading.
In trading, you can choose to follow the price action, also known as trading the “flow,” or you can opt to trade against the price action, commonly referred to as “fading” the move.
If you decide to day trade against the trend, there are three important things you need to know: what to trade, when to trade, and the profit target to aim for.
Let’s explore a trading setup that I use regularly in stock index futures. During the European open around 4 am, stock futures often experience a significant high or low point that is suitable for fading, with a potential profit of at least 20 points. Even if the trade doesn’t work out the first time, it typically becomes profitable on the second or third attempt.
Now, let’s shift our focus to trading with the trend – or “flow.” Flow trading provides valuable insights into the market through a specific indicator.
Take a look at my proprietary bounce indicator in Flow mode. Do you notice anything? Flow trades, represented by the bright green tiles on the chart, tend to cluster together. When one flow trade occurs, it is often followed by another.
So, how does this knowledge benefit retail traders like us?
It’s simple. We should only take a flow trade if the preceding trade hits the take profit target. If the prior trade results in a loss, we should halt our trading activities until the flow becomes profitable again. By utilizing this stop and go approach, we can avoid excessive trading and significantly increase our chances of winning trades.
Now, here’s an interesting revelation for day traders. When trading against the trend, you need to persistently search for the turning point in the price action. Conversely, when trading with the trend, you need to stop and go, aligning yourself with the market’s trend move.
This contradicts what most traders typically do, but now you have gained valuable insights!
