Can you please explain what you mean by do not short bottom tick or do not by uptick thanks
If you have read some of my weekly habits that I post, I can use certain phrases almost every day depending on the financial instrument and my interpretation of the information flow, etc.
The phrases are something like: DO NOT SHORT BOTTOM TICK, (or I can use the words, DO NOT SHORT BOTTOM PIP, or DO NOT SHORT THE LOWS)
and the phrases: DO NOT BUY TOP TICK, (or I can use the words, DO NOT BUY TOP PIP, or DO NOT BUY THE HIGHS)
Currency pairs trade in pips, but you can also use the word “tick” as well. So ‘tick’ is the same ‘pip’. They are used interchangeably.
Now the question is, what does all this mean, and how to incorporate it into your trading?
The reason I developed this type of simple, but effective tactic, is because some people argue that order flow trading is too complicated, that you can’t get good entries or exits, and its too hard to figure these things out, etc.
So this is where the macro model comes into play.
In any given market, at any given day, there is a particular way to play it if you are a directional trader. Taking into account all the information flow, and interpreting it and deciphering it, I get to a certain view of where the news/sent/fund/macro bias (hereafter known as “macro”) is for a particular financial instrument/currency pair, etc, and where that macro exhaustion points can occur.
For example, lets say I am analyzing all the news, scenarios, macro information to determine where I think the EUR/USD is going to go over the next few days, etc. I may have a particular macro bias for lower prices, taking into account all the information flow from the current moment. Then the next big question is, well if you think it is going to go down, how do you time it? Whats the best way to play it?
Go short at the current market price, right now?
Place a sell stop to go short below a recent low?
Go short on a retracement?
Only short it when it hits a resistance point?
Only short it if it breaks above a key topside stop level?
Just because I may be bearish on EUR/USD over the next few days, doesn’t mean that I have to go short at the current market price. I may only want to sell a retracement, or short it after it trips some sizable topside stops, etc. The reason being, some of the bearish macro may be exhausted if the EUR/USD drops 100 or 200 pips, and I may have to wait for a rally to short it. And I may believe that I can get a better reward risk ratio and better win rate if I wait for the topside stops to get tripped.
So for the EUR/USD I did want to short it taking into account the stronger US data, and still low growth and low inflation in the Eurozone. But I didn’t want to short at after it dropped from the 1.3800 highs down to 1.3650. I felt that the bearish macro could be exhausted so I had to wait. So I kept writing in my master currency files for the EUR/USD: DO NOT SHORT BOTTOM TICK, which meant not to try to short the lows near the 1.3650 level, and not to short the breakout if it went lower.
I set a standing limit sell order to sell EUR/USD at 1.3850, which I had active for a week or more. It was finally filled on Friday, December 27, 2013:
So when I go write into a chart or the files I keep on every financial instrument, the words: DO NOT BUY TOP TICK, DO NOT SHORT BOTTOM TICK, etc. This simple techniques helps to give me guidelines to work with during the trading day to know what to do in various situations. Based on my analysis of the information flow and battle of scenarios at a given moment in time, I can create these guidelines and “macro models” to work with.
So in the above example, once EUR/USD started rising from 1.3700, by 30 pips, 50 pips, etc. I knew that I shouldn’t try to buy it, because my macro scenario analysis told me that it probably wasn’t sustainable, and that the move would probably be short lived. My prior analysis told me that trying to chase EUR/USD higher, after it has already moved higher by 30 pips, 50 pips, etc, is a very poor reward risk ratio trade.
Now in the above case, the EUR/USD did spike 100 pips higher, so if you got in early enough, and took profit above the 1.3850 stops, and you were nimble enough to do that, then it did work out in the above case.
I just chose the “fade the stops” strategy, rather than the “go with the move” strategy.
That is one of the basic jobs that I have on any given trading day. I have to go and analyze the information flow and scenarios for a particular currency pair and financial instrument and see what is the best way to play it. If it moves 100 pips up in a day, and I miss it, should I chase it and buy it because it stands a decent chance of turning into a MDMM? Or if I am long and the market moves up 100 pips, should I take profit because my analysis tells me that the move can only be a ODVE and then fizzle out? Or if the market moves 100 pips higher, should I fade the move and play for a reversal? Etc.
I am constantly analyzing information and the price reaction to the information flow and news, and determining whether I should “go with the move”, “fade the move” or do nothing. In many cases, I may be confused at to what is going on in the market, and I just have to admit it and stay out. I may figure out what is going in a few hours from now, or the next day, etc.
So that is my philosophy regarding the “DO NOT SHORT BOTTOM TICK” and “DO NOT BUY TOP TICK.”
If I am analyzing a currency pair and I write in for the day: DO NOT SHORT BOTTOM TICK, this could mean several things. It could mean that I am bearish on the market, and that I shouldn’t try to short it near the lows of the day, and shouldn’t short it if it already has broken out lower. So I would only become interested in shorting it if it rallies a certain amount first.
It could also mean that I am bullish on the market, and that I would be looking to buy near the lows of the day, and if the market breaks out lower, I would want to fade those stops and be interested in going long.
If I am analyzing a currency pair, and I write in for the day: DO NOT BUY TOP TICK, it could mean several things. It could mean that I am bullish on the market, and I shouldn’t buy it near the highs of the day, nor should I try to buy it after it breaks out higher. So I would only become interested in buying if it drops a certain amount first.
It could also mean that I am bearish on the market, and that if the market reaches the highs of the day/range, or breaks out higher, then I would become interested in shorting it.
But note that the market is dynamic, not static. I remember one person said that the market has no defined endpoint. In other words, when will trading in EUR/USD or USD/JPY or S&P futures end? It won’t! Those trading instruments will continue to exist and they have no defined endpoint.
What this means is that the market is not static – it is dynamic and constantly changing and taking into account new information, new global macro scenarios, etc. So it stands to reason, that your trading philosophy and strategies should be dynamic as well, to be able to adapt to the shifting market conditions, and limit losses in the less than ideal conditions.
So when I analyze a financial instrument and write it lets say: DO NOT BUY TOP TICK, that is merely my opinion given the information I have available, and my interpretation of it at that moment in time and given day. It is possible that I can change my view over the next 24 hours and the market is rising a lot and I go chase it higher, if I believe something has changed in the expectations and global macro scenarios of the market.
That is the key: My market views change as I take into account new information.
Various other example charts where I have written in these “DO NOT BUY TOP TICK”, etc comments:
As you can see in the S&P futures chart, I have written in: DO NOT BUY TOP TICK.
While I am overall bullish on the market, if the S&P is at the previous highs, or has already made fresh highs, I am not interested in playing it long, since the reward risk is not all that good, since the market can be susceptible to profit taking, macro exhaustion of the bull scenarios, etc.
So if I really wanted to play it long, then I would only consider going long if the market dips a few points first. I would only want to buy it, before the market has made a fresh high for the day.
If I wanted to short S&P futures, either to hedge my individual stock positions, or because I am bearish on it, then I would only look to short it if it makes a fresh high and trips topside stops.
Overall, I am slight bearish on Gold, expecting a gradual decline. I have written in: DO NOT BUY TOP TICK at the highs of gold over the recent days. Some of my research told me that Gold might be sold out and experience some short covering, but I didn’t play it. If I wanted to buy gold to expect a short covering rally, then I would only buy it prior to a tripping of topside stops. If Gold already tripped topside stops, then I would be too late, because the short covering can be over and some macro sellers can return.
Alternatively, I could consider short Gold positions and fade the topside stops if they get triggered.
Overall, this is a nifty strategy that you can use in any market.
The 3 key things you can do to help you trade any market are:
1. Create scenario sheets for the financial instrument you are trading: the bullish and bearish news/sent/fund/macro scenarios that can move the market up and down from the current moment. I have given you the scenarios sheets I use.
2. Link the volatility in the market to the shifting expectations of a certain scenario or multiple scenarios. So when you see a ODVE, MDMM, or GM move, link it it to certain catalysts and shifts in expectations. Write it on your chart if you can.
3. And finally, on an intraday or end of day basis, write in the proper way to play the current market action. The timing macro model. I use the words: DO NOT BUY TOP TICK, or DO NOT SHORT BOTTOM TICK. You can use other words and phrases if you want. You can say: BUY THE HIGHS, or buy a retracement, or short the highs, etc. I usually try to write this in both in my files I keep on Microsoft Word, but also on the chart.
Did that help clear up what I mean when I use the words: Do Not Short Bottom Tick, Do Not Buy Top Tick?