The Most Profitable Trading Strategy I Use (STEP-BY-STEP)

what's up everyone this is going to be a stepbystep tutorial going over my trading strategy and exactly what I look out for and how I trade indepth of five crucial steps to how I navigate the markets the first step is creating levels of interest I'm going to dive deep into how I create these levels Point number two is gauging the reaction at those levels of Interest Point number three is creating a trading plan then managing my risk around this plan and then point number five very important the cherry on top of the cake is following that plan and controlling emotions before we begin this I do want to say that if you trade Forex options stocks crypto Futures no matter what you trade this can be translated to those markets because it's simply a navigation tool of any auction place or any Marketplace so let's now dive deep into Point number one which is creating levels of interest and there are many different ways that I create levels of Interest some I view the same some I view very different and the different levels I trade differently around the first one is obviously supply and demand price and balances this essentially is a core structure to my trading I look for Supply or demand price imbalances now one thing that I do want to say about levels of interest is I relate my trading and I I trade very similar to back in the pit trading days before electronic trading was a thing where it was an open outcry system where you would have numerous amount of traders in a large pit buying and selling if a large buyer or a seller wanted to get into the market they could scream they could shout they could use a hand signal but my trading is very relatable to pit trading days that's because I view the stock market as an auction place so coming up with levels of Interest essentially puts me in the position to be trading where I should should be trading at or important levels that the market has referenced for me Supply or demand price and balances is the first thing that I look for Point number two are key levels developed off the time and sales in level two large buying or selling at a specific price support resistance with multiple touches confirmed by the tape highs or lows these essentially are the five main points how I create levels of interest and let's get into the first one in depth which is supply and demand and balances what I look for are areas of consolidation where a period of consolidation simply indicates the market has spent a lot of time at that level and if the market has spent a lot of time around that general price range then it's a good chance that we have a high amount of volume trading at that range because the market has spent quite amount of time at it now I want to see this area of consolidation or a period of balance or a period period of Tyce price fluctuations could be a 30 minute period could be a 1hour period could be a 4-Hour period but I want to see consolidation where the market has balanced or based prior to a large drop or a large rally the larger the drop the more aggressive the droper the rally and the more violent the droper the rally validates a better or a stronger Supply or demand imbalance I so in this example on this chart right here you could see this is on a three-hour time frame a very very very large aggressive drop after if we were to go into a smaller time frame this green bar right here going to this chart has multiple periods of consolidation in that General range followed by a large drop to the downside validating a supply zone or an area that I'm interested in trading at if the market test it at some point in the future one thing about these levels of interest is they are just levels of interest just because we have a zone or just because I have a level marked on my charts does not mean I will be trading that level we have another uh important aspect to this equation here are all the time frames that I use if you want to pause the video and Mark those down now one of the most important aspects are key levels developed off the time and sales and level two which is the tape or simply reading the order flow what I personally look for is large buying or large selling activity at a specific price because if I see large buying at let's just say a support level then I know that's something that I have to trade around or that's something that I have to be watching or if I see a large amount of selling activity step in at the middle of the range and the market corresponds and drops because of that selling then that area or maybe that seller that just enter the market is something that I have to keep a close eye on every single one of my levels of Interest are just levels or areas that I am keeping a close eye on once the market tests it at a future price point so on this Candlestick chart there's going to be resistance that forms around 4786 4788 we cannot truly see the resistance yes you could see Wicks yes you could see the market rejected here but diving deep into the volume and understanding what's going on of why those candles formed you have to think about this for a second and how I view the market again is an auction so why candles form is because of the relationship between price and volume going on behind the scenes candles simply represent transactions getting transacted on the Open Marketplace so in this example I cannot see strong resistance other than the Wicks and other than the rejections from volume off this Candlestick chart however looking at the volume we're going to see very strong resistance especially looking at the time and sales what we're going to see here is on this chart I've highlighted two green lines here representing the two highest and most important aspects to the orders or the completed transactions that came on the tape we can see large prints starting at 4788 of 250 contracts at 931 and then 956 contracts or Lots because I'm talking about future contracts at 934 at 4786 this is when the volume started to come in and I do want to say context is very very important you will drive yourself crazy if you stare at the time in sales every single ticket that comes in context is important because despite this activity what I mean by context is you want to see what the market does after these prints came in so what I saw was signs of a possible buyer unloading at these 88s and at these 47 86s this is now a depth of Market it's the same information that we could see on a time in sales but essentially now it's it's visually different on a depth of Market what this shows me is a volume profile which shows me volume at specific price points where we can split volume by buy and we can split volume by cell we can also see level two data which are the bid and ask columns we can see recent trades and the most important thing that I look for is this VPD column which is a volume profile Delta on this chart we can see significantly higher or abnormal something out of the norm I don't have a specific quantity that I look for I don't look for a specific number I just look for outliers in the data that gives me a reason to watch a specific price point in this example we can see large positive buying Delta around the 4788 47 87s and then directly below that we could see large selling Delta around these these 86s corresponding exactly what we saw here on the time in sales 88s 86s same exact info over here but this is just a Delta to me this is something that I want to keep an eye on if we are below it I want to see it act as resistance if we are above it I want to see it act as support it could be a larger participant entering or possibly exiting the market so this is what it looks like on a Candlestick chart other than the market selling off we simply cannot see the volume patterns that are getting displayed behind the scenes if we were not looking at the order flow or looking at the tape now because we sold off and this is what I mean about context being very very important because we sold off this gives me now that we are below it something that I have to watch moving forward in the next 30 minutes this 4788 level was rejected two other times and we saw very similar selling activity at that level the two other times that it was tested this green arrow is where it Formed about 10 minutes later we came back into it rejected 5 minutes after that came back into it and also rejected forming a head and shoulders pattern so again this kind of validates what I've been saying about your the patterns that you watch support resistance your wedges your trend lines they form because of what's going on behind the scenes with the order flow so wouldn't it make sense to validate your patterns if you're a pattern Trader with the order flow it would give it more conviction and more confidence because the two other rejections three total shows that this activity at these 88s now we have a, 1200 1200 800 is getting larger the volume is getting thicker and this is it after three other attempts showing there is valid interest at this level remember we are creating levels of interest because of the volume getting thicker and because the market Market is reacting to it three other times that it was tested shows me this is a level of interest that the market is reacting to this is what the the profile on the first test you can see lighter volume and on the second test it has gotten much thicker and much larger now also support resistance with multiple touches confirmed by the tape if you see a level does not matter what time frame get tested multiple times one time two times three times four times then that becomes something that I have to watch because for some odd reason the market is not liking the market to move up or down from that level after the market has reacted and respected that level of support and resistance and also I love looking at highs or lows this could be pre-market highs pre-market lows intraday highs or intraday lows it does not matter these are good areas for other traders to put their stop losses at or just simply buy a breakout or sell a breakdown and for other people to be buying or selling there's liquidity there and most of the time you know we break a high or break a low and then reverse because it's just a good area to pick up liquidity for larger participants to get in or out a position so now once we have these levels of Interest based off of these five points now my step after this is gauging the reaction at those levels of interest in a sort of confirmation aspect I want to say okay I just marked that level of Interest I don't know if it's valid or not I don't know if I misread it I don't know if what I'm reading is true but my job now is to gauge what the market does if that level is tested again is the market reacting to that level what I see a lot of Traders doing is they create levels of Interest I want to see the S&P 500 break above 4,800 or I want to see Tesla break under $100 that's having a level of interest if that's your support or resistance level but what a lot of those Traders do is as soon as it comes to $100 or as soon as it breaks out above 4,800 on the S&P 500 they automatically get in that trade just because the market hits their level of Interest again if that works for you try it but for me I need to gauge that what the market does at Tesla at 100 or what the market does when the S&P breaks above 4800 what is the market doing and how is it reacting to it at every single moment at every single price the market represents the mindset of each market participant the S&P is trading at 4800 and we're seeing a lack of volume that shows me that at 4,800 the market participant since volume is lacking is not agreeing with buying or selling at that price and that information alone gives important insight about the Market's auction the market participants either accept or reject what price is if participants accept price that usually means continuation is likely if participants reject price that usually means a reversal is coming so to trade well around these levels of Interest I need a confirmation signal confirmation for me is vital simply my confirmation is understanding if buyers will buy after I get long if I get long and I got confirmation and I see other people buy after I buy and the Market does sell off and I take a losing trade on it well my trade wasn't bad my trade just lacked other people buying after I got long we can get confirmation yet still be incorrect will others sell after I short it this is essentially what I'm trying to gauge because it gives me my Edge else I'm simply swinging in the darkness if I don't have confirmation or if I can't read the volume or I don't understand what price is doing then I have no reason to open up a position or trade it gives me my Edge and I don't want to be swinging in the darkness I want to be swinging when there is light and I want to be swinging when everything is clear to myself so once the market is trading at my level of interest does not matter which one it is I am using tools to gauge if there is interest from other participants at this level tools such as a footprint chart tools such as a heat map tools such as a level two time in sales normal conventional Candlestick chart so the first thing that I'm watching for is aggressive buying but no follow through or buyers which become trapped or absorption to the upside so essentially what this means is if I see a lot of green prints to the upside or I see a lot of aggressive buyers hitting thees or hitting the offer meaning they want to get in now they're aggressive they're violent they don't care what price they pay they're so aggressive but the market is not respecting how aggressive those buyers are that may mean there is some somebody absorbing on the passive side a passive seller absorbing all the aggressive buying and if that's the case or if buyers become trapped the market is a advertising mechanism to facilitate trade if we see aggressive buying but no follow through it's a good indication the market may want to go down to test if those buyers will buy at lower prices flip the switch aggressive selling down but no follow through if I see the market break a low a day or break a support level and there's tons of selling but the market cannot correspond to all that aggressive selling and it does not move far down that indicates number one those sellers could become trapped number two there could be absorption meaning a passive buyer is taking all that selling liquidity and if that's the case the market is going to move up to test if sellers will sell at higher prices it is an advertising mechanism number two I'm looking for offers this is seen on the level two offers or ask are just passive Sellers and that could serve as a cealing or resistance similar to the point number one the first one about aggressive buying same thing to the downside I want to see bids which are passive buyers serving as a floor and this is how support normally forms I also want to see aggressive trades hitting the bid or the ask after this is after Point number one or two occurs and point number four is a lower high or a high high or just a failed breakout attempt now these are mainly for playing reversals if I am playing continuation I simply just want to see Point number three in its entirety if I see Point number one or Point number two that's a little bit of a red flag if I am playing continuation but continuation only Point number three is what I look for all four of these points are for reversals so going back to that example earlier of that rejection at 4788 where we saw that buyer unloading or we just saw that tons of unusual volume activity later in the day the market returns to 4788 it did not like it and I was watching for a possible rejection because here the first green arrow is where this level formed then about three hours after in the same day the market came back up and retested where those sellers were actively present earlier in the day if you were to Mark a normal resistance level you know a lot of people would just Mark a high they would maybe mark this high and it wouldn't put any emphasis on why this General level forms it would just put emphasis on where a high is or where the market rejected so that's why I trade with understanding why it forms and where it formed and where the selling activity actually originated looking deeper than the Candlestick charts is where my greatest Edge comes from the market retests this later in the day and my job is to now gauge the reaction to put a valid trade on so now this is in producing a Delta footprint chart I've made videos on this in the past if you're watching my channel and you're new I recommend looking at my other videos because I have tons of other lessons on this but essentially what this shows me is Delta by price and volume by Price meaning Delta is ask minus bid volume if we see blue Delta that means it's positive meaning there is more aggressive buying hitting the ask at that price if we see a negative Delta or red volume that means there is more aggressive selling hitting the bid than aggressive buying hitting the offer at that specific price in this example we could see the market returning to 4788 4786 in this General green line box that I drew up here corresponding to what we saw earlier this right arrow is what we're seeing right here we are seeing aggressive buying by the positive Delta in this area right over here but no upside follow through if there is tons of buyers trying to buy the market up and they are not getting rewarded despite showing tons of effort that's a good indication if the market does want to aggressively sell lower we are going to bring it much lower to advertise prices lower to buyers so in this example you could see the rally into it you could see the aggressive buying and then you could see the aggressive selling then step in thereafter here's the same exact thing that we are seeing on this chart just now we are seeing it on a depth of Market no matter what tool you use it's going to show you the same information I use adapt the market footprint heat map they show me the same stuff it's just simply a different visual it's like you reading English you reading Spanish you're reading Italian it's going to tell you the same sentence it's just going to tell you it in a different language here we could see all the aggressive buying by this positive Delta at this 4788 level remember location key that key level the reaction tons of buying here again but no follow through then aggressive selling you could see down here by these red lines stepped in as the market rejected off of that much lower Point number two we can see offers which are passive sellers serving as a ceiling or resistance at this level flip it if we're looking to buy the market along it you want to see bids everything that I'm explaining could just be reversed to buy or sell the concepts are are interchangeable this is now a heat map now what a heat map shows me are completed transactions recent bidder as trads and a historical and current level two if I go to the bathroom and miss something I could simply come back to this historical data five minutes ago and see it whereas if I'm on a time in sales I cannot really see that if I missed it in this example we could see an offer what I mean by an offer is it is a passive seller on the ask shown on the level two this first Green Arrow right here as you can see this yellow line it's like yellow orange and red right where my cursor's at that shows me there is a heat map meaning a higher amount of selling passively at that level this tells me there is an offer serving as a ceiling if the market could not break it especially if the guy reers meaning after a passive seller gets filled he simply re offers acting more as a ceiling or acting more as a resistance level by this third Arrow he reers and rejoin the market after he got filled how do I know he got filled when the market came at it at the second Arrow his offer got hit you could see a green bubble there which means aggressive buyer hit that passive seller and then that heat map or that orange line right here did not appear after he got filled it only appeared about 5 minutes later when he re-offered after the market sold off also Point number three reaction I want to see aggressive trades hitting the bid ores after those Point number one or two occurs as you can see here we rejected 4788 and after we rejected it aggressive selling hitting the bid caused the market to further sell off causing those trap buyers to be underwater causing them to be in pain and causing the market to capitalize to the downside and then the last step is kind of self-explanatory which is simply a lower high or a higher high or a failed breakout above or failed break down below attempt at that level of interest in this example we could see the morning High 3 hours later we hit that high 4788 and also put in a lower high if the market broke this high and then immediately failed that's also a good indication that the market may want to reject and reverse much lower as in this example we sold off and the volume is there to confirm that now we have creating a trading plan once I have Point number one which is developing a level of interest and point number two a reaction at that level of Interest now my trading Edge is present my Edge is what gives me my advantage over other Market participants it's when the probabilities are in my favor to trade I never know a trade will work out even if I have a plan I am wrong I take losing trades I take winning trades but when I have Point number one and two I know the probabilities are in my favor even when probabilities are in my favor I still can lose this is the equation that I have to put a valid trade on first component is where that's my level of Interest my second component is why is my reaction why should I enter the market if I have two I have a valid trade every single time I click the buy or sell button I need to have a valid trading plan what does this plan consist of very very important I see people going into the market blind without a plan without a thesis without an edge and that is the very very harmful for your account my trading plan consists of an edge confirmation or thesis okay I'm long here because of we're at a demand zone I'm seeing buying stepping in this is when probabilities are in my favor I have a thesis I have confirmation and this is my Edge Point number two very important actually the most important aspect to it stop loss where is my analysis proven incorrect I place my stop loss of where and when my analysis becomes incorrect if I am entering at $100 and I am wrong or my analysis less likely to occur if we break under $99 then I will place my stop loss under 99 because that proves I am incorrect on my original thesis or my original trading plan so place a stop loss and place it at a point where you are wrong based on your original analysis also having a static Target for me I have hard targets meaning I'm targeting X price but then again what if the Market's really strong at that Target and what if the market wants to continue running up then having a static Target will help you maybe scale out there get out 75% 90% And that's what I will do some of the times if my target hits depending on the trade that I am opening where can the market reverse or where can it be proven correct that's where you must place your Target and holding Runners is optional not the biggest fan of doing it but if I will do it I have a static Target now Point number four the most important point is managing risk before I enter a trade I never know if that trade will work out for me or not I cannot sit here and say okay I'm entering long this thing is 100% of the time going to work out for me I never know before I enter if I'm going to profit or if I'm going to lose on it I will just make that clear and no Trader in the world will ever know that if it's going to work or if it's not going to work before they enter I know when the probabilities are higher in my favor but I never know 100% certainty if it will work that's the unknown factor the Unown known factor is we don't know I don't know what the market will do next I don't know how it will do it and I don't know if I will win or lose on it however what I do know is how much I will lose if I am wrong that's really the only thing we can know in our trading we can only know how we control the trade manage our emotions and most importantly we can know how much we will lose if we are wrong that is the risk component so before I enter a trade I know exactly how much I am going to lose if I am wrong and I know how much I'm going to win if I am correct it is the known factor to a trade I cannot control the outcome of the market I can only control the outcome of myself and my emotions very key point right there I write that down if I hesitate if I think too long then I don't have a trade my best trades come from not thinking and just acting my worst trades come from thinking too much the minute I think too much I may miss the move or enter late skewing my risk of reward my best advice is stop thinking and start doing the minute you think is is the minute fear Creeps in and the minute fear Creeps in is the minute you are going to lose especially in the long term you never want to enter if your risk to reward is skewed and a lot of the times that comes by thinking way too much about every possible outcome how much I'm going to lose or am I going to be wrong or what's going to happen I'm I'm nervous I'm fearful and that is the wrong approach to the market sometimes I sit here and think too much and I know not to enter the trade and then most importantly following the plan you created in controlling your emotions there are only two ways that I sell a position number one is if my target hits and number two with my stop loss triggers if you can follow this if you have a problem with getting out too early or staying in the trade too late listen to this carefully there are two ways I sell a position one if my target hits two if my stop- loss triggers everything else in between is noise think about this the Market's not going to move straight up in my favor all the time it's not going to move straight down in my favor all the time pullbacks bounces consolidation they're completely normal if the market just rocket up to our Target all the time then there would be no such thing as a market these pullbacks these consolidations these periods of quietness Stillness should not freak you out that means you're focusing too much on the money and you were simply letting your emotions get involved size down if you need to present moment awareness is key focus on the present moment stop worrying about the past stop worrying about the future present moment awareness trade in the now I'm going to end the video on that note if you enjoyed it I would appreciate you to like this video comment any questions and definitely subscribe to the channel and check out the links in the description below for some very good trading resources but I'm ending it peace

Channel: Carmine Rosato

Views: 36,040

Keywords: carmine rosato, supply and demand, ricky gutierrez, learn plan profit, ross cameron, warrior trading, tim sykes, day trading, stocks, stock market, day trading recap, trading recap, thinkorswim, tdameritrade

Id: 8NkS9K4vNRg

Length: 28min 33sec (1713 seconds)

Published: Sun Feb 18 2024