This is a guest post by Mike Semlitsch who is a trader and software developer with a proven track record of helping novice and intermediate traders succeed in trading the financial markets. Driven by a passion to help others, he takes pride in creating and providing the best trading systems and indicators possible. As the owner of the website www.PerfectTrendSystem.com, he specializes in developing trading systems and tools that allow users to trade in harmony with the actions of the smart money.
Day Trading With Big Winners On A Regular Basis
With the day trading method presented in this article you can get very big intraday winning trades on a regular basis. If you are the type of trader who can hold trades over night or even multiple days, then the winning trades can even get crazily big.
The winning trades can get so big because you will be able to enter into major trend reversals at the absolute earliest stage. And you will catch those major trend reversals on a regular basis because you will combine a trend reversal signal of a bigger time frame with a trend reversal signal of a lower time frame.
The basis of this trading method is a FREE Double Top / Bottom Indicator which exploits the never ending cycle of the smart money, which consists of
1. Accumulation
2. Trapping
3. Trend Reversal.
The following screenshots are showing a double bottom and a double top signal of the free indicator:
The reversal pattern that the indicator detects has many names. You may know it as “Bear/Bull Traps” or “Double Tops/Bottoms With Fake Breakouts”.
The smart money uses this reversal pattern to accumulate a huge position at the best possible price before it changes the direction of the trend. The following two sketches schematically show how the reversal pattern looks like, where the fake breakout occurs, and where the indicator gives the entry signal.
We will now take a closer look at the reversal pattern. Then you will understand why you will make profits on a consistent basis if you trade this reversal pattern.
How The Smart Money Fools The Herd – While You Will Make Profits
The smart money in the role of the market maker must take the imbalance of the herd!
This means that if the herd brings more short orders into the market than long orders, then the market maker automatically accumulates a long position.
The same is true for the opposite direction. If the herd brings more long orders into the market than short orders, then the market maker automatically accumulates a short position.
Because the majority of the herd is trading in direction the trend, you can expect that during a trend the majority of the herd is positioned in direction of the trend. At the same time the market maker automatically accumulates a position against the direction of the trend!
The following two screenshots show what happens during a trend from the viewpoint of the market maker.
The left screenshot shows a downward trend. While the herd is net selling the market maker is net buying. The market maker builds a long position. The average price of this long position is above the actual price. This means that the market maker is sitting on a long position which is deep in minus.
The right screenshot shows an upward trend. The result of the upward trend is that the market maker is sitting on a short position which is deep in minus because the average price of the short position is below the actual price.
The smart money, a.k.a. market maker, moves the biggest amount of money in the market, and has the most information about the market, and the power to move the prices significantly. If the market maker wants to reverse the direction of the trend, then they will usually optimize the average price of the position that they are holding that is actually owned by them.
The market maker can optimize the average price of their own position because they know that there is a lot of liquidity from the herd if new lows are reached in a downward trend or if new highs are reached in an uptrend. The following screenshots show the areas of high liquidity from the herd:
If the market maker intends to use these liquidity areas to get a better average price for their own position then they will drive the price into these areas. As soon as the liquidity area is reached the market maker aggressively absorbs all incoming orders from the herd, this will stop the price move. Pin bars and other reversal candle patterns occur within these liquidity areas. The market maker increases their own position size at the very best price level.
The following two screenshots show the result of “increasing the position size at the very best price level”. The average price of the position of the market maker is now much nearer to the actual price.
After the liquidity of the herd is absorbed, it is then time for the market maker to make money from the accumulated position. The liquidity from the herd is gone because the herd sees that the trend stopped to continue on further. The market maker now adds to his own position size for one last time. The last heavy adding reverses the direction of the price move.
During this reversal, a double bottom / double top becomes visible on the chart. More and more members of the herd are closing their positions in panic. The neckline of the double bottom / double top gets broken, which is exactly the entry signal of the FREE Double Top/Bottom Indicator.
A very fast price move occurs into the opposite direction of the previous trend. This fast price move is the profit release phase of the market maker, whereby they exit the previously accumulated position with profit.
Because we enter at the break of the neckline of the trend reversal, we participate at and in the direction of the profit release phase of the market maker. Therefore, the size of our winning trades is directly dependent on the size of the profit release phase of the market maker!
The second part of this article will reveal how you can select those powerful setups that have the potential of getting crazily big winning trades on a regular basis!
In the following video you will see how the indicator could have produced 128% profit with only 35 trades with 2% risk per trade. Despite the great performance of the raw signals of the indicator, I’d highly recommend that you select only those signals that occur in conjunction with an edge of the bigger picture so as to participate only in extremely big winning moves.
The bigger your edge in your trading the easier it will be for you to handle the emotional part of trading!
How To Select The Crazily Big Winning Signals
From my experience in the FREE Double Top/Bottom Telegram Group (you will get access to the group after downloading the free indicator), the members have the greatest success with signals of the M30/H1 time frames. These two time frames provide a good balance between the number of signals and the size of the move that you can expect of the winning trades.
Therefore, let’s say that the two example signals (the double bottom and top from our screenshot) are from the M30 time frame. You can trade the signals of the FREE Double Top/Bottom Indicator successfully by only looking at the M30 time frame.
But if you only look at the M30 alone, you will never know when you can expect an extremely big winning move. You would then have to choose a small target for all your trades.
The following sketch shows the relatively small market maker cycle of Accumulation, Trapping (final Accumulation) and profit release that you would trade if you only look at the M30 time frame:
If you want to have crazily big winning trades on a regular basis, then you’d need to choose only those double top/bottom signals that occur within an edge of the bigger picture!
There are many edges on the bigger picture that you can use for selecting the best double top/bottom signals on lower time frames. In this article I will show you how you can use divergences on the H4 time frame to select the best double top/bottom signals on the M30 and H1 time frames.
If you trade e.g. double bottoms on the M30/H1 time frames within bullish divergences on the H4 time frame then you are in essence trading a small market maker cycle within a big market maker cycle. With this approach you can enter into the huge profit release phase of the big cycle with the tiny stop of the small market maker cycle.
The following sketch shows these two nested cycles (small cycle within big cycle):
On the chart the price action can look as shown in following sketch. Within a bullish divergence, a double bottom occurs (green rectangle). The subsequent winning move to the upside is huge!
You will have the same crazily big winners with short trades if you choose double tops on the M30/H1 time frames that occur within bearish divergences on the H4 time frame. Then you will also be able to enter with a tight stop from the signal of the lower time frame (small cycle) into a big downward move, which is the profit release phase of the big cycle.
The following sketch shows the two nested downward cycles (small cycle within big cycle):
On the chart, it will look as shown in the following sketch. A double top occurs on M30/H1 within a divergence on the H4 timeframe:
Such signals occur relatively often. And if you patiently wait for these signals, then your trading will probably be very much better than before!
A Real Chart Example Of A Crazy Big Winner
We will now see how a real chart example looks like. The following screenshot shows the bullish divergence on the H4 time frame after a downward trend. A double bottom signal was indicated by the free double top/bottom indicator on the M30 time frame in the area labeled with the green ellipse:
The following screenshot shows the double bottom signal on the M30 time frame:
This double bottom signal could have produced a 17R (1R = the risk of your trade, e.g. 34% profit if you risked 2% with this trade). How many trades of this size do you need per year? 🙂
With this trading method, you have the key to trading success in your hand. All you have to do is to wait patiently for such setups and then let the double top/bottom indicator tell you when to enter. Even if you want to hold the trades only intraday, you can expect big winning moves if you add the edge of the bigger picture to the edge of the double top/bottom signals.