A Quick Dirty Guide To The Market For Dummies

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Today, we will dive into “A Quick Dirty Guide To The Market For Dummies" 👇

I stopped reading the daytrading forum because I keep seeing the same post over and over. Take any post from a year ago, and boom you have tomorrows posts, just new faces and new names. I’ m going to go over some basic stuff every trader should know, however it seems like few do on this forum.

1. Market Structure:

This is one of those things that is basically black and white and should be the easiest for any trader to understand. Every trader should be able to instantly recognize market structure. This is by far the most critical for any trader. Before you start any trading session. Mark out the lows/highs of the previous day and also todays pre-market. Mark any pivot zones or areas where you saw higher then normal volume. Identify any liquidity zones or gaps. Is the market making higher highs, lower lows, etc. Is it following or respecting certain trend lines or Moving averages. Things like this should already be ingrained in you before you even start trading a dollar of your own money.

2. Trading Range:

You need to know what the days trading range is likely to be or has the possibility of happening. You should already know what the average true range for your equities or derivatives move for the day. If you dont, just use daily ATR as a tool. Mark the top and bottom. This becomes your trading zone. Also you can think of any areas above/below these areas as overbought or oversold. Another thing you can do is look at option chains and get a probability/market expectations. Since a lot of you don’t trade options, here is what that would look like.

3. Market Equilibrium/ Fair value

Where is the market equilibrium. This to me is what fair value is for the day. You can tell by just using either Vwap or POC to figure out where that area is. Also how strong that level is. You can also tell market bias from wether its above or below Vwap. Also how strong of a reaction was produced indicating belief and also participation. If your not getting strong reactions off vwap or poc or you dont see above average volume. This should set off alarm bells. Every mean reversion based trading is based off “fair value”. If you use Vwap, POC, bollinger band. Your always looking for it to come back to this zone or for a bounce to happen depending on the situation.

4. Market bias:

Market bias is one of the more subtle trading subjects and requires experience to get a better feel for what the market is hinting at. I’ll try to go over some simple concepts that are more black and white.

You can see from this chart, that we are more put heavy. Which indicates a market bias or more precisely what people think is going to happen. You can see that from the open interest. Also for the upside move, you can see where gamma starts (for people who don’t know options, its where you can expect momentum to kick in, if it can hold that level)

Another thing that will help form market bias is what is the dollar, yield, and vix doing. I use these 3 charts heavily when I’m trading, as it gives you an idea of where the wind wants to blow and having the wind at your back is the easiest way to win. DXY and TNX have a inverse correlation to the market. Oil and gold is also heavily impacted by dollar movement. Yields tend to have really big impact on TECH. VIX is basically the fear index. The way its moving will give you an indication of market sentiment and also market sentiment at that price area.

5. Market Makers, options, market mechanics:

All you need to know about market makers besides the liquidity they provide is

A) Delta neutral

B) Gamma

C) Max Pain

D) Option expiration and expiration for other derivatives.

Simple Market Mechanic all the newbies dont think about. I’ll list couple examples. For example when shorting a stock, in order to take profit, you must buy to cover a short. This means when your “taking profit” or someone else is, your gonna see green. Also this would mean they are not buying due to conviction in an up move, but are just taking profit. Its also why you see inverse of the move/trend to a news/ event have a slight or heavy counter going into it sometimes as traders go risk off by taking profit. If you had heavy selling into a news event for example, I know a bump up can happen as they take risk off the table. Or vice versa when its heavy buying going into the event. The amount of total volume before the event will give you an idea of the range during that period of time.

The market has a habbit of putting on moves at certain time periods. Market open, Lunch time, Power hour, news. Also time frame can give you hints of when a likely reversal etc. can happen. Every week, you should know when important news is comming out that effect the market instead of getting raped butt raped with no lube and asking dumb questions like, “why did the market reverse or take off “ etc.

7. Scalping:

Every trader should know what the story of a candle formation is telling you. If you understand what its trying to tell you, you will stand a better chance. Alot of people skip understanding candle formation and focus more on inidicators. You need to learn the basics first, so you can have a foundation for other stuff. Dont worry about the names of the candle, just focus on what creates that candle and also what is it telling you.

8. My Trading Style:

For me, I focus mostly on scalping off the 5min chart using 1 min entry. If certain things arnt clear, I will use the 15min chart and also have a look at the daily chart to see whats going on.

So what indicators do you have on your charts? I use VWAP and 5min Moving average as my primary indicator. I also like to use RSI sometimes as well. I only have 2 indicators on my charts but its also because I can instantly recognize market structure, piviots, supply/demand, liquidity zones, etc and I dont use any inidicators for those. Im old school, alot of the indicators that you see now was not available to retail traders. Not to mention, once you been doing this for a while, it becomes as easy as breathing recognizing things without the use of a indicator.

If you want to see how i trade, here is visual representation