The Secret To Telling Where a TRADE Will Go Next | Step by Step

The magic question every trader has is how do you tell if a trade is going to go higher or lower before you essentially get in? Now, obviously, there is no crystal ball in the market to tell you when a trade will go higher or lower. However, there are certain tools and things in the market that we as traders can use to our advantage to give us a higher probability of exposing where the weakness in the market is and where the strength in the market is. And by doing so, we will have a higher chance of being profit profitable. In this video, we are going to talk about what causes the market to go higher or lower, how the market facilitates trades, and how we can take advantage of this to identify opportunities. So now let's break down the first thing. How does the market move or what causes the market to move? Now, the market moves under the one fundamental truth, which is supply and demand. Our job as traders is to understand how supply and demand works and how we can correlate it to trading. Now, just like anything else, supply and demand fundamental truth is that whenever supply is more than demand, prices will go down. Whenever demand is higher than supply, prices will go up. Very simple truth. Our job is to take that and incorporate it within our trading. Now, to understand it is one thing. To apply it is another. Now, the way we apply it to our trading is our job as traders is to identify areas that are of supply and areas that are of demand. Once we identify these areas, our job is then to identify if and when we get into these zones, do buyers get more aggressive or do sellers become more aggressive? Now, I know this might be new to a lot of you guys, but I'm going to break it down and simplify that in a bit. Now, with most things with supply and demand, we actually have a set quantity, right? So you might have 10 iPhones, and if there's 10 iPhones available at a given time, and there's so many people that want the iPhones, that will cause the price to go higher. Now, in the world of trading, for every buyer there is a seller. So if there are 10 people looking to buy 10 shares or 10 contracts, right? For those 10 contracts to be traded, they have to buy them from someone else. They have to buy 10 other contracts. Which leads me to my next point. How does the market facilitate trades? The market operates off an auction house. Now, the idea of an auction house is you have buyers and sellers, and the market essentially is the middleman that facilitates the trades. It takes the buyers and it takes the sellers, and it comes into an equilibrium of price that's where the auction house does its job. And that is exactly how the market facilitates its trades. Now, in the market or in the auction house, we have two types of orders. We have an aggressive order, also known as a market order, and we have a passive order, also known as a limit order. So keep these two terminologies in mind. Whenever I talk about aggressive buyers or, you know, aggressive sellers, it comes into how these orders are placed. So this is where we go into the order book. So in order for the market to facilitate trades, the market has something called an order book. Our job as traders is to understand how an order book works and understand how we can use it to our advantage. There are different types of order books. We might have the depth of the market, we might have level two, and so on. But our ultimate idea right now is to understand how an order book operates and how we can use it to our advantage. So here is an example of an order book. So when we look at this order book, we can see on the left side we have buyers. On the right side we have sellers. This is the price. So currently, this stock or this trade is trading around $101. This is the fair market price. This is what the market thinks this stock is worth at this particular moment. Now, the orders that we see, as I mentioned before, we have passive orders and we have aggressive orders. These are all passive orders, also known as limit orders, right? So the way limit orders operate is whenever a trader places an order. So, for example, let's say I come in here and I say, let's say I want to buy 100 shares of this stock at whatever price I pick. Let's say I pick $98. If I want to buy 100 shares of this stock at $98, what will happen is this number will go from 400 to now 500. Because now I have a limit order placed to buy at $98, right? So this number will increase. Now, if I place a limit order or a passive order, right, to sell 100 shares and let's say 104, what will happen is this number at 104 will go from 500 to 600. So once again, these are all limit orders. These are all passive orders. Now, market orders are essentially orders that are hitting the bid or hitting the ask immediately. A lot of times we'll see aggressive orders come in and aggressively hit the bid, hit the ask. Now, every order that we see come in to the market, guys, every single order will pop up in something called time and sales, and time and sales. We can See, every single trade executed at time with the price and volume. So if I come in right now and I say, well, I want to buy 100 shares of this stock, let's just call this stock A, or let's just call it bitcoin or whatever we want to call it, right? Let's say it's called stock A. If I want to buy a hundred shares of stock A at market order, what I'm essentially telling the market is I'm telling the market that I want to buy a hundred shares at whatever the market price is. Now, in order for the market to sell me a hundred shares, it will have to go to a bot. It will have to go to someone that is selling, right? So the first seller is at $101 price and the second seller is at 102. So if I place an order for 100 shares, I want to buy 100 shares. What will ultimately happen is I will get filled 72 shares at 101 and the remaining 28 shares, right? The remaining 28 shares to fill in my order of 100 will get filled at 102. Because this will get blocked out right the moment I hit a market order. But as I mentioned before, think about it as an auction house or we have buyers on one side, we have sellers on one side. Now, the buyers may sometimes place passive orders or limit orders on where they want to buy. And sellers may also place orders where they potentially want to sell. Now, the difference is when aggressive traders step into the market, they will pay whatever price. So I'll give you an example. So let's imagine an iPhone. An iPhone currently is going for US$1,000. So if it's going for US$1,000, that's the market price. Now imagine someone comes in and they say, I want to sell my iPhone for eleven hundred dollars. If they want to sell their iPhone for $1,100 and it goes into the market, one of two things are going to happen. Number one, buyers are going to immediately buy the iPhone because the demand is so much that they are willing to pay whatever it is to purchase that iPhone at that given time, meaning they are aggressive buyers. Or no one is interested in paying a high premium, which is eleven hundred dollars, and no one is interested in spending or being as aggressive on the buying side to be the buyer at that price point. And if that doesn't happen, that means there is no activity at those levels, there's no interest at those levels, and buyers will not drive the price higher. Now, I know it sounds a lot, it Sounds very confusing and it sounds all over the place. I'll show you guys some examples in a bit. But the main concept that we want to understand here is we want to try to understand how do we read an aggressive buyer and how do we read an aggressive seller. Once we are able to identify that, that will give us the ultimate advantage on reading price action and reading what the market is doing at critical levels, such as our supply and demand levels. Now the question is, how do we put this together, right? So just to really recap and just kind of break things down, number one, how's the market move through supply and demand? We have to take supply and demand, understand that, incorporate that into our trading. Once we understand supply and demand and we understand how to apply these levels and zones, our next step is to understand the order book. We understand the depth of market. We understand level two. We understand time and sales. We basically understand how to read it. The idea of reading it is to be able to identify the strength of buyers and the strength of sellers. We want to be able to identify who. Who's more aggressive and who's able to actually identify, you know, what the fair value price is at that given time. If we as traders can identify that and we can replicate that, that will give us a huge advantage. Now, there are a lot of tools to kind of look at order flow. There's a lot of tools to look at the Dom Level 2 and so on. But right now I just want to focus on how to put it together. So here's a chart. As you guys can see, I have a chart of a stock. And just looking at the stock, we have a few levels going on. We have, right here, you guys can see we have supply zones, massive supply zones. Every time we're coming into these supply zones, you can see we're fading. The next day we open, we see a rejection at those supply zones again. We also have a nice, nice demand zone. We bounced off that on day one. The second day, that's exactly where we bounced off again. And when we weren't able to hold this demand zone, we started selling off. Now, the job of doing all of this and understanding is how do we understand when this trade gets to this zone, it will have a high probability of going higher or will it have a high probability of going lower? This is where reading order flow comes in. This is where putting the pieces together comes in. This is where looking at the depth of market and understanding who's more aggressive and who's more passive and so on and kicks in. Now, I'LL share some things with you guys, right? So what I look for during these times, two things that I use is, one thing is I look at footprint charts. Footprint charts allows me to understand the strength of the given stock candle, whatever the case is, at that given time. Right. I will make a separate video on footprint charts and how I use them. And another thing I use is I really focus on the depth of market to understand how orders are being executed and how orders are going through the market. Are they aggressive? Are they passive? Are the aggressive orders able to drive this higher or are the aggressive orders not able to drive this higher? Right. So imagine there's a huge aggressive orders on the buy side here. Buyers are very aggressive, extremely aggressive, but they're not able to drive this price higher. That means that there's a lot of passive orders sitting that keep hitting the bid, that keep coming in and the buyers keep buying it up. Right? That the buyers do not have effort to drive this price higher. So when I see buyers are unable to drive a price higher, regardless of how aggressive they are, that sometimes shows me that there's a big seller sitting on the sidelines that has passive orders. And they keep selling, and they keep selling, and they keep selling and they're able to be more aggressive. Even though it's not showing on the tape and even though it's not showing on the tape, I'm looking at it through the orders being filled and the action that is happening on the chart. So that is what I start looking for at these key supply zones, these demand zones. And if I'm able to read that there is strength here, if I'm able to read that there is an identification of this possibly being aggressive or passive, depending on the side it's at, I will go ahead and take this trade and execute based on that understanding. So just to recap everything, once again, my whole way of looking at trading, as mentioned before, I look at price, I look at volume, right? When I look at price and volume, I like to see who's more aggressive. Is the buyers, is it the sellers? If the buyers are more aggressive, are they able to drive the price higher? Are they able to get to a higher price point or are they just more aggressive but they're not able to drive the price higher? Right. I'm also looking at areas that show me supply, areas that show me demand, areas that show me interest. Where is the most traded volume? Where's the most interest? Within the intraday session, I look for these zones. Once I'm able to identify these zones, I Look at the depth of market and I break it down to identify once again who is more stronger, buyers or sellers. And from there, I facilitate my trades. Now, I want to leave you guys with a few things. Some of this seems very complicated. Some of this seems very easy. There is a mixture of both, right? Reading, order flow. There's. It's kind of like an art, right? There's a lot of different elements that we as traders need to put put together to be able to recognize market opportunities and recognize the real market strength. It's not just something as simple as looking at your screen, looking at the chart and saying, well, this is telling me to buy or this is telling me to sell. It takes very long for you to gain the intuitive side of reading order flow, intuitive side of reading the tape, intuitive side of just reading the action happening within the market to basically identify what the next thing will happen is. The best way to learn, in my opinion, is to put in screen time. You have to know a what you're looking for. You have to be intentful, and you have to add it with market structure. Now, in the upcoming weeks, I plan to make more videos covering these topics. I plan to give you guys trade breakdowns of what trades I've taken with the same context, breaking the context down and just going deeper into this whole new world of trading. And with that being said, if you guys have any questions, anything that seems a little bit confusing, comment down below and let me know. And like I said, in the upcoming weeks, I want to go more and more deeper. I want to show you guys real live examples and show you how I utilize order flow, how I utilize footprint charts, and how I utilize looking at the market from a different angle to give myself an edge in the overall markets.