Wall Street scalper reveals: The Truth about order flow Trading! (How to ALWAYS Beat the Market!)

The true rules of the big money flow. Forget all this retail bullshit like 1, 2, 3 setups or anything else. We are ex Wall street scalpers. We work together with hedge funds and we understand the real money flow, not the retailing ideas. Forget all these lies. It is not true. I work together with my friend Serge Hoffman. He's an ex white suite scalper and he gave me so much information in the past that I understand very deep the two of trading. If you are interested, listen this podcast retranslated it with I because our English language is not perfect and I hope you feel comfortable with it. Thank you.

A very good day to everyone from Lanica. Now we at Trade, the traders are going to give you our best today so that you understand how to grasp the connections from professional traders who were active on Wall street, who have an institutional background, who have sat room by room, office by with hedge funds and simply got to know things that just aren't present in normal retail trading. This knowledge simply isn't available. And unfortunately there are an incredible number of assumptions. Yes, the kind of expertise that's sometimes passed on to people with things like stop loss running and all those stories. And today we want to dive a little deeper into that and above all tell you what the reality is and how things really work at the big firms in the capital markets. I'd like to warmly welcome my dear colleague Serge Hoffman. And the two of us always enjoy doing educational work like this and providing plenty of input along the way. Because there's one thing that doesn't exist and that's secrets on the stock market. The secret, the holy Grail, is combining different skills with the right tools and then trading in a way that fits your personality. And we've become aware of that by now. Countless people have now stolen fragments of our expertise and somehow spread them further, especially from you. There are plenty of stories about that and all I can say is that's just not real. And what we have to share with you today is real. These are experiences and things we've simply had the chance to learn ourselves. Yes, Serge, maybe you can talk a bit about what it's like for example, with this stop loss topic. Let's just take the S&P 500 as an example or whatever else there is to say about it, just to bring a bit of clarity and awareness to the topic.

Well, this myth that the big players are always, for example, hunting or fishing for stop losses isn't really how it is out there. Because if you take a closer look and observe the markets a bit and sometimes whenever you look under the chart, under the lows, and if you know how to read all of this and how to follow the order flow, for example, using the footprint, you can often see quite clearly that sometimes trades are happening there in the single digit range. So I ask myself, what do the big players want to fish for in the single digit range?

But why don't the big players use single digit ranges that might actually be interesting to talk about? Because the story always goes that there's this super hedge fund, they always scoop everyone up at the bottom and things like that.

No, that's not the case. Most of the time it's due to certain events that the market moves lower.

First of all, we need to clear.

Up the idea that some brokers or hedge funds know exactly where all the stops are placed. No, nobody knows exactly where the stops are, except for your broker themselves. And accordingly, that's just how it is. Yes, the fairy tale that someone knows where the stops are. There's a very simple rule in the stock market which you can read everywhere from the start and which I sometimes also follow, that you place stops below certain extreme highs or lows. Everyone knows that's where stops are placed. But how much liquidity is actually there, nobody knows. And accordingly, nothing is being hunted or anything like that. And when the big players build their positions, it doesn't happen in a minute or a second. It happens over time, depending on the size and position they're building. And sometimes it's complex, sometimes it's done through spreads, sometimes it's additionally hedged with options. So it's a very big game and it can take weeks sometimes until they fully built their position. Accordingly. It's not true that there's any kind of stop hunting going on. For example, a very well known strategy that currently.

Is public is the ICT strategy. And right now it's being hyped up a lot. And yes, people always talk about how the banks supposedly always sweep the stops. And then I sometimes talk to a lot of people. I recently had a conversation with someone who, as he says, does prop trading. I asked which prop firm does that, though I don't want to advertise for them. But it's one of those challenge prop firms and I don't know if the young man was even aware of that, he said, yeah, they keep hunting our stops and the banks do that because they need the liquidity first to move the whole thing. So I just asked him a question. If you're a prop trader and you do these kinds of challenges, then you Must be aware. But you have to be aware that all this trading is actually at a level where. Because as I said, these trades aren't even routed during all these challenges. And I wonder how are they supposed to do stop or stop hunting if all of you prop traders are operating in demo mode and then you supposedly think stop hunting is happening because of the banks? Maybe it's the demo banks. Could be, I don't know. But if you look a bit deeper, as I said, into a trading board at what's actually being traded in terms of contracts in certain markets, it's unbelievable. Sometimes it's single digits, double digits. It's not like there are thousands of contracts being traded in the S and P at the lows or something. Right now at this moment. That's nonsense. So you really have to look into this. Sometimes, as I said, there are two, three, sometimes just one contract, and sometimes nothing at all being traded. So it's nonsense to claim that there's always stop hunting going on below the lows? No, the market is simply dynamic. And you always have to remember there are always two sides in the market, two major players. Some are buying, others are selling. And if that's necessary, then the market is triggered by certain events. And that doesn't necessarily mean it will stop hunting.

Would you say that market moving events, for example, are already known to market participants beforehand? There are always these myths as well where people claim, yes, they already know everything in advance and position themselves accordingly, and that's why these movements happen the way they do.

I can't say that with 100% certainty anything is possible, but for the most part, that's not the case. If it does happen, it's such a tiny, tiny percentage that it doesn't really move the market. It's simply certain events. And sometimes it's also just the greed in the markets that drives everything. So for example, I remember this from stocks back in the day with pump and dumps. I don't know if anyone knows what a pump and dump is back then, especially with small caps or penny stocks. I don't know if you remember that.

Do I remember that? I got to know that very well. Back then I used to sit together with traders. Maybe I have a cool story for you. What do the big guys do who actually aren't that big a story from the old days? It was around 2006, 2007, 2008. Back then, for example, we learned in Switzerland that there were a lot of stock issuances, new stock offerings. They had absolutely no foundation. That was really exciting. And then the very people who originally initiated these particular stocks had these specific boxes representing the companies officially listed on the stock exchange located in Luxembourg. Following this, they then proceeded to do some of the wildest, most outrageous and truly unexpected things imaginable to aggressively drive up the prices and valuations of these companies. Even though there was virtually no actual liquidity at all in the market for these stocks, they did it. They sent faxes, they did all sorts of things to draw people's attention so that liquidity would flow into these companies they themselves were already in long before. And in some cases, they pushed stocks from €0.01 up to €7. That's unimaginable. And of course they cashed in. And then there was the other side, the short sellers. They found out that these stocks were worthless. And back then there was a really great broker in Germany. There you could write naked shorts for four days. That means you could fire in naked shorts and short those kinds of stocks. The trick and the risk was that sometimes you started shorting at €2 and the thing just kept running up. One phone call to the relevant authority and they suspended trading. Of course, the guys who shorted the stock went all in and put in everything they could. What's the story behind it? That's not how real institutional trading works. That's fraud on all sides. But there was a lot of that going on. And if you just imagine the people who are called back then were supposedly some dental companies that had developed the greatest product for dentists or something like that. They really invested a lot of money just to push those stocks up in the first place. And the short sellers really traded those stocks down to zero. And that was really, really terrible. And who was the criminal there? Yes, the initiator was the criminal. And who was the so called Robinhood? That was the one who beat the stocks down? Because he then said, oh yes, what they did was really mean. But in reality they also lined their own pockets. And that's the stock market, that's reality. There are no gifts there and there are no stories like, oh, we're doing something good for them. Just be prepared for this. When you as a retail trader enter the markets, you're up against institutions that know no mercy, have no compassion or anything like that. You're competing against people and nowadays against machines, algorithms and so on, where the brightest minds are involved developing insanely impressive stuff, spending huge amounts of money on progress. And we retail traders really think to get back to the point that they make money with stop loss hunting. No, you can Forget about that. That's not how it works. And just to give you a bit of an example, you have to imagine a large company takes a very long time. If, say, a pension fund receives money or whatever, corporations, you name it, and they get capital inflows, then in this example, they have to route these stocks through the exchange. Of course, there's black pools and so on and so forth.

Dark pools.

Dark pools. Oh, yes, yes, dark pools. Thank you. And there are also transactions that are settled there. But a lot is processed through the exchanges. And many of these institutions sometimes need an entire day, sometimes even longer, to establish their positions there. And when do they prefer to do this? When markets are fairly priced. And when a market's fairly priced, when they are in a range, in a sideways structure. And also to place a few trading ideas there, you have to imagine these guys have just one ambition, that the market moves back and forth from top to bottom over and over again in order to do fair business. So it makes a lot of sense to visualize such a range phase for yourself, to see where the unfair prices start and to do some counter trading there. Do the big players do that too?

What do you think?

Do they do counter trading the way we imagine it, or is it just smaller hedge funds that pull off these kinds of things for themselves?

Well, I don't think hedge funds and the like do counter trading. In some cases it's even prohibited by their statutes and everything.

Exactly.

There are still such statutes. And most of the time it's small prop firms. Traders here, you have to understand it like this. Hedge funds don't take on those risks themselves. That's why they're called hedge funds. Most of the time, the risk is shifted to some small companies like prop firms, where they take on all the risk or do proprietary trading. And of course they can then use strategies like counter trading and such. But those aren't really the really big players. So you always have to understand, it always makes sense. How does a range come about? It's quite simple. The market is sometimes moved around until another big player says, now this is a good spot for me, for whatever reason, to crash it. And then they meet, as they say, there are always at least two markets. One buys, the other sells. And that's how this redistribution happens. And then it depends on who has the deeper pockets and how the other participants, like retail traders, position themselves. And the whole thing, well, it always follows the same story, which, as mentioned, could be something like stop loss hunting. But it's not really stop loss hunting. It's Simply when the one who is overweight and stronger than, for example, the one who is short at some point, the one who has been positioned long the whole time will eventually feel the pain and eventually, in quotation marks, run out of money. Then some positions are closed. And how do they usually do that? Often by selling at market, because they realize there's nothing left. As a result, the market becomes a bit more aggressive. For example, counter trading is done so that a counter movement arises in the market and then new players come in saying, hey, this is a nice price for me to go long again.

So it's complete nonsense to think that a single address is running the show. Rather, it's always a group of many large addresses, each with very different ambitions. But there are also trend phases that are really aggressive and fast. And such trend phases are, in my opinion, and also, from what I've been able to learn, always triggered by some kind of fundamental news. And large institutional players aren't interested in just briefly moving a market from A to B for technical reasons. There has to be substance behind it, and substance leads to the shift of new fair prices. And where that fair price actually is, we don't know in advance. And for example, when we refer to resistance and support from the past, from certain highs or from certain value areas, we also don't know if the market will actually stop there when it reaches those points. As retail traders, all we can do is make a preliminary assumption that there's a probability something will happen there. But what actually happens there, we don't know. And that's why we like to look into the order books. That's why we then look into the derived footprint, especially when we're trading a bit more slowly. Trading more slowly. Are there any indications there that what we expect will actually happen? And this glorious golden setup that's often presented and talked about, do you think it really exists?

Not really. So no, it doesn't exist. This so called holy edge in the markets or anything like that simply doesn't exist these days. You even see ads. If I look around on social media a bit, there are ads for the new edge AI and artificial intelligence and all that. Come on, seriously.

So you're clearly saying that these artificial intelligence stories that are currently out there right now aren't sustainably profitable in the long term if they are primarily based on initial setups.

Yeah. Even the AI only knows certain setups. I also have my own AI that helps me out, but it's not that great either. It doesn't tell me, hey, go this way. Because of this and that. It doesn't work like that because this AI also has to be able to read the market, the current moment, what's happening right now, and analyze it for me, using images, data and everything. And in this area, for us, for retailers, I don't know how it is for the big players, but for us, the data is missing, the speed isn't there, the whole analysis in a split second, that's just not possible at the moment. So there's really nothing there yet. It's all just hocus pocus, nicely packaged, nicely sold. And they're basically based on certain strategies that have been programmed in and they just work through checklists. And you could do the same yourselves by making a checklist with setups and so on. Then that's your edge.

But there are companies like BlackRock, for example. It's really just a tiny little shop with the smallest revenues.

Yeah, and they can't do anything either.

Exactly.

No joking aside, these are simply gigantic companies that have insane, insane, insane amounts of assets. And is it actually smart for us day traders to look into what kind of positions such companies hold?

It depends on the area. I'll put it this way, speaking for myself, it wouldn't help me much because they would. They build the whole thing structurally. They don't just say, hey, 10,000 shares were bought here. You only find that out later afterwards. You only see that afterwards anyway because you don't know who's building up the position. The only advantage that companies like BlackRock and the others have compared to us and everyone else is simply information, because they're involved everywhere and as a result they get access to certain information which they can use to develop strategies.

But if we now see, for example, if I see in the order book that someone is actually buying 10,000 contracts right now, then I immediately notice, wow, someone is buying 10,000s and P contracts at this very moment. So it must be something big. I can use that information for myself as well. But you don't know exactly, you just.

See it, that's all.

Exactly. It could be just one big player, but it could also be 10,000 individual traders. You have to figure out how the whole thing is being traded. I can use that information for myself at that moment and trade accordingly in a certain direction, how far it goes. It might just run for a few ticks and that's it. It's always a bit of a story like that, you know, it's always several.

Building blocks that come together.

But then you would agree with me.

And say that as a trader you don't gain any informational advantage by analyzing all these companies in depth. No, instead, what benefits you is learning to gain an informational edge by reading correctly which capital flows are currently present, what volumes are being traded right now, and then making an inference from that in the moment.

Would you say that if I look at charts now, at market profile, at volume profile, and I refer to the past, that it's helpful to use these tools as creators of support and resistance for the future? Would you say that using these instruments as analytical tools gives you an advantage? And if so, why is that the case?

Well, it depends on which analysis tools you use and how you use them. So if you just pick support and resistance levels or random highs and lows from the chart, especially going back 10 years, that's not going to work. I see things a bit differently there. For example, I'm someone who also focuses on support and resistance, or as some people call it, zones, where there is a high probability that something will happen.

Yes, but what is support and resistance to you? If you focus on that, you need a reference point for support and resistance.

For me, the best way to identify it, to really see how all the participants behave, is, for example, using market profile, which can be very clearly recognized for a certain period of time. But even there, the initial assumption is that something serves as good support and resistance. When I see that the price reaches a certain level and there is active trading happening, if I see, for example, that volume is being generated there, that level holds and the market moves away from it, then for me, that's when it truly becomes real support and resistance, because the market confirms it for me at that moment. I know that there is a resistance point there. But as I said, you actually have to assume that there is support and resistance in the markets. In reality, they don't actually exist. If someone comes in and wants to trade, it always depends on what kind of volume they have, how much capital, what techniques they use, the money. They might just be able to trade right through it. That's why it's better to talk about price areas where something is likely to happen. For example, if I see that volume has formed there, that there has been active trading and the price has accepted it, then I expect that the next time the price comes back to that area, those participants will still be present. If they're no longer there, then it's no longer a support or resistance. Then there is the stop loss. Then there is stop loss hunting.

Exactly. There's stop loss hunting.

No, but that's a normal principle that positions have to be closed accordingly in those situations.

But even there, as you just said, these are simply price areas observed from the past, where you can identify different groups of traders, strong hands, weak hands. From that you build an idea of what could happen if the market moves there. And when it does, you actively observe what happens. Just like we said earlier. At least for me, it's the same. And what you have to add is that large market participants don't trade like this. Only we retail traders do that, and of course a few institutional traders as well. But not any of those huge fund companies or risk managers who really move the big money. That needs to be made very clear.

They use completely different techniques.

As I said, they hedge, they trade.

Spreads, they trade options. So it's not just that if they say we're only buying Microsoft, then they only buy Microsoft. No, they also start to build in certain hedges and so on. And the way this is sometimes accumulated is, for example, through algorithmic methods. But it's not done all at once in a large sum when they need it. It also takes time. They follow certain strategies and it's not bought all at once. That's how things work at such a large hedge fund.

Just yesterday we gave a great talk about the long term positioning of market participants and so on to help raise some awareness about how the whole thing works. For example, in my own trading, I love understanding why things are the way they are. But to be honest, when it comes to actually executing trades, it doesn't help me much except that it's in the back of my mind. That's why it is. Is it the same for you?

Exactly. Anyone who knows me knows that when I sit in front of the screen, I always tell myself a story about what's happening because that's what I see in the market and that's kind of my own thing. First, you form a subjective opinion about everything. And this subjective opinion has to be confirmed by certain events that show you it's right. For example, if you say it should go long now because this and that happened, then the market should, when you trade, confirm that accordingly. If it doesn't, you change your opinion and in doing so you become objective. So when you sit there and have found this objectivity, it's like a story you tell yourself. But for me, for example, I also took part in it and I'm not really a long term trader, but it's still interesting for me to understand how the whole thing works, because that's my business. When you get into trading, you should also understand the topics Involved and not just learn a strategy and wait for signals. It doesn't work.

That simply the real art, as I see with many people, is that they go too deep into certain things and then can't get out of them. And that's how an incredible number of myths arise from all this nonsense. And what would you say is the biggest benefit for us retail traders, the greatest added value? If we were able to gain such a deep understanding, like you did back in America, or like I did when I sat together with the hedge fund guys, what would you say is the biggest benefit you can draw from that and that you can then pass on to retail traders?

Benefit?

Well, the greatest added value for people, for you, for me, for us. If you ask, what does this actually help me with as a trader.

Now, the whole process, or what really helped me as a trader, helps you today.

As a trader, with all your knowledge.

From the institutional sector, what really, really.

Really helps me is simply understanding and reading the market. There are certain tools that personally help me with this, and that's the biggest benefit. As I said, I was indeed lucky enough to sometimes have dinner with experienced market makers, and some of the fundamental principles were explained to me there as well. And once you understand these principles, and nowadays there are some really great support tools like Market Profile, that provide certain insights, you can really form a completely objective opinion from that. That was the biggest benefit for me, when I really understood how the market works. Instead of just following principles like their hunting stops here, there are a lot of stops there, and so on. You simply have to let go of that idea first, because that's not how the market works. The market is a constantly moving, dynamic process, and things can change so quickly, especially if you're day trading, that certain information can shift in an instant. Accordingly, my biggest benefit was learning to truly adapt myself to the market.

So, market making, maybe for those who aren't familiar with it, market makers simply have the task of providing liquidity in the market, both on the bid and ask sides, meaning the buying and selling sides, so that other market participants can always trade. But there's a cool story about this, especially during the COVID crash. It was really exciting because suddenly there were no market makers left. They had all disappeared. And we'll make a separate story about that because it's really super interesting for you as well. All of the algorithms, all of the high frequency trading firms, they are no longer present when the market exceeds a certain speed threshold. And that is something that is quite good for you as individual retail traders to be aware of. And to know, because these significant players are the biggest liquidity providers for us in the financial markets. And when volatility gets too high, they are completely gone. Which means that sometimes 80% of the trading volume that is normally present in the order books is entirely missing.

Exactly.

And if someone traded during the COVID period, for example, they saw that in the DAX, we sometimes had spreads of 20 points, that's no joke. In the euro stocks, which normally has a bid and ask of, let's say, 300 to 500 contracts, sometimes a bit more, sometimes a bit less, we sometimes had single digit numbers. Yes. And what I want to say with this is if you simply know and understand this, and you know that these big players are no longer active, then you just have to be very careful. I also know this from those oil trades which got extremely exciting when oil eventually went into negative territory, and so on. In such situations, it is simply essential to know the rules of the big players. Because otherwise there will always be situations in the markets that we can't explain, at least not in that moment. That's why we can only manage our risk. And if you think this is your biggest opportunity, then go swimming or go cycling or do whatever else. I promise you, when the markets are really highly volatile and we retail traders think the biggest opportunity is coming, they will chew us up and spit us out every single time. Every time. I thought that was the most important, coolest trade, I have to admit. Unfortunately, it never was.

Have you had such a case?

Yes, yes. There are so many examples, really a lot. But I don't want to go into too much detail about them. Instead I want to give you an example of how you can recognize how quickly liquidity can disappear or evaporate at the next ECB meetings or ECB decisions. Just open the order book and see how much liquidity is there. You'll be surprised. For example, if you look at the order book, you'll see how quickly liquidity disappears. Right before interest rate decisions or when the Fed is about to speak, it just vanishes from the books.

So accordingly, they don't want risk.

Risk, exactly. Because not everyone really knows what's actually happening there. And when you see those huge spikes in the chart, it doesn't necessarily mean that there was a massive sell off, it just means that there was liquidity further down and it got filled there. That's why the market, or rather that's why you see such a huge negative candle, but actually not much liquidity was traded within that candle. And then people say, yeah, all my stops Got hunted, damn it. Then it might go back up, right?

Look, you're such a gifted order flow expert, and what I've learned, for example, is to always trade in the direction where there's more money. Such a simple rule. Because where there's more money, there are more big players, there's simply more demand for trading. Would you also agree in such simple terms that this is a possible approach in normal market environments, that you look for volume imbalances and that this direction is initially interesting for us? Or would you say, ah, you have to be careful with that.

You have to be careful from time to time, depending on the context. The context is always decisive. For example, if the markets are. The context in this case is long, and we see that the market is also being driven by the high liquidity that's being created when the market rises, then I would say yes. But there are situations where in a certain way, it can also happen that you might assume something, because that's initially a subjective opinion. If the market in a certain way creates liquidity, but always rejects it and keeps moving higher, and there are always such strong rejections, it could also mean that someone is perhaps building a position there. These are the kinds of stories. It always depends on the circumstances. You can't just say a lot of liquidity is being traded up there, so the market has to go there as well.

But now you're saying exactly what I also want to get to. In the end, it's important to understand the big why and how it all works. And now we're on the completely opposite side, at the deepest level, where we experience the bear market. And that's in the order book. What you might have just seen, how Hirsch experiences it, how he explains it, that's all connected to the fact that he understands what's happening in this world. Whole construct. And when you've gained this deep understanding, it's like reaching a state where you enter a kind of game, a deep flow state.

I'll give you an example. Have you ever been to a bazaar, a huge bazaar or a market? For instance, in Germany, I think there are these market stalls on Sundays or Wednesdays. I'm not sure if they still exist.

They've mostly been taken over by others by now.

It could be that they're not there anymore. But just go to a bazaar sometime. You can actually learn a lot about trading there. No joke. Just go there and watch the people, the stalls. It's kind of similar to how the market works. For example, you'll see two people across from each other. Both selling, say, sausages or something. And one of them just shouts much louder, so loud that he grabs people's attention and draws them over.

Why?

Because he's creating a lot more attention. And as a result the liquidity shifts over to him. Then the guy across from him thinks, hey, I need to shout even louder now. And so it goes back and forth. Eventually one of them loses his voice and gives up. That's kind of how the market works too. You have to understand the whole dynamic. The market is always driven by supply and demand. And it's exactly the same principle at any bazaar. If you go there, you'll see where people are standing and why they're standing there, because that's where the demand is, since the offer there is especially attractive at that moment. And that's basically how it works in the markets as well. Once you understand this principle, how everything functions and why the market is moving in a certain direction at this particular moment, you can draw certain conclusions for the short term, though, not for the long term.

But let's maybe wrap this up by saying what you refer to as market noise is what we consider support and resistance. And what you just described as a ping pong game is what we call the flow. Exactly. And at some point it just ends. And I think in the end it's really that simple. You just have to embrace that simplicity and see what actually works for you in trading, instead of having something imposed on you with some weird 1, 2, 3 patterns or other nonsense. None of that has anything to do with the real world of trading. These are just minor factors that sometimes have a reason to exist, but most of the time, unfortunately, they don't. And yes, I would say maybe you have two or three sentences you'd like to add at the end, but I think we've managed to describe quite well how this world really works, especially from the perspective of the big players and what retail traders should learn from that.

Yes. So as some final words, just get involved, don't make it complicated, don't overthink things. When it comes to the stock market, think simply and compare it to real life out there. Whenever I give an example, I always use something from real life, from what actually happens out there. Because as I said, even though there are algorithms, they were programmed by people, and those people have their own thoughts. The behavior between supply and demand will remain the same even if another thousand years go by. It will always be the same principle and this topic, this simplicity. You just have to understand how the whole thing works and then it becomes easier to understand everything else as well.

Yes. To sum up, you can simply say that supply and demand always dominate the market, no matter how big the players are. And if you just refer to these smallest laws of nature, you have a big advantage in the stock markets. Yes. Thank you very much. It was definitely a lot of fun and I hope it was insightful for you. And yes, I think we still need to tell you a bit more about the Algos and so on, but that will be another time. Thank you very much and thanks for listening.

Thank you.

Bye.