The art of reading the market prior to entering a trade & using the correct entry technique
Below is a short video highlighting the techniques you will need to make accurate trading decisions on when to use limit orders at entry spots or to use the T3 Market Flow signals. More information on the T3 Market Flow volume analysis is in the next section. For this lesson, a "signal" bar will be any T3 Market Flow bar that is an "arrow," "antenna," "yellow," or "stranded buyers or sellers."
Trade execution Video
You will often opt to trade into a termination condition or a weaker trigger line look that may have "trouble" in the way to a profit target. Typically this type of trade is taken when there is a strong trend or well-defined momentum on the smaller charts. This type of trend trade is defined as a medium probability trade and requires a signal. Per the glossary of commonly used terms:
MEDIUM PROBABILITY TRADE- defined as when most indicators line up for a trade and one or two issues exist. This will be the vast majority of your trades and you will execute medium-probability trades and manage them assertively. If there is trouble in your way, you may take a portion of the position off at that trouble and reduce the risk to a zero loss level.
A new trader sometimes wrongly assumes that by not taking medium probability trades, their results will improve, and somehow, may avoid the risk of loss which is not true. We prefer to say, if you do not take medium probability trades, you risk losing the opportunity to make more profit. Most experienced traders will execute all medium probability trade setups and manage them tightly. The sooner you take medium probability trades, the sooner you will feel comfortable. By giving yourself more opportunities to win, your profit potential may increase dramatically.
Entry timing example using the market flow signal
The picture below is a typical trend trade example. The rules for a trend trade are true near a potential Fibonacci breakout.A market flow signal will be required before entry based on the "weaker" 13-2 triggers (small triggers inside the large triggers) and the 5-1 chart divergence. The picture below shows the exact moment when you will be waiting for the market flow signal bar.
Waiting for a market flow signal prior to entry
Stop placement example using the market flow signal
After the signal is true, you will enter the market. Place the protective stop just below the market flow signal bar to limit risk. After you enter the market, you must constantly assess the condition of the market. Notice the background is turning red on the 5-1 chart, not an exit, but a warning. Also, notice that the Fibonacci resistance turned red, not an exit, but a warning. Remember you want to give the market a chance to break Fibonacci due to the location of the trigger lines and the "strong" look of the 8-range trigger lines.
Entry after a market flow signal
Risk reduction example using the market flow reversal bar
As the market resumes the trend up to resistance, you will immediately notice the (POTENTIAL) 2nd lower divergence on the 5-1 chart to go along with the red background and red Fibonacci resistance. If the area holds, the market will reverse. If the Fibonacci breaks, it may run for a long way to the next Fibonacci area. This trend trade is a very typical example of what happens at "breakout points." Sometimes the market breaks, and sometimes it does not. As traders, we do not guess. It is our job to read and react. As the price reaches resistance, it will now be when it is not worth risking the full amount. It is ok to move your stop to a tighter level and take what the market gives you. We call this managing tightly or reducing risk. Some traders will use the reversal of the market flow chart as a "trailing stop" area. In this case, maybe one tick below the 8-range reversal marker box. If the market does reverse, you may lose 2-3 ticks. A very acceptable loss. If the market breaks the Fibonacci areas, you may get 10-20-30-40 ticks. Giving ourselves the chance to catch the breakout while reducing risk is a learned skill. You will need many repetitions to perfect the art of trading a potential breakout while managing your risk carefully.
When should you move your stop to reduce risk if the conditions change.
Ultimately, the market did reverse, completing the termination of the trend. Fortunately, the HVA trade rule you will learn later in this material, allowed you to use the same area to profit to the downside. Please visit the additional educational material to learn about HVA Trade Rules. The market presented an opportunity to profit from the breakout, limiting risk. At the same time, we maintained the ability to trade in the opposite direction after the breakout failed.