Optimize Your Sales Order Flow for Research and Development

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foreign [Music] and welcome to lesson 1.7 on interpreting order flow AKA your time and sales window this is a difficult concept for most new traders to master so don't feel discouraged if the concepts in this lesson are immediately apparent to you practice them as much as you possibly can and eventually I promise you'll get a feel for it so with that let's hop into the lesson okay so in today's lesson we're going to start off by just covering the absolute basics of time and sales we're then going to talk about the different print types that you'll see along with the different participant types that you can differentiate between finally we'll talk about how you interpret the different participant and print types and can actually use them to potentially predict what might happen next in the market before we get into the detail of today's lesson I want to reiterate one more time that this is a very difficult skill to learn the speed at which transactions are passing by on your time and sales window can be very overwhelming particularly to new Traders therefore when you're focused on building out this you know quote-unquote active trading toolkit I want you to focus on learning the skills that I have laid out in these lessons in the order that I've laid them out I specifically released them and I specifically labeled them in this order because I truly believe this is the most effective way to learn to trade so you're going to start with price action analysis in Lesson 1.1 you're going to move on to then layering in volume analysis in lesson 1.2 then you're going to focus on order book analysis which we covered in the previous lesson to this one and then finally you're going to focus on your time and sales window that'll really help you dial in specifically around the actual execution of your trades so with that let's get into the actual detail of this lesson okay so we'll start out today's lesson super basic which is how you read and interpret the time and sales window time and sales window on your platform records all transactions that are executed in the market you get a couple of key pieces of information such as the time and the price of execution but in my opinion there are two very critical pieces of data that we get from the time and sales window the first is where the order was executed in relation to the bid and ask the second is the quantity of shares transacted so over here to the right you can see an example of my time and sales window and then down here is my configuration settings so you can see that for orders that print above the ask I color them blue at the ask is green inside the bid ask spread is white at the bid is red and below the bid is this yellow color so if you look up here you can see that we executed at the bid in order at 98.56 for 126 Lots so this would be 1260 shares at 10.52 so that's how you would read and interpret this window so yes every transaction represents both a buy and a cell right I'm not saying that red is Sellers and green is buyers it's not that simple however the color of these different prints and the size of the order can give us very valuable insight into the psychology and the type of participants involved so let's dive into the idea of psychology and having different participant types involved by first looking at Red prints red prints are those that were executed at the bid so you have your bid ask spread these are down here at the bid it is critical to remember that this can represent basically three different scenarios so when you see a red print it could either be an inpatient seller which is looking to immediately exit their position so you you bought earlier on or you bought it right at the top and you're exiting for a loss but either way you want to exit on a market order therefore you will show up as a red print because market sell orders show up at the bid second you have an initiative short seller now in an issue of short seller they're wanting to get into a position now immediately so they do that on a market order once again they're selling with a market order they will show up as a red print at the bid the third participant type which is probably the hardest to specifically analyze just based on the color of the print is the limit order or kind of the patient buyer or seller these people are waiting for a price a specific price to get hit okay now I have a quick little aside on limit orders because some people will say oh if it's limit buy it should be green or limit cell it should be red technically yes that's true if you are executing a Buy on a limit order you should show up as a green print and if you're executing a limit cell you should show up as a red print however I have an entire appendix slide at the end of this lesson that shows that that's not always the case so if you're interested in diving into that more you can watch that slide at the end of this lesson however the point here is that you have two very inpatient participant types and one potentially very very patient participant type so we'll use price action where we're at in terms of support resistance and what our level 2 is telling us to determine which of these different participant types are involved so now we'll look at the flip side of the bid ask spread by looking at orders executed at the ask these will show up as green prints on your time and sales window it is once again important to remember that this could represent three different scenarios all with different psychologies and participant types so your inpatient scenarios in this instance could be inpatient buyers so you're looking to enter a position right now so you'll do it with a market order if you execute a buy with a market order you will show up as a green print or you'll show up as a blueprint because you executed above the asking price the second group would be inpatient shorts these are essentially the exact same as inpatient buyers in that they'll show up as a green print because they're covering their short position with Market orders so fundamentally those are executed the exact same way the third participant group is our Patient Group and these are executing on limit orders so once again they're patiently waiting for a specific price point to get hit now as we said on the previous slide we will use price action support and resistance and our level 2 to help us identify when we see green prints which of these scenarios is taking place all right so we have talked about red prints and we've talked about green prints let's now talk about the in between the white prints these are prints that are executing inside the bid ask spread so you have your bid price and your ask price these are somewhere in between those two white prints will be more common on stocks with higher bid ass spreads which makes sense right if your bid ask spread is 50 Cents it's much more likely that you'll have prices executing in between the bid and the ask then if your bid ask spread is one cent now in terms of the participant types involved it's important to recognize that white prints are typically dominated by computer algorithms and the way that you can tell this is the case is that you'll see these executed at fractional prices that we as humans and Retail Traders typically can't trade at most Brokers limit you to two decimal places when you're entering an order but you'll see these order types which you can see here and a big cluster down here with multiple decimal places so this one is executed at 98.5411 no human is sitting there entering that order now recognizing that these Algos are taking place can be a valuable Insight in and of itself right because you know that probably these algorithms are executed by people like market makers or large institutions and therefore represent the smart money so while we can't break the participant types out as cleanly as with green or with red prints just recognizing that it's probably computers doing the trading is a valuable insight all right so that brings us to the last print types that I want to talk about and those are the blueprints or ones that execute above the ask and the yellow prints that execute below the bid and I show you examples of each of those here with these print types either above the ask or below the bid it is important to recognize that retail Traders like you and I don't really have the privilege of trading outside the bid and the ask so one party in these transactions is getting a much better fill than what is available at the bid ask spread spoiler alert sorry to tell you it's not going to be you so all of the previous situations from our other slides right the inpatient buyers the inpatient sellers or the limit orders all of those apply but the key now is to recognize that the two parties involved are very different the first party are the suckers and that's you I'm sorry to tell you that's just the way it works these people are getting the worst possible fill most typically on Market orders so when you do a market order for a buy and you're on a platform like think or Swim where you don't have to pay commissions the reason you don't have to pay commissions is a concept called payment for order flow so your order is being sent to a market maker and they're filling you purposefully at worst prices that's how your commissions are free so if you buy on a market order you are probably getting filled above the ask at least in a lot of different situations so you're actually this blueprint now the second participant type which again we've already kind of talked about are the institutional participants like market makers or those that just have better fill priority and faster technology so when you look at these bid ass prints it's important to recognize that smart money is involved and it is essentially being sold or being bought from people that are kind of more on the retail side of that equation the last thing I'll say is that these orders are commonly executed at fractional prices so once again we can kind of think about computer algorithms or institutional Traders being that participant type the last thing that I want to go over on above the ask and below the bid prints is that it is commonly taught that these prints represent kind of panic selling or Panic buying and I think that that is true in terms of you will see these orders more frequently when the market is moving extremely fast however I want you to keep the mindset of the fact that one side of this transaction is smart money and one side of this is people getting poor fills and I want that to be the main takeaway not necessarily saying that oh if you see blueprint it must mean that you know the Market's going to explode upward because people are getting filled on Market orders that's definitely not the case and definitely not even the case the majority of the time so just wanted to put that one more additional comment in here and now we'll move on okay so now that we've talked about the different print types and their relationship to the bid ask spread and what that might tell us about the participants involved I now want to show you how you can further differentiate the participants involved by splitting your time and sales window into multiple groups based on share size so what I do is I actually have two time and sales Windows on my platform that I'm paying attention to I have one for kind of small retail Traders or even kind of high frequency algorithmic trading that is just filtered to anything over 100 shares the second window I have is filtered anything over a thousand shares and I would consider these you know institutions or large prop Traders by splitting my time and sales into these groups you're able to show when kind of the larger or smart money disagrees with the small Traders right you can see when volume picks up on your large time and sales versus when it picks up on your smaller time and sales so for example if you're seeing a very high number of orders come through on your larger time and sales window at a support or resistance level this could be a significant signal that at a very you know bare minimum level these large players also agree that that level is important and are making decisions there so we'll go into some examples of this next but just want to show you how you can split your time and sales windows up to differentiate these different participant types okay so now that we've learned all about the different participant types and the different print types we're going to try to put that into action and so as I've said the time and sales can be very difficult to interpret and as you'll see in these examples and as you've maybe already seen in your own trading it moves very quickly so to combat this flood of information what I try to do in my trading is narrow down to basically three main scenarios that I'm trying to identify utilizing the time and sales so these scenarios might be slightly different for your own trading and what you can do is you can identify key points where you would have wanted to take a trade and then go re-watch them in replay mode to identify what the time and sales was doing at that level but for me basically what I'm trying to do is identify one of these three scenarios in combination with the other things we've already learned in this course so for me the three scenarios are price holding or rejecting a key level price pulling back and re-testing before continuation or three a weak squeeze or flush that could be designed to trap or hunt retail Traders so if I can successfully identify these three things when they're happening live in the market I can greatly increase my accuracy and I can limit my usage of the time in sales Windows to specific moments in time so that I'm not constantly looking at it and getting a little bit of analysis paralysis with all of the information flowing through so let's look at an example of each of these next okay so the first scenario that we're going to take a look at is price holding or potentially rejecting a key level as you'll see in section two of this course a lot of my strategies are based around either kind of the acceptance or the rejection of a key level so in this scenario we're looking at what happens on your time and sales window when you get a rejection of that level so the things that I'm looking for on my time and sales as we approach a level and again I'm not looking at my time in sales until we get to that level and I see you know volume anomalies and I see the other things that are happening that we've learned about previously in this course but when I key into my time in sales I'm first looking for a velocity of both large and small Traders hitting the time and sales while price stalls out okay the second thing that I'm looking for is orders flashing above the ask if you're at a top side level or below the bid if you're at a bottom side level and once again you want this to be happening while price is stalling out and remember back to our previous slide these blue and these yellow orders are examples where basically retail traders that are paying you know they're not paying for commissions so they have free commissions so their payment for order flow orders are being sold to institutional clients and market makers so they get the best possible fill before these levels reject and prices reverse the third thing that I'm looking for is an increase in volume and continued velocity as we move away from the level so if we're failing off of a top side level I want to see flashes of red and white orders and I want to see many more of those and I see green orders and let's say if we reject a bottom side level I want to see green orders stepping in right people hitting the ask people being impatient to get into a position and more white orders so those are the three things that I'm looking for and you can use this for two key things first you can use it for reversal trades so as a signal to enter a position which is what I did over here on this trade of Tesla which I'm going to show you a live example of or if you're already in a position you can use it as a signal to partial or entirely exit your position so now let's look at a live example of Tesla okay so I've got a recorded example of Tesla that I'm going to show you of this first scenario where price is kind of rejecting a key level and in this instance the key level is pre-market High which is represented by this gray dashed line right at 205. so it tested this level in the pre-market and now it's coming up to test it again after the market is opened now what I've done here is exactly what I recommend that you do when you're trying to practice this skill I've gone back in the replay mode of my platform and I've identified this key moment and now I'm going to be watching it over and over again to get a feel for what my two-time and sales windows are doing as this rejection takes place so I'm not trying to learn this skill live necessarily right I'm going back in time and I'm allowing myself to remove every distraction other than just watching my time in sales window so let's take a look so here we've got this little doji candle that's going to form and you can see that as we push up into 205 every time we push up into 205 we get a flash of orders on both of our time and sales Windows okay so you see orders that are above the ask you see some limit orders getting executed right at 205. and then you see again a large flush of orders on your retail and your institutional level time and sales every time we hit that level yet we're not breaking through it so there's a ton of activity but there's no movement in price so think back to our lesson 1.2 on volume analysis you have a doji candle right here on kind of above average or very you know I would say high volume for a doji candle and you have a stall in price as both of these time and sales are flashing by so let's take a look I'm actually going to skip forward a little bit let's take a look what happens as we kind of get our final rejection on Tesla here so there we go we're pushing up and did you see how both of these flashed right at 205 basically and there was no breakthrough of that level that's a key signal that hey potentially we're going to get a pretty drastic flush in price and here you see boom we get that flush in price both of these windows accelerate all right and you can see mostly white and red flashing cross as we fail lower huge yep I mean look how fast those sped up so a pretty perfect example here of what to what to watch for on your time in sales and again anytime you identify one of these out in the wild just write it down on a piece of paper and go back and watch it over and over again to practice the skill set okay so we talked about rejection now we're talking about the second scenario continuation and again as I said a lot of my strategies are based around kind of the acceptance of a level and then continuation away from it so with this particular play again I've approached a key level or I've already pulled back to a moving average and I've started to key into my time in sales and now I'm looking for these four things the first is slow or weak order flow on our larger time and sales window during a pullback right this shows that these larger participants one aren't shorting and two aren't Panic selling as we move back in price they're convicted that we're going to move higher and so they're holding you will commonly see a flash of large orders when you hit kind of the moving average or the pullback area or the retest of a level because these people are now entering a position for the move higher or where they're adding to their position the second thing you'll want to see is good solid speed and volume of orders coming through when you push okay so as you push away in price on that second move up you should see you know again if you're moving up you should see a lot of orders hitting the ask which means people are entering on Market orders because they're impatient they're fomoing they're trying to get into the move what you should not see is anything from our first scenario so you don't want price to be stalling you know longer than one to two minutes while you see a flash of green or even blue orders if you're moving up or red or yellow orders when you push down fourth remember back to our second lesson on volume analysis where we said volume equals effort okay so all of these things essentially translate to seeing a push velocity so increase in volume as we push volume equals effort and slower volume on the pullback okay so we should see our continuation volume profile from lesson 1.2 so now let's look at an example of that where we could use this as conviction to either stay in a trade or to enter a trade long on the retest of a level okay so now I've got my Live recorded example of apple and again live record is maybe the wrong word because this is in replay mode on my platform but I'm doing what I want you guys to do I've identified an example I've gone back and I've downloaded the data and now I'm watching it again so that I can get a feel for what happens when one of these continuation plays takes place so before we even hit play or before we even get into it let's take a look at the volume profile that we're looking at on our chart so this top side level that I had drawn my previous day got broken through on a good up candle very nice bull candle on high volume so good signal that we're probably going to continue additional good signal here on our volume profile is that we have a decrease in volume as we pull back so at this point I wouldn't be thinking anything other than hey we're probably going to continue to push up and if I had my level two you would have seen that there were larger orders stacked up here as well so now let's hit play and see what happens in our time and sales so Watch What Happens as we pull back here notice that we're going to pull back to this level notice how little participation we have on our larger time in sales window okay the large buyers are not panicking and they're not going to step in until we actually hit that moving average and then they step in again here as we hit our actual level and you can see them buying okay so we didn't get any participation from the larger sellers we have this kind of decline in volume as we push back and now I'm going to fast forward just a little bit here and you're going to see what happens as we push away from this level so we're consolidating at the level now as we push away from this level remember that what we want to see is increased velocity from both time and sales windows here we go so watch this huge flash boom huge flash of orders on our large and our small time in sales on a nice up candle as we push away and you basically continue to see that for the next several candles here we go again once again we're pushing we're pushing huge orders coming through as we push in price so that would have been a perfect example where you could have you know taken a very tight wrist reward wish ratio trade against this level for a push higher even if it was just a scalp on kind of these three candles you would have had solid profit okay so this brings us to our last scenario that we're going to learn about today which is the weak squeeze or the week flush I include this scenario because in my own trading I'm trying to avoid getting trapped in moves and that's exactly what this key time and sales signal is going to teach you to avoid so the whole premise around the weak squeeze the weak flush is that the order book the daily trend the other things that we've learned about in this course are all telling you that price should move higher okay but instead what happens is you get a quick flush down in price and this quick flush down in price can Panic a lot of traders to get out of their positions it can keep them from entering positions when they should be going long and it can fomo some Traders into thinking we're actually getting a reversal and we're about to flush completely down only to then get trapped in the next move higher so we are trying to avoid this portion this weak flush we're trying to avoid getting trapped there and the same thing in Reverse to the top side with a squeeze so our key time and sales signals to avoid getting trapped are first when we see a high percentage of orders at the ask for squeeze up or at the bid for a flush down alright so we see this huge flash of red if we're flushing down but what then happens is there's actually lower velocity and lower volume both on the small time in sales and low velocity on the larger time in sales okay once again you're seeing this in kind of the opposite direction of where everything else tells you we should be going okay and so on the larger time in sales you'll see either no participation or you'll only see participation when we have a support or Resort resistance level hit that we can then use to push price higher so this is a very very common trap that is used by market makers and used by larger institutions to essentially stop hunt retail Traders get them to panic out of their shares and then push price higher so their goal once again is to rapidly drop or rapidly raise price to a specific level fill a bunch of orders for themselves and for the institutional clients take out the retail stops that are sitting there and then allow price to move in the direction of the daily Trend in the direction of larger order book and we'll look at a key example of this now Okay so we've got our Live recorded example here of AMD and in this example I want you to focus on the fact that at the time of this trade or early in the morning here we actually had large orders and a more bullish order book like what we talked about in 1.6 so there were actually larger orders sitting up here around 84.25 84 dollars flat 83.88 so there were larger orders up here we're in a good position from a daily Trend perspective for a push higher so we got a strong move up on good volume we then got a decreasing volume pullback to some moving averages and we're setting up for what should be a strong you know kind of continuation move up to 90 92.5 95 level all right swing Traders are thinking this there's probably just longer term investors that are thinking this is a good place to get in the order book is strong everything about this situation says hey I should be buying I should be going long but watch what happens when the Market opens what happens is you get this weak flush down to our pre-market low and our Camry levels notice that there's very low participation from larger time and sales until we get to this level where they're willing to pick up more shares we get fairly low participation even on our lower time in sales and as I fast forward here you'll see once again let me just get a little bit further along you'll see that every time we push down there's just almost no participation it's very weak the only orders that are taking place are us flushing out retail Traders so we can then move price higher so you can see all their stops getting hit right there all right now I'm gonna I'm gonna speed this up pretty dramatically but you can see once again we get large volume we get a very very weak second attempt to push lower right here so boom it's very I mean look at look how low that volume is right there and again you saw very little participation except from what our large Traders willing to pick up more shares at this level and now I've spent this up dramatically but watch how they just rip price for basically the entire rest of the day in the opposite direction okay so this and this entire first four minutes if you were just watching this as an inexperienced Trader you probably would have been thinking that hey AMD is going to sell off AMD is going to continue selling off when in reality all that's taking place is them flushing price very weakly down so they can pick up more shares to then profit from the upside move this happens all the time it happens you know to the top side so if you just flipped this on its head and we pushed up and then flushed down or sorry squeezed up and then continue to flush and sell off down uh it happens again all the time so be careful watch out for this and you can utilize your time in sales and the other things that we've talked about in previous lessons to identify this and not get trapped in moves all right everybody I mentioned that there would be an appendix slide at the end of this lesson here it is if you're not interested in how limit orders execute feel free to skip this lesson it is not information that you strictly need however it took me hours to uncover it and dig it up and get an actual solid answer to it so I wanted to provide it here because I promise you will not find it anywhere else on the internet so these examples explain that limit buys should be green prints and limit sales should be red prints however there are several reasons that this will not be the case as I mentioned in the previous slides at the beginning of this lesson okay so sometimes limit buys will flash across as red sometimes limited sales will flash across as green and you can tell their limit orders because price is churning at that level right and there's clearly a lot of participation as price is completely stalled right that shows us that it's limit order however as I show in these examples and this is fact this is SEC documentation this is technical support for my platform and other platforms you cannot argue with this technically limit buys should be green for this reason basically what happens is you have step one you put out a limit by order okay so price is up here this is the bid ask spread that's step one in order for your limit to get filled the ask price has to move down to at or below the limit price and so therefore this should be a green print right because you're executing either at or below the ask on the flip side of that a limit sell order should be a red print because you have your limit cell up here above the bid ask spread and in order for this to get filled the bid price has to be greater than or equal to your limit price so therefore you should be a red print this is again per sec documentation you cannot argue with this however this doesn't always happen and it won't happen in your platform it doesn't happen perfectly my platform and ing to das technical support there are a few reasons that you could see mismatches in the colors for limit orders the first are hidden orders that are actually higher or lower than the national best ask slash bid price so potentially when your limit gets filled or these limits get filled they're actually getting filled at a better price than what the ask and bid are currently showing therefore they will print as a different color second when Dart pool transactions are recorded they are eventually reported and they do eventually show up in your time and sales window which a lot of people actually don't know but they do have to get recorded when they do finally flash across your time in sales your platform and Das will record them in relationship to the bid ask spread wherever they're at right so they could easily show up as any particular color that we talked about in our previous slides because they're just being recorded they're not actually going through at that particular time third there could be tremendous amounts of Market momentum and things moving extremely fast that will result in either the bid in the ass getting crossed or kind of just weirdness with how fast things are moving and how your platform is recording the price that results in this mismatch of colors finally there are technical platform limitations and data processing speed that could result in these orders flashing through but your platform actually is signing them the wrong color so for all of those reasons and more I focus on identifying limit orders by a large flash and kind of a large chunking through of orders on my time in sales Windows as price is not moving at all okay so that's how you identify you know a huge portion of limit orders moving through because the limit orders aren't moving the price right they're just getting executed you know at the ask or at the bid so that is our quick aside or not so quick aside on why limit buys should be green and limit cells should be read however that's not always the case and now we can get on with closing this lesson okay so that brings us the end of our lesson on interpreting order flow as always I have a couple of quick thoughts to leave you with before we wrap today's lesson up first remember that this is a difficult skill and you need to practice it as much as you can the easiest way to do this is just isolate examples from your day mark down the time that they happened and then practice watching them in replay mode while you focus only on your time and sales window second please don't get discouraged as I've said multiple times throughout this lesson this is a hard skill to learn and many Traders don't look at the time and sales window at all during their trading and are still successful so it's something that you can do without if you have to third and finally try and focus on identifying which participants are involved what their psychology is and what the smart money is doing that's the critical thing that you want to take away from your time in sales window so with that I hope this lesson was helpful and I'll see you in the next one have a good day foreign