Have you ever had a career in sales? If so, think about the times when you attained the most profit. The key to selling anything for a large profit is to sell to a novice buyer who does not know or understand the REAL value of what you are selling them. The best traders master this skill. I know that sounds awful but unfortunately, this is how the world works. In this piece, I am going to share a simple rules-based market timing strategy with you that focuses on buying from, and selling to, novice traders who don’t know how to assess the real market value of something or properly forecast price direction. The strategy was given the name “All Star Strategy” due to its potency as a low-risk, high-reward, and high probability entry technique.
The All Star entry combines two high probability tools that, when used together, help us identify high probability turning points and opportunities for strong market moves in any and all markets. These tools are:
1) Proper supply (retail price) and demand (wholesale price) analysis
2) Bollinger Bands®
Let’s look at a very recent trade that we took in the DAX Futures. Notice the supply level shaded yellow. This is a supply level because price moved lower from that point in strong fashion which tells me that supply exceeds demand at that level. Next, notice that when price rallied back to this level, it slightly pierces the upper Bollinger Band®. This suggested three things. First, price was reaching a price level where supply exceeded demand. Second, price was also piercing the upper Bollinger Band® suggesting that statistically, price was at an extreme and likely to revert back to the mean. Third, a novice buyer was buying after this big rally in price and at the supply level. These pieces of information suggested price was very likely to turn lower at that supply level. The combination is what makes this a high probability event. We sold short to that buyer and profited from a down side move for a short term trading profit of about $1,000.
When it was time to sell short, at supply, who was the buyer? The buyer was a novice market speculator and we know this because they are committing the two mistakes every novice trader makes. First, they were buying after a rally in price and outside the upper Bollinger Band®. Second, they were buying at a price level where supply exceeded demand (retail prices). These novice buyers don’t know how to quantify real supply and demand in the market and these are the people we always want to trade with, just like selling anything in life outside of trading. We want to sell things in life at as high of a price as we can, trading is no different.
The All Star Rules:
- When price reaches a key supply level, pierces the upper Bollinger Band®, in the context of a downtrend, and there is a significant profit margin below, sell short at the supply level with a buy stop just above the supply level.
- Profit targets are first the midline and then the opposing demand level.
- The opposite rules are true for long (buying) opportunities.
Profitable traders buy at wholesale prices and sell at retail prices, like Wall Street. Novice traders buy at retail prices and sell at wholesale prices. Learn to spot the novice trader to attain low-risk, high-reward, and high probability trades.
Hope this was helpful. Have a great day.