As you may know, big traders have a very tight control of the charts of basically all the coins you follow. In order to generate more profit, these institutions have to trap retail investors like us to be able to maximize their profits. This is the reason why traders always need to be careful: to prevent falling prey to false breakouts by waiting for retests, watching the volumes and setting stop-losses. But – what if there was a way to trade alongside the institutions? Thankfully, there is. In this article we will go through a trading strategy that focuses on capitalizing on these traps.
So, how does it work? The essence of order flow trading is to react based on the action of the markets which is displayed by the daily volume traded. The strategy involves using a trading indicator known as “Previous day high and previous day low”. This indicator can be added for free on the indicators tab, this indicator displays the highest value that the price reached on the previous trading day. The PDL and PDH levels are very important pivot points, and you will see why further on.
The strategy – the first step
The first step for using this strategy is to use a low value timeframe (such as 5m,15m,30m). The PDL and PDH levels are very important for institutions as they are the levels that are used to deceive traders. To give you an example, a break of the PDH will result in more traders buying the coin. Why? Because they will likely feel that there is a strong momentum and a rally could be seen intraday. This is the reason why institutions are able to make huge profits when they cause a false breakout which would result in a huge number of investors getting trapped.
How to trade alongside the institutions
To trade alongside the institutions, you need to keep a close watch on the PDH and PDL as these are the main pivot levels. Once the price breaks out from either of these levels, and breaks back in the zone there is a high chance that it was a false breakout. Below, you can see an example of this.
The chart above is a great example of how you can execute the strategy efficiently. You start by screening multiple coins. Then you wait until you can see a false breakout (as you can see in the image above) taking place. Once you have identified the false breakout, you wait for a retest of the PDH. When you see a successful retest, you can take a short position. The stop-loss is set above the PDH in case the price breaks out again. You can set a target of the opposite low, as you need to start trailing your trade as soon as you see a significant profit on your position.
Above, you can see an example of the same setup but with a false breakout on the PDL side. The overall strategy you should use remains the same:
- Wait for a fakeout.
- Enter once a retest is seen.
- Set the target of the opposite sides high.
It is very important for traders to note that this strategy does not have a 100% strike rate – just like all of the other strategies that you can read articles about at CoinPanel. This is the reason why proper risk management needs to be considered for each trade and traders can start practicing the strategy through paper trading!