Remember the movie The Matrix? How the main character, Neo, goes on a journey of awakening? Once he learns to see things for what they are—instead of what he’s been told they are—he finds his freedom.
It’s no stretch of the imagination to say that you currently find yourself presented with the same opportunity to see things for what they really are, not for what you’ve been told they are.
Neo had himself a badass bald dude for a guide in Morpheus. Well, ladies and gentleman, I am your Morpheus.
Let’s get started with the most basic, fundamental question in trading: how can you tell when the price of a security—in this case a stock or an option—is going to meaningfully change?
A lot of people would say the first thing you should do is track underlying company financials, news events, the alignment of certain chart patterns, or the math expressed in complex options pricing formulas. And that’s because that’s what they’ve been told for a long time by people who sound smart and intimidating.
I’m here to tell you that all those people are wrong.
If there’s one thing that you learn from this 3LT Playbook, let it be this: the markets are created by supply and demand. It’s that simple.
Every chart you see and every pattern you try to follow is created by the system of buyers and sellers agreeing on a price. News only matters if it makes people buy and sell. Fundamentals are meaningless unless changes in them make people buy and sell. Options greeks are an attempt to express how prices will move when people buy and sell.
You’re probably picking up on a pattern here: all those methods of analysis are an attempt to explain why people buy and sell or predict when they will.
Why not just keep it very, very simple by watching the buyers and sellers? They’re the ones determining the price, and that’s the only thing we care about.
Buyers and sellers. Bid and ask. That’s it.
So just imagine what could happen if you could see buyers and sellers in real time. See them queuing up on either side of the bid and ask, positioning themselves. See huge institutions and algorithms pushing names in one direction or another. See whether headline news actually matters at all.
You don’t need to imagine it, because you can do it. I do it everyday, and I’ve taught 1000’s of traders to do it. It’s called Tape Reading.
Tape Reading is the foundation of my edge. It’s not the only weapon that I have, but it’s the most powerful and reliable one. It’s also a skillset that truly separates professionals from non-professionals. Virtually every formally trained, professional trader I know reads tape. To them, it’s synonymous with trading.
The reason new traders don’t learn Tape Reading is because it takes work. It’s not picking a few nice patterns on a chart and pulling the trigger. It can take a solid month to learn the core concepts of it, and even longer to be able to apply it in real-time.
And who wants to go through that?
The people who are tired of losing money, that’s who.
Most people who come to me to learn are not brand new to trading. My message is too scary for the newbies. I’m preaching hard work and sacrifice, and that’s not what they want to hear.
No, my students and community members are the ones who have taken their beatings and still want to keep going. They’ve tasted what the life of a trader can give them, and they want it badly. They know the easy route to success doesn’t exist, because they’ve tried to find it a hundred different ways and failed every time.
They know that to make it they have to master specific domains. And that’s going to take time. It’s NOT rocket science. You don’t even need a college degree to do this (some of the best traders I know don’t have one). You just need time and persistence.
I learned right out of the gate that I needed to have this shit down if I wanted a fighting chance. Every flaw in my knowledge around the markets I traded was a weakness that cost me money.
So I identified the type of trading that I wanted to do, and then I identified the domains I had to master in order to do it.
I knew that I wanted to be trading options at large size, that I wanted to be able to scalp, day trade, and swing trade, that I wanted to be able to trade in multiple market environments, and that I wouldn’t be able to sleep at night if I didn’t have undeniable edge over retail. I wanted to be able to set positions and walk away for a week or two, or go at the markets for weeks without stopping.
That meant I had to master these domains:
Market structure and market participants. What sort of strategies do market makers use to shake people out of trades? How do I tell if an algorithm is behind a string of orders and what do I do with that information? What happens to my order after I hit send?
Tape Reading. How do I know when to enter and exit a trade? How do I tell when a chart patterns means something and when it doesn’t? How do I tell if a move is going in my favor?
Options. How do I trade an ITM weekly vs. an OTM monthly? What market environments are ideal for selling premium? What’s the deal with time decay? Do I really need to know the options greeks? (no).
Those are the domains I teach my students to master.
Whether your priorities are the same as mine or not, you have to identify the domains you need to master if you’re going to have a fighting chance. Then you have to find someone to teach you how to master them.
Otherwise, you’re just another mentally hijacked person stuck in The Matrix. You’re spinning your wheels in a system that is built to make you think you have a shot… right up until they clean you out.