"Common sense" trading

I realize the way we look at the market should be the same way as how we react to real life market. Bargain price, fair value, etc
While this is nothing new, i admit that it's heavily influenced by reading those concept of Wyckoff, Smartmoney concept, S&D, Market profile or ICT and if anything here looks like it - yes it is. This is not rebrand their concept or anything, just oversimplifying it to the core so anyone can grasp it.

When we're new to trading financial market, all of conventional techniques drive us far from "common sense". The advanced chart, many oscillator indicator, Candle stick patterns, chart pattern, etc.. These are not the way we react to everyday consumer market. You know a smartphone worth $500 to you and that is, you pay $500 or below.

Speculation market is slightly different, and this's why things start become messy. This pattern happens over and over again:
- People buy stufff for use -> become scarce -> Price up -> "Investors" see that potential demand, jump in early and hoard it -> More demand push price increase further -> Speculation see it and jump in with "borrowed money" -> to the point there's no real "buy to use" demand and the whole thing collapse.

The point here is how do we be in sync with early investors? Early investors perceive potential fair value and start accumulate inventory around this level. Knowing the level ourselve is difficult, market action can bring us a hint.

I separate market participant into 3:
- Dealer: people who don't make money on sell high, buy low but by making market, matching buy - sell order and making money on spread. They move price to places so they can match as many transaction as possible.

- Smarkt money: People who jump in market and later they see market goes in their favor. Often Early value investor buy below market price and distribute inventory above market price.

- Dumb money: People who jump in market and later they see market goes against their favor.

How those stuffs fit in markt chart?
This is EU fx future on weekly chart

Added the difference between German bund yield and UST note, 10yrs term in the chart

As we know in currency market, Price should chase yield. This is not fundamental topic, if you interested in intermarket correlation, this is my other thread https://www.forexfactory.com/thread/...ce-tells-story
Anyway, if for some reason that price disconnect with yield,


Price is over/under value. Later we know that because market moved away from these fake breakout. We can call whatever the market did above/below these break out as "Smart money accumulation" - Market went in their favor aftermath.

And who jumps in and buy market when it break to upside is "Dumb money" - Market went against their favor.
I put in the Volume profile to help clarifying thing

Ps: Not finished.

The volume profile help us see where is places that most inventory changes hand. What happened after that tells us what Smart money did in those places.
The thin profile, as i marked with rectangle, indicates price moved so fast. Value investor missed the opportunities to jump in. They don't chase price, they wait below with buy order or above with sell order. Later when market turn back to their waiting level, they load up their inventory at desire price.

And that narrative explains this price action:



This only explain one side of the equation: The Buy order below price and Sell order above price.
Dealers need Sell order below price and Buy order above price.

Stop order acts like nitro.
If you ever play car race videogames, you would be very familiar with nitro booster. When you hit one of those thing on the road, your car's speed suddenly increase.
What if you hit a consecutive 3-4 nitro booster on the road? You would be fast as hell.


These are not support or resistance, they're nitro.
And Dealers see it.

If look closer, there are 4 phases Down-up-down-up in this market profile, and we notice fast-thin market tend to overlap with slow-thick market on the previous phase (nitro booster), and slow market tend to overlap with fast market on the previous phase.


Slow market, as explain above, Smart money accumulate inventory at their desire price, as they missed chance to enter at bargain price when market moved so fast at previous phase.

What's fast market? Dealer reprice market.
These people have no interest in market price, but all of their attention put in how to make market as fun as possible. They have to buy from you if no one else buys from you, but they don't like it. The more we trade, the more they earn. Think about Dating services. If you want a date night, and he/she couldn't find anyone, then he/she has to go with you. But they don't like to go out with customers, so chance is they take you to places where there are many potential partners for you.

When you see a consolidation range, what you also see is the volume slowly goes down. Volume goes down? Uh oh, not good. Less volume, less profit. Move market to new area -> more volume -> more profit.

The EUR/USD last year created in 1700 pips range. There were 3 market repricing period.
One in May, one in July and one in late November.
300-500 pips each move, series of bullish candle, no pause, no correction, fast and straight forward.
Each movement happened within 2 weeks. There are 52 weeks a year. If you see a breakout in daily chart, chance is you already missed it.

When Dealers, or Market maker, see there's no point to stay in the old level, they quickly move market to new level.

Connecting all the dot, we have this simplified framework to identify Smart money playing field

I have used this framework for my trading of GBPJPY until Brexit end with maximum of 90 pc return in a year. Kicking one kick thousand times took me to that level.
However since last 4 months I have been doing basket trading of combing four equity indices trading and options on two of them, making it a total of 6 instruments, generating an astounding 300 pc annuam return on margin money . Addition of capital efficiency to the common sense framework did wonders. Now I have got Macro level dashboards to help make a basket of indices and commodities to test capital effiecy without applying Margin Class as a cushion or accelerator.

Can you give some insights on how to.measure the efficiency of distribution? Can it be done by pips size or distance?
Similarly can the size of volatility be measured in terms of ADR, Standard Deviation, ATR, Fibo, or other indicators?

For building a multiple portfolio or basket of asserts quickly, can Standard Deviation be used as a common.measure to define bilateral correlation? Or would you suggest some other criteria to count loss or profit in dollar terms in a week , month or quarter?