Transcription
My talk today is going to be based on locations. I'm going to show you how the concept of where your trade begins has a very powerful impact on the consistency of the success of your trades. All right, so we're going to talk about locations; we're going to talk about seven locations in particular, how to play each one of those locations. And these locations are going to give your specific tactics and techniques um extra ump extra power, extra consistency, and I believe extra success. All right, all right. So without any further ado, let's get started. We're going to talk about locations now.
Very quickly, there is a saying in the United States connected to the real estate market. I'm sure that this is basically universal across the world as well. One of the most important concepts, right, one of the most important concepts in real estate is location. In fact, there's an adage that says there's only three ways to make money in the real estate market, and that is: number one, location; number two, location; number three, location. And this concept is very important because it applies with the equity markets; it applies with the Forex Market; it applies with the Futures Market; it applies with all markets combined. And so in the real estate world, it doesn't really matter very much what kind of house you have on a great location. If the location is amazing, you can have a broken-down shack on that location, and it would be worth a lot of money. But conversely, if you had a terrible location and you built a mansion on that location, that mansion would not fetch the value that it would if that mansion was built in a very good location.
If we take this concept to trading, it's absolutely the same, traders. It's absolutely the same. If we build our house, if we built our trading plan, our trading tactic, our trading technique on a poor location, even though that technique might be great, the poor location is going to ruin the technique. At the same time, you can get the location right and actually be a little sloppy with your technique, to be not as good with your strategy, but the location will more often than not save you. So in my opinion, location is more important than tactics, more important than techniques. But if you can get them both right, wow. Okay, all right.
There are seven specific locations, and I want to talk about them now. Now there is—we're going to build these seven locations based on a concept that I call Fabulous 4. Now we're going to go into what exactly the Fab 4 is, but first I want to talk about the locations around the Fab 4. I'm going to explain what the Fab 4 is next, but I want you to look at this blue rectangle in the middle of this slide. All right, this—this rectangle is going to represent the Fab 4, which I'm going to teach you how to construct. But right now, I want you to look at the area right above the Fab 4, right here. This area, that number one area, that area just above that Fab 4 block or rectangle is the very best location to buy. Now what I'm teaching you is going to be applicable to stocks; it's going to be applicable to Futures; it's going to be applicable to options; it's going to be applicable to any market in the world; and it's going to be applicable to any timeframe in the world. So even if you play a small timeframe like a two-minute chart or a 5-minute chart, it applies. If you play longer timeframes like a daily chart, it applies. If you play any market in the world, it applies. This is a universal technique across all timeframes in all markets, so I need you to understand that. Okay. But this location one is the very best and most powerful location to buy whatever it is that you trade. It is the worst location to attempt to bet on something going down, so shorting from position one is a losing technique, a losing strategy, a losing move. The only thing we do if a stock or whatever we're trading presents something of value to us in location one, the only thing we're going to consider to do is buy. Now a little higher, all right, a little higher than that is location two. This is not close to the Fab—fabulous 4 block or rectangle, but it's not super far either. See, location one is super close; location two is not close, but it's not super far either. Now in this second location, we're going to look to buy most of the time, but every now and then it's okay to bet on the stock going down; it's okay to bet on a short going down, but it's more okay, most of the time, to bet on the stock going up. Okay, every now and then it's okay to bet on the way down from location two, but if you're betting on the way down more than you're betting on the way up from location two, you're going to get yourself in trouble. You know.
Um, we have the Fab 4 down here. We get a gap to the upside, so I would say that this is—no, a little higher than the first position above up here would be closer to two or three, and uh this trader basically just went in above the green protective stop, run to the upside. You get a brief pause, and there's your whale complete, so nice little steady, very controlled play to the upside. Now this play goes something like this: two stop, one above the high, so the first buy above the green, the second buy above the tail, the add above the tail. The profit take up here somewhere, with one the move to break even. That's the formula: the add, one the move to pivot, whale complete out. Okay, and that's the formula that you're trying to repeat over and over again: the entry, the—the stop, the add, the profit take. All right, the stop adjustment in that exact order: the add, the stop adjustment, the whale complete out. Right, okay. So from position one, check this out, from position one we only want to bet up. Okay, from position two, we only—we want to bet up most of the time. Let me get my cursor here. We want to bet up most of the time, but every now and then, and we can bet down. Okay.
Now location three is far above the fabulous 4. I'm going to teach you how to construct The Fabulous 4, but let's just focus on the locations around the fabulous 4 first. Okay, so we're talking about position three, far above the fabulous 4. This location—notice how I have one plus and two minuses, which means that we can—we can think about going long if a powerful event happens way above, but the majority of times in this location we want to be betting down. It's super far above; it's not on the moon; your—your item is not on the moon; it's not on Mars; it's on freaking Pluto. It's too far above The Fabulous 4 to think that there is dramatically more upside, so we must think that a reversal back to the downside from the super lofty three position—we must think that there is more potential on the downside than the upside. So in location one, the—the greatest potential is to the upside. In position two, you can bet up and down, but you want to make sure that you're betting up on average more than you're betting down. This is still a bullish location, but if you are in location three, if your stock is super far above the Fab 4, betting long all the time for more gains is a losing strategy. Every now and then, if something is super powerful, we can still go long there, but the vast majority of our actions in location three must be a bet or a short to the downside. Now that's the—that's—these are the three locations above The Fab 4. Let's talk about the three locations below the Fab 4.
If your stock or whatever it is that you're trading opens for the day or the morning below its Fab 4, but just below its Fab 4, that is the—that is the juiciest; that is the most desirable location to bet on a—a downward movement. We never think about betting on an upward movement from just under the Fab 4. You see, traders, the Fab 4 can either be a bedrock of support—support when it's here. The Fab 4 acts as a cushion of support; you see, boing, but when we are just under the Fab 4, the Fab 4 acts as a cloud of resistance, boing, boing, bo. You see, it's hard—it's not impossible, but it's hard—hard for stocks to penetrate all the way through the Fab 4. That Fab 4, when you're under the Fab 4, is a very thick layer of resistance. When you are above the Fab 4, it's a very thick layer of support. So when we're right under, we never think to buy right into the resistance; we only think right under that the move to the downside is the best. So location one, we never think long; we only think short; we only bet to the downside just under that Fab 4. When we are under the Fab 4, we're not close to it, but we're not super far. We're going to bet to the downside, but every now and then, if something really powerful happens in location two, we can bet to the upside, why? Because there's still room back to the Fab 4. You see, there's virtually no room back to The Fab 4 from position one, but from position two there's some room to play to the upside, but on average you still want the vast majority of your trades betting to the downside. All right. Now I'm going to get to how we build the Fab 4. Just understand this concept of the positions around the Fab 4 first. All right, we're going to get to it; I promise. All right, we're getting to that next. Okay. Now um, so from just under the Fab 4, we're only going to bet down. From—from this position, we're going to bet down mostly, but every now and then we're going to bet up. All right, and this is all going to become super clear in just a bit. From position three, way below the Fab 4, we want to actually bet up most of the time, but every now and then we can bet down if it's very powerful. But why do we want to bet up most of the time from here? Because it's so super far below the Fab 4 that the odds are greater for a reaction back to the Fab 4 than it is to continue to the downside. All right, so we have pos—we have three positions above the Fab 4, three positions below the Fab 4, and the final position is in the middle of the Fab 4. Now the—whenever your stock is in the middle of the Fab 4, I suggest that you leave it alone; that your stock is trapped. I call this the trap zone; it's trapped in this box, and—and it will act erratically in this box. We want your stock to be free from the trap, free above or free below, and in the Fab 4 is trapped in a cage, and your trading is likely to be very erratic. Now I understand a lot of people are saying, "But Oliver, I'm confused; what's the Fab 4?" We're going to get to that right now, but I need you to understand these locations around the Fab 4 first. So now let's talk specifically about how you build the Fab 4 for every single thing you trade. Ready? This is going to revolutionize your trading. Watch. Okay, just want to make sure I'm back here. Boom, the Fab 4. Now the Fabulous 4 is called The Fabulous 4 because it's made up of four fabulous items. Item number one: whatever item you're tra—whatever you're trading, we need a 200-period moving average. That's item number one: a 200-period simple moving average. That I use the simple moving averages. All right, so we take a two—it doesn't matter if you're trading a 2-minute timeframe; it's a 200-period moving average of the 2-minute chart. If you're trading a 5-minute timeframe, it's the 200-period moving average of the 5-minute chart. If you're trading a daily timeframe, it's the 2-minute moving average of the daily timeframe. All right, timeframes don't matter; whatever timeframe you trade. Okay, and this is on all markets. So item one, we need to find out where is the 200-period moving average on that item. Item number two: the 20-period moving average; where is the 20-period moving average on your stock or on the item that you trade? So these are two of The Fabulous four items we need to know—note. Okay. Item number three is that we need to find out where was yesterday's closing price. If you're trading Microsoft, where was yesterday's last closing price? That's item number three. And then item number four will take some explanation from me. We're going to take yesterday's late-day price activity, and that late-day price activity we're going to group it together to form item number four. Okay, so these are the four things that make up the Fabulous 4. Now let me go to charts and show you how to put this together.
Okay. Now we're looking at a 2-minute chart of Pepsi here. I want you to note that this is—item number one is the 200-period moving average, right there. Boom, that's item number one. Item number two—two is the 20-period moving average; that's item number two, the 20-period moving average. Boom, we've got two of our items now. Item number three is yesterday's closing price. Yet—this is yesterday, and this is today, right? Okay, so yesterday's closing price was right here, represented by that dash line; that's item number three. Okay, so we got item number one, the 200; item number two, the 20; yesterday's closing price. Now the last item, remember I told you, is yesterday's late-day price data, so we're going to go back about 45 minutes to an hour of yesterday's last 45 minutes to an hour—not much more than that. Okay, so we're going to come back maybe here. We're going to take the last part of yesterday's data, and you know what we're going to do? We're going to mark the highest price of the last 45 minutes or so, and we're going to take the lowest price of the last 45 minutes or so, and we're going to create a little block, and this becomes item number four. The last block of data from yesterday is item number four. I'm going to repeat that because that's the—that's the one that's a little bit more complex. We're going to take—once again, let me repeat this: we're going to take the last 45 minutes or so of yesterday's data, all right, and we're going to say, "What's the highest price that this stock registered in the last 45 minutes?" Boom, right there; that's the highest. "What's the lowest price the stock registered in the last 45 minutes?" Right here, the last 45 minutes, the last—the lowest low of the last 45 minutes. This becomes the stock's late-day price zone, okay, and that zone becomes item number four. Now we have our four items: the 200, the 20, yesterday's closing price, and yesterday's late-day price data. Now what I need to do is I need to group all four of these things into a block. I'm going to take the top of whatever item is the top of the four; this is the top of my four items; this is the bottom of all four items. Sometimes the 200 is going to be the bottom of the four, so which item is the lowest and which item is—is the highest? Sometimes the highest is going to be your 200; sometimes the lowest of your four items is going to be your 200; sometimes the lowest is going to be the bottom of four. Here's the lowest. Sometimes the highest is going to be the top of item four. Whichever item is the highest is the top of your Fab 4 block; whatever item is the lowest is the lowest of your fabulous four block. Once we have the upper part and the lower part, we extend into the future, boom, just like this, and this becomes my fabulous four rectangle or block. Now—now that I have my fabulous four, notice that Pepsi opens under the whole fabulous four, but it opens in the perfect location; it opens in the best location; it opens in the—the highest probability location; it opens—opens in the juiciest location. That location, remember, is right under the Fab 4. So remember, right under the Fab 4 is the very best location for bing down. Down here is okay to continue bing down; down here is best probably betting up. Okay, remember those locations. All right, so let's grab that Fab 4 again. Let me show you. We're going to grab the 200, grab the 20, grab yesterday's closing price; that's three items. We're going to grab the top of yesterday's late-day data, about 45 minutes; we're going to grab the absolute bottom of yesterday's late-day data. Now what's my highest line out of all of these lines? What's my highest? This one. I'm going to extend that into the future. Now what's my lowest line? This one. I'm going to extend that into the future, and this gives me my fabulous four block. Now I want you to understand that I teach my traders to do this before the market opens, so this hasn't happened yet. Let me show you; this hasn't happened yet; none of this has happened yet. You see, we know the Fab 4 before the market opens. Now we're waiting. So when Pepsi opens for its first bar right here, check this out, Pepsi opens right here and gives me a red bar in the perfect location, just under the Fab 4. I'm going to bet to the downside. Boom. If Pepsi opens right here in the perfect location above The Fab 4, I am going to bet to the upside with a long. If Pepsi opens right here in the Fab 4, in the trap zone, I am going to do nothing.
Location, or the position of your play, where your play is happening, where your play is originating from, is very important, and so I want us to talk about right now how you can determine that location in—in one of three timeframes. All right, so if we look at what happened here in the 2-minute, but if we switch to the five, we see the ideal location, the ideal start. So Merc is starting today's—its life today from the perfect location on the 5-minute chart. This should give you sheer confidence on the two to go in because of where it's starting its life on the five. Now sometimes you'll get the trifecta where the stock is starting its life on the two here, on the five there, and on the 15. Look at the beautiful location here. Can you get one better than that? Like, oh my God, look at the—look at the Fab 4; look at where this CVX starts the day, its life that day, right in the perfect location under the Fab 4. All right, so boom. For the advanced traders, here's an add, hidden RBI, and you get a really deep move there. We discussed this failure here, but that's a different topic anyway. This location is perfect on the two, but on the five it's also perfect. Wow, wow. All right, and on the 15, wow, wow. So guys, in all timeframes you had the triple—you had the trifecta where all three of your intraday timeframes were in the perfect location, and so it's no surprise to me that the move was so steady and sharp from that location. You're not coming off the 200 in this case, but you're coming off a narrow Fab 4; that would be my second best. So if I had to place orders, the—the—the top is the 200; the second top is the narrow Fab 4. All right, third would be your triple—your triple locations—your—your far-away locations, like, you know, excessive gap away from everything; that would be my next good location. So far L, far away, but we need plus violence here, right? Far plus violence so far above, plus violence down, far below, plus violence up, but this would be the order of—of how I would love—I would like to find my highest quality plays off of the three best locations. Yes. So here is the perfect location from your Fab 4. Now here's the—the majority of the Fab 4 is there, so that's fine, but look at that beautiful location. You're—you're going to get on average the majority of your best plays from originating from these pure per—perfect locations. Now that's the five, right? Look at the 15. So wow, do you see how perfect that location is? You saw how perfect it was on the five; do you see how perfect it is on the 15 as well? Do you see it? Are you looking at these Picassos I'm showing you? No, no, no. I—Picasso never resonated with me very much. Um, these Monaes, I love Monae. Yeah. And then let's look at the two on the seven, and there's the two. Wow. So you got the trifecta here: the two, the five, the 15; it's freaking perfect. The careful—the more careful you are with ensuring a solid location, the higher the quality of your plays. You're saying Gil today had a perfect trifecta. Boom. Look at that two; look at that five; and look at that 15. Wow, nice find. That's right, Edward; that's right, man; that's beach front pro—that's beachfront property right there; that's beachfront location. This is the trifecta. No, it does not have to come off the 200. Remember the three locations? So the 200 is the top, but these are very powerful too. Uh, so you've got, you know, these—the—the—the Fab 4 locations, right? So the Fab 4—uh, location, so you want that plus or minus location; that will be your better one. So, and this—that's like this, right? Because here is—you see? So that's that perfect location. So the—the one is right above, you know, here's the two, and here's the three, right? So right above or right below, remember the CVX? Remember the CVX? Remember this? This is not the 200, but it's perfect location based on the Fab 4. So the 200 is one of the three; you understand? And then the others are far—the other is far away from everything, plus violence. Need a combination with that, Gil. What I have entered on the hidden RBI, guys, if you're okay. Yeah, you can, but that should be—that can be your add, like you can go in here, here. Why can you go—what gives you the confidence here? The location. The location gives you the confidence to get into that thing early, right? Because you're playing such a perfect location, and then if you want that to be your add, boom, make sense? All right, good. Okay. Now um, don't think that location stops being a factor beyond the open. Let's take a look—let me sure—let's take a look at example Apple as an example. See—you see—you see your location here; you see your location there; you see your location there. Don't think that location stops; it doesn't.