Hello, traders in today's article I'm gonna be talking about locked in range analysis by Tom Lex key and this is something that I would say is likely the modern-day Wycoff and probably even better than Wycoff let's go in.
THE REFERENCE IMAGE DISCUSSED IN THIS ARTICLE:
Hello traders and welcome toel RA by Tom Black scheme I'm gonna be covering all the analysis that was covered in a free ebook .
I don't know how this hasn't gotten more coverage but it's it's just it's just beyond me I wish I'd written this but I didn't but I do have the pleasure of introducing the work tha tTom has done on forex trading which I'm gonna apply to crypto currency trading okay this is a a long document at 66pages of a lot of interesting information but for me I read it nine times I kid you not I read the relevant sections which is about I think like 40 pages of it nine times over and over again and applied to the markets and found that all the trades that I took with this analysis worked because what this analysis is guys to summarize it .
It categorizes the market into just two people market makers & retail traders ; market makers are taking the opposite trade of the retail traders now the market makers goal is they're gonna hold long positions they're gonna hold short positions they're providing liquidity but they have positions open right and what they want to do is buy as low as possible and sell as high as possible how do they do that well they need to find a way to get retail traders to buy as high as possible to fill their sell orders and to sell as low as possible tofill their buy orders so that they can trade at the best possible prices and this video today is going to show how they do that in this video today is going to show how to take advantage of this.
So there are three main lessons that from lra this is there are dozensof other things you can learn from this there's just three things that I have found to be the most interesting.
1-Price is fueled by trapped traders
Price tends to just keep going up and up or price tends to just keep going downand down and what tends to happen when price tends to do that is that there is a trapped trader side so typically there's a long period of consolidation in crypto or in Bitcoin right let's see lots of short centering then price begins to go up a lot of those shortsbelieve if the price is going to comeright back down and that's a little and that's what keeps them trapped because they just keep thinking the price will just come down and they'll just exit breakeven right but then the price just keeps going higher and higher and higher until it gets to a point where the loss is too large they get stopped stopped out of their position or they get liquidated if any of those three things happen right after it does typically prices comes right back down this is the kind of sadistic nature that price has to trap traders okay now what do I mean by trapped traders well I'm gonna read point two and I'm gonna show point two
2-On Price chart the larger that the open interest in a price range is the more trap traders there are and subsequently the stronger that the range will likely be:
I want you to look at Bitcoin in open interest don't look at this yet just focus on open interest in Bitcoin okay specifically on binance futures here I'm going to show you guys a certain market range look what happened from here to here what happened well open interest went from 40,000 Bitcointo 42,000 Bitcoin now that by itself might not seem that interesting to you or if it does then you're a step ahead but what that means is that there's2,000 Bitcoin worth of shorts and Long'sright what that also means is that a lot of those shorts that were trapped are going to be trapped for quite some time or until they get liquidat or stepped out now what ended up happening is right after they're trapped price goes up and probably a lot of those shorts are like all this hold on my position in price to come right back down price let's out a little a few of them together breakeven and then it just skyrocket sI took a trade on this and I went longwith 60,000 contracts and I did this cuz I saw there were so many traps shorts here I knew for a fact that these guys were going to survive their their lambs for the slaughter you know chips no wood chipper so they were gonna get obliterated and they did but not completely yet because open interest is still pretty high which means that it'slikely that a lot of these shorts are still trapped which also means that if price is to come down again it'sprobably NEET bought right back up because of how many traders are trapped here right but there's a scenario where price can actually come down and before all the shorts that were trapped you say Oh what is it well it's not good for you if you're willing to trap short to a common pattern that price can do that you've probably seen 20 million times isa sky rotting skyrocketing Bitcoin pricejust wicks really really high and then it comes right back down why it does that because it's killing all of the shorts at terrible prices for the shorts liquidating them stopping them up so the market maker can take those positions and move short and when the market maker moves short at very good prices then the price just dumps and as the price dumps these shorts that were here start saying oh my god if I had just held on to my position added more margin not been liquidated not had stopped out I could have made you know a lot of money yeah they could have but these kinds of patterns ensure that you really probably won't if you get trapped here;
but we can take advantage of people like this and the way that we did in the way that I was actually able to take advantage of this is I noticed that every single time that price is gonna even try to comedown to this range I knew that it was any up bought right back up we work and they just let these shorts escape that easily and we didn't I mean even when we had a price so like here where I was kind of like is this gonna happen is we're gonna let them out of the way is gonna be a jailbreak they didn't get let out you can see the price just had an inability to move any lower and then price went you know 20% higher so that's a really cool in illustration of the second point .
3-We want to place ourstop loss at a point right beyond a trap trader area :
There's a really funny reason why we want to do this actually bto the first one is that if we know that a lot of Traders are trapped here when you go long here so let's say you know we know a lot of people are trapped right there in shorts great we go long here on there test because we know that prices are gonna let all these guys get out it's gonna skyrocket and try to kill as many as possible before going back down or it's going to allow some of them to getout of breakeven and if it does allow them to get out of breakeven it will just keep dropping and they'll wish they have stayed in their positions the first place but that's that's beside the point what I'm showing here from my third point of placing your stop-loss right behind that area we want to place your stop-loss just around here because we know just how many trap traders are trapped here and if there are a lot of trapped shorts here what that means is they're gonna buy it right back up ifprice is to come right back down here it could just be bought right back up because so many of them are trapped and the temptation just to take break even after a long prolong loss is very high especially the longer that that loss continues the more pain it inflicts and the more they want to just get out and make 10 bucks or 15 bucks or 35 cents on that trade or just like lose $2 or somelike that basically breakeven either way and because that a stop loss here is typically pretty pretty healthy now there's another second reason now listen to this there's a second reason why placing a stop loss around here is really smart it's because it's where alot of the trapped shorts are placed in their take profit and we know for a fact that price does its absolute best to ensure that retail traders do not have theirs to have their tape profit hit if a lot of trap shorts are putting their take profits around here because that would give them marginal profit because a lot of them probably shorted or around their weather took prop put their take profit right here I know that price is going to gravitate away from that takeprofit and also gravitate away from mystop-loss that I place at their take profit I know this from the e-book that talked about it in here in one of these pages let me see if I can find it for .
CONCLUSION:
I'm gonna make it as simple a spossible for everyone here to understand okay focus on open interest and focus on price ;open interest did not rise it was flat this is there's nothing happening here guys yeah look maybe rise a littlebit but just nothing really not many traders are taking positions now if there were any long so would taking positions they all get killed by this kind of volatility you can see open interest just tanks completely and goes back to where it was like around here so the longs are killed and the shorts may have taken a little bit of profit but knowing most retail shorts they probably didn't even suck out this whole move they probably only took profit like around here here or maybe here if they got lucky but I doubt that many of them were good enough to take profit some like this okay now what ended up happening is price had no difficulty crossing through this area why well because there's no one trapped here and if there's no onetrapped here precious okay I'll justcover through you it just cuts rightthrough it because there's no one reallyhere that's that interesting there'sopen interest is two things first of allopen inches is flat showing you thatnominee traders had even open positionssome had but not many to we know thatopen interest tanked when price dropsmeaning that a lot of those Long'sprobably already exited so the marketmaker is probably already long marketmakers are probably long and retailtraders are primarily short how do Iknow that well if you look here at theLong's and shorts we can see if that'sfalling indicating that a lot ofaccounts are going short and that's whatjust fuels this trend higher and higherand that's also another reason why Iwent long here okay yeah so like I saidthere's a lot more to this analysis.