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Clarify Forex (currencies), stock market, options, futures and commodities market | trading volatility. See how and why mainstream trading indicators, signals and perceptions are often flawed. Understand how and why volatility and standard deviations are connected... And why "Market Volatility" is not the only answer.  The four pure types of volatility within markets are finally revealed to the public. 

See how even our understanding of "outliers" and the common perception of the Dow Jones Industrial Average's trading history from the 1980's into the 21st Century, are jaded from the stance of Wall Street, "new media" and mainstream media.  Specifically see how to enact Macro to Micro analysis drilling into short-term time frames to identify high reward, low risk trades.

Not theory - not written by "journalists", "analysts", or bogus "newsletter editors." 

Macro to Micro Volatility Trading is from real traders, for real traders.  Witness how larger market expectations (and uncertainty) can yield big profits for serious traders sick of bogus common technical indicators (provably built for failure) like Stochastics and Fibonacci Retracements, just to name a few. 

This book is not for the "give me a red line crosses blue line miracle indicator" average Retail Trader.  Macro to Micro Volatility Trading is not complicated, and is easy to understand... However, without the motivation to really want to know markets and trading, this book is not for you. 

Macro to Micro Volatility Trading is for independant and professional traders attempting to earn a living in markets daily.

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Chapter Excerpt From Volatility Illuminated

Volatility BIOVAP Man and the Insanity of Dr. Watermelon Stuffer

It is no secret; the business of trading is overcomplicated from the start... For the retail trader who attempts to dig into understanding of how institutions work, the door is seemingly impenetrable.

Because of such, there is a massive breakdown in the retail community's understanding of what 'buy side', 'sell side', and buying and selling are.

Why should you care?

What we have to understand is that real trading is the actual application of expectations to real markets. Analysts analyze; however, traders apply money to reality. The best analysts in the world often make the worst traders.

Why?

Because while they can perceive an outcome over the long haul, they have no clue how to apply the information in the short-term.

When we truly attempt to understand how and why institutional traders are doing what they are, and what they might do next, we're stepping out of the analyst fairytale world and into the real battlefield of now. The bottom line is, if we expect to succeed in trading we MUST take the time to understand why what is happening today…is happening.

Why what is happening this hour, is happening this hour... Why what is happening this minute, is happening this minute... We must step beyond simple technical and fundamental indicators and into the minds and motivations of big order flow...to finally see 'beyond the curtain.'

Buy Side/Sell Side

Briefly, buy side is anyone who is trying to make money on the perceived movement(s) of a financial instrument. Conversely, sell side is anyone who is trying to make money on the people…who are attempting to make money…on picking the direction of a financial instrument.

Moreover, buying and selling is something anyone who wants to play the game must do... Both buy side and sell side…buy and sell.

Perhaps the only people who don't actually buy and sell (in the game of buy side/sell side) are sell side analysts who are merely telling people what to buy and sell, in an attempt to get more people to buy and sell. Buy side analysts, are often making actual recommendations to buy or sell, which a fund is actually taking action upon. As Larry Harris notes in the book Trading and Exchanges, "buy side traders are investors, borrowers, hedgers asset exchangers and gamblers."

(I hate to say it, but most retail traders (daytraders and Forex traders specifically) fall more under the 'gamblers' category.

An important distinction differentiating buy side and sell side Harris points out is, "The Trading industry has a buy side and a sell side. The buy side consists of traders who buy exchange services. Liquidity is the most important of these services. Liquidity is the ability to trade when you want to trade."

In terms of being 'retail' (a buy side trader, just like a fund trader), you are paying commissions for the ability to guess whether a currency, stock, or commodity is going up, or down.

You are paying for liquidity, which your broker is providing. The broker is 'sell side', as he is providing you with the means to place orders.

Also of important note, Harris points out the concept of 'movement of current income into the future.' Buy side traders are really using what they have now, in an attempt to realize another value (hopefully greater!) in the future. One cannot trade with more than they have now, as even with margin, once what you have now is gone…you have nothing.

One of my favorite sayings of all time is from Warren Buffet who states, "zero times anything is zero." For example, as a 'buy side trader', you can leverage $10 into $100 (10:1 margin) in an attempt to make even more money directionally in markets, but if you're wrong, and your original $10 disappears, you have nothing.

In detail, sell side is/are the people/companies providing buy side with liquidity and/or services to effect and/or improve transactions.

In short, institutional traders who are 'moving orderflow' are sell side traders. Here's what's important to note, sell side traders can both work for a corporation, or remain independent, utilizing the sell-side services of other exchange related companies.

What I mean by this is, some independent traders actually own a seat on an exchange, where they effect transactions to work orders for buy side traders.

However, because they are not their own clearing firm, they must utilize the sell side services of another firm to achieve liquidity.

Basically, when sell side is moving orderflow, buy side individuals or funds are using their services, and are either willing to pay a higher price for their tenured trading ability to work large orders (usually because of long-lasting relationships), or whatever 'edge' the sell side firm, or trader brings to the table, in terms of helping the buy side achieve a more prosperous fill.

These guys are a type of sell side middle-men, and are acting in a 'broker' capacity, but utilize another firm (a dealer), to clear the actual trades.

Really, sell side means dealer, broker, or 'duel traders.' It is also important to note, exchanges are in the mix as well, competing with brokerage houses to 'arrange trades.'

Finally, in our discussion of sell side (and buy side, in terms of definition), it is also important to note (as Harris points out); sell side ONLY exists because the buy side is willing to pay for their services. Now that we've covered buy side and sell side…a few readers may still be inquiring: Who does the buying and who does the selling…buy side, or sell side?

Both. Both buy side and sell side...buy and sell.

The terms buy side and sell side are simply definitions of the 'capacity' of buying and selling motivation. The 'capacity' of buy side buying and selling is to make money on the movement(s) of financial instruments. The 'capacity' of sell side buying and selling is to provide buy side with liquidity, or to create 'price improvement' on large orders.

Easy enough right? Right.

As I write, I'm wondering if readers are now asking what's the larger point of this entire discussion – of buy side and sell side? If you are, I applaud you. The larger picture is exactly within the question itself– the larger picture…is 'the big picture' of why volatility exists within intraday trading in the first place, but it seems to me that almost no retail traders actually 'get it.'

See, most retail traders consider the 'big picture' to be their monthly charts, or 'those boring fundamentals.' However, in terms of intraday volatility, the big picture is really within institutional benchmarks. When we understand institutional 'benchmark trading' we will also find a greater understanding of:

1. Why retail technical indicators are built for failure...
2. Why most retail traders lose...
3. How the big guys perceive information differently...
4. Why having an institutional mindset is so important...
5. How we can use volatility, probability and benchmarks (like VWAP) in our own trading to take advantage of potential institutional order flow pending...

I would like to take a moment to quote John Pinney (JP Morgan) from the book, Coping with Institutional Orderflow (Robert A. Schwartz, John Wiley and Sons, 2007) who stated, "I will do my best to convey the essence of the research we recently completed on the cost of dynamics associated with institutional orderflow. To a retail trader, the stock exchanges look like a vending machine. An order is placed, the delivery is made and the execution comes back. The broker has completed his or her job, often within seconds."

Pinney is right, the retail trader DOES believe his, or her platform is nothing more than a vending machine… Order in, position in, order in, position out.

It is here that we further answer the question of why the retail trader never even knows to consider the mindset of institutional order flow...

Pinney goes on to state, "But this is not the case for the institutional trader. As we know, the order size – the 'peg' of institutional trading interest – is much larger than the 'hole' size of the exchange process."

PLEASE READ CAREFULLY...

Take a moment to ponder what Pinney has just described as the concept of institutional orders being larger than the 'hole' of the exchange process...

If you take one thing away from this entire book... Please take the following words:

Institutions must constantly break up large orders into smaller chunks; otherwise, they would constantly be attempting to shove a watermelon through a muffler.

Not only would the people around them notice, but also, the event would be both sloppy and ineffective… In normal circumstances, sell side traders are able to dice the watermelon (large order) and discreetly slip the pieces into the market one-by-one (iceberging).

However, what happens if the car (price) the muffler is attached to…is about to leave the parking lot? Even institutional traders are sometimes caught off-guard and are forced to start shoving the watermelon through…you know what.

What we're talking about is volatility…derived from big buy side politely asking sell side to insert watermelon into mufflers, all day long.

Sell side is Dr. Watermelon Stuffer and all day long he's receiving orders from Boss Big Bank (buy side). Moreover, what if he's been told to get the watermelon in the muffler 'or else' and the car starts to move? You guessed it; he might have to run after the car, trying to shove the whole watermelon (or pieces of) in to the muffler, before the car (price) gets away completely.

What we are talking about is the occurrence where markets begin moving (on low, or high volume) and are seemingly propelled by constant buying, or selling.

Now, assume you are Dr. Watermelon Stuffer for a moment and you're a little smarter than most… You know the driver is 'just making a delivery,' and he will actually be back in about 15-minutes… It's a good thing you know too, because you still have half a watermelon to cram into the muffler.

Of course, when the car pulls back into the parking lot…you would start cramming again, before the car pulls out another time. Big Boss Bank is paying you on your performance…based on how much of the watermelon you can get into the muffler, as neatly as possible, before the car pulls out of the lot. If the car pulls out of the lot and you've been able to neatly (and discreetly) dice the entire watermelon and insert it into the muffler, you will be paid handsomely. But what if you suddenly figured out you'd goofed and crammed all of the little, neatly sliced pieces of watermelon into the wrong car?

It's going to be ugly trying to get the watermelon back out. What we're talking about is volatility, when the big guys are wrong. What if, you crammed the whole watermelon into the muffler and it is the not only the wrong car, but the driver just got in?

Roll up your sleeves, because things are about to not only get messy, but frantic, at the same time. What we're talking about is volatility.

What if you have an absolutely massive watermelon to stuff…but you know the driver's schedule, and thankfully he will be back 30-minutes after each time he leaves to make a delivery… Each time the car pulls out of the lot, you'd likely just take a seat and wait for him to come back, to begin inserting more of the watermelon into the muffler.

What we're talking about is the occurrence of institutional traders buying at, or near VWAP (or other benchmark) and why they don't often chase price...

Unlike the retail 'breakout' trader, the institutional watermelon stuffer knows the car will be back...

So where is the retail trader trading in this whole event of stuffing watermelons into mufflers? He's standing over on the curb, waiting for the driver to pull by, to see if he can exchange a couple quarters for a dollar bill…completely oblivious to the whole stuffing of watermelons thing, happening just a few feet away. Fact is, when we understand what's happening on the institutional sell side, we suddenly understand 'why that really weird uptight guy standing behind the car – is always holding a watermelon.' However, to see Dr. Watermelon Stuffer, we have to wear special glasses, because there's one thing I forgot to mention… Dr. Watermelon is invisible most of the time.

To see him, we have to wear special volatility / probability, VWAP, TWAP, LHOC benchmark glasses. And we're not always going to be able to see him, even when we think we can, but the longer we wear the glasses, the better we will become at spotting Dr. Watermelon Stuffer, even when he's mostly transparent. (By the way, these are special cars…that even when the mufflers are crammed with melons, the engines do not cut out… Things just run differently in Financial-Market-Land.)

Here's the thing about almost all of the 'other' retail traders though… They're standing around on corners, all with the same quarters, trying to exchange their change for the same dollars...

They're easy to spot too, as they're all wearing the same fancy pants and 'blue line crosses red line' MACD, stochastics, Fibonacci, moving average, relative strength [whatever] jackets. But they're all oblivious to the real game.

The real game isn't even about quarters and dollars, it's about cramming watermelons into mufflers, before the driver leaves with the car in one direction, or another. Fact is, all of the retail traders (in their fancy technical analysis jackets) never even understood the real game from the start, which is exactly why they will always be exchanging quarters for dollars on corners.

However, because they're all just standing there, obvious to the world, money in hand…eventually, they all get mugged too.

Many retail traders believe they have an edge though...

They've got a little buddy, who happens to be real fast at math, and can regurgitate fancy pants signals all day long. He tells the retail traders (who think they are smarter than the collective whole) when other retail traders are about to change jackets. Sometimes his fancy pants signals work, but really, he's missed the whole game too. And eventually, when the driver changes schedules, or routes…or when Dr. Watermelon Stuffer changes his entire outlook on his watermelon stuffing process, or even worse, gets a new tool to stuff watermelons with, the retail trader's little buddy (FYI, his name is EA, for Expert Advisor, but his Mom calls him Black Box System) starts to get it wrong… One more time, the retail trader is just stuck there, standing on the corner with his little pal, getting mugged (again!), scratching his head...

See, the whole game is really about the watermelons and the driver. Concerning the driver, it's about when he's going, why he's going, and where he's going...

While the car is 'price', the driver's name is 'fundamentals'. Let me tell you, since the driver has so much on his mind, he changes his philosophy and outlook daily...

Sometimes though, he gets an idea in his head…and he just keeps on going, until he's out of gas. In rare occurrences, the retail trader actually really attempts to figure out the driver's schedule, but the occurrence is rare.

live-trading-with-mark-whistler-in-barcelona-spain-october-2010

Regardless, retail traders fail to understand the money (the real money) isn't just in figuring out the driver's schedule, but ALSO in knowing (and seeing) Dr. Watermelon Stuffer's probable plan too. For the retail trader, the real money is in betting other's (who are watching the car too), when the driver will come and go… Moreover, the intraday trader who has the special x-ray glasses though, knows to only bet when Dr. Watermelon Stuffer is at work behind the car, because when Dr. Watermelon Stuffer is furiously in motion, the car is about to move. Volatility and probability help determine when the car is about to move, how far it might go, and when it is coming back. Benchmarks are knowing where Dr. Watermelon Stuffer may begin stuffing, or start retrieving his crushed fruit, or used in conjunction with volatility and probability, where he might just decide to sit the whole game out for awhile. Fundamentals tie the whole thing together.

Typical technical analysis (used on its own) is a joke.

Remember the first chapter about Superman wearing his underpants on the outside?

The retail trader who understands Dr. Watermelon Stuffer is: BIOVAP Man – Benchmark Institutional Orderflow Volatility and Probability Man, and is a superhero for sure…even if he looks a little goofy. He wears his underpants on the outside, and he sports x-ray glasses.

Dr. Watermelon Stuffer tries to make fun of him, but BIOVAP Man just smiles, nods and replies, "Whatever melon-boy, just keep on stuffing and everything will be alright..."

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Mark Whistler
New York   •  United States
Trader  |  Author 


• Macro to Micro Volatility Trading (CreateSpace, 2010)
• Volatility Illuminated (CreateSpace, 2009)
2034 The Corporation Post 2012 (CreateSpace, 2009)
• Swing Trader’s Bible (John Wiley & Sons, Inc. 2009) co-authored with Matt McCall
• Trade With Passion and Purpose (Wiley, 2007)
• Trading Pairs (Wiley, 2004)
• Profit from China (Investment U/Wiley, 2006)
• Profit from Uranium (Investment U/Wiley, 2006.)

From time to time, Author Mark Whistler can be seen on most major financial television shows, while also occasionally contributing to TradingMarkets.com and TheFXMarkets.com, Investopedia.com and TradersChoiceFX.com. Whistler is a regular contributor to FXStreet.com, educating currency traders worldwide.

In addition, Mark is the founder of WallStreetRockStar.com, fxVolatility.com, iOnlineForexTrading.com, and ForexMetaTraderRobot.com.

Mr. Whistler founded and operates 2034thecorporation.com,  EatsForTheStreets.com and the MarkWhistlerGallery.com.








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Reader Response
July 1, 2009

Dear Mark,

Your book is very powerful, a real game changer... an absolute work of genius."

N e w t o n illuminated natural forces, Einstein illuminated energy and now your work/book has finally broke through and illuminated the forces and energy behind price action and volatility in the markets... (Brilliant!)

On a personal note, my office book shelves are filled with trading books on all the popular subjects... personal psychology, money management, fundamental and analysis, technical analysis, etc... and at the end of the day, they start to all pretty much sound the same... I am actually embarrassed to admit how much time and effort I have put toward trying to learn and make all that stuff work.

Then comes along your book... The first read instantly changed my whole way of thinking and my approach to markets...

And yes, the chapter on Dr. Watermelon Stuffer...really pulled the curtain back, and your analogy made perfect sense.

Chad V
Las Vegas, Nevada


Author | Volatility Illuminated

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