Hello and welcome to our course. First and foremost we strongly recommend you to view this course on a desktop for the best experience. Let us start with a short reality check. We cannot magically make you a good trader if you just read this information. You actually still have to do the work. We offer you all the knowledge we deem important, condensed and well presented, but as with basically anything there is no secret to be successful. It takes hard and dedicated work, every day for longer than most people can endure and if you can do that you will most likely be successful.
We recommend for full effect: Actually study this course and everything it has to offer. Don’t read it once. Read it as many times as it takes until you can actually apply the knowledge. If you can reproduce the knowledge with your own words and apply it, rather than just repeating what you have read, you have probably understood it.
Why are we saying this? We have seen too many people, who could almost perfectly recite the theoretical knowledge needed for a good trader, but fail because they didn’t actually understand it and didn’t follow trough. Knowing these things doesn’t make money. Acting on the knowledge does.
Also: adjust your expectations. Trading isn’t a way to get rich fast. It takes time to build the skills. We don’t know where you stand in your journey so we cant tell you how long it will be but remember: To become good at anything you need to be bad at it first. It is fine to just be starting out. But expectations of your personal path should be adjusted to where you are in your journey.
We will provide everything we think is necessary. This ranges from Knowledge about the market to how you can actually apply the knowledge. We found the information on the practical side is a much more scarce ressource and we will therefore try our absolute best to convey it to you!
We hope you enjoy the course and all the other amenities we have to offer. Have fun studying! -Spero
How is the stock market driven?
We think it is necessary that if you want to be a profitable trader, there needs to be a certain amount of fundamental knowledge about the market. No, we do not think someone needs to understand every single technicality of Bitcoin before they start trading it. What we mean are market fundamentals like who is actually trading in the market? How is the demographic made up? Who actually controls the markets? We will give you the fundamental knowledge we deem as necessary in this course. And remember: do not read this once only. Study it.
Now back to the question how the stock market is driven. The boring answer: supply and demand. But who actually controls this?
The market is made up of retail and institutional traders. Retail can range from your average Joe to a day trader (individual traders who aren’t necessarily professional).Institutions can range from market makers over pension funds to hedge fonds (professional firms with more resources).
Retail traders usually trade with their own capital and institutional traders manage other peoples capital. Institutions usually have access to more resources and better analysis, therefore having better entry points and exit points. They have the disadvantage that they cannot usually take big risks as they do not trade their own capital and they cannot always exit at the top because their positions may be so large that their simply isn’t enough liquidity in the market for them to sell all of their position.
Since 80% of the market (this figure is for the traditional markets, not for crypto) are controlled by institutional traders and most individual traders aren’t profitable one could conclude that institutions use retail traders as their exit liquidity. Exit liquidity means: If I want to sell at what I think is the top I need someone to buy what I am selling. Someone needs to be interested in buying when someone else is selling. This liquidity is exit liquidity.
What we can deduce from this is that Institutions often have an edge over individual traders simply because of their vast resources and better understanding of the market. This also explains why most people do not outperform the market while trading. Outperforming institutions consistently is very hard and only very few are good enough to do so.
Most traders do not have the opportunity to trade for 10+ hours a day. They also do not have the resources that smart money has. Why exactly most traders loose money and ways to avoid being one of them will be explained later on!
Of course, outside factors also have an impact on the market dynamic. People buy stocks in anticipation of where it might be in the future. If a significant event happens, like the outbreak of a new war, markets may react negatively to these news as the new event may have negative effects on the economy in the future. We find, however, trading these can be hard since news are priced in almost immediately. If you get the information only 5 mins too late the move will usually already have happened.
Now that we have a fundamental understanding of who is actually trading in the market, and what they move based upon, lets look at market makers and how they may influence the market dynamic.
Who are market makers?
Market makers are entities that provide liquidity to markets by continuously buying and selling assets. They profit by exploiting the bid-ask spread—the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. Market makers aim to buy assets at a lower price and sell them at a higher price, thus earning a profit from the spread while facilitating smooth trading operations. They are essential to a market to allow sellers and buyers to sell at any price point and not have to find an individual buyer or seller themselves.
Who exactly are they you might ask?
Examples would be Jane street, galaxy digital or Keyrock. These names aren’t really known and they themselves do not really matter as much, what matters is how they influence markets to profit. Market makers profit from volatility, but:
How do they profit from it?
Volatility Profits: Market makers can capitalize in volatile markets on price movements. Long and short liquidations often lead to increased volatility, providing opportunities for market makers to profit from rapid price changes. When liquidations occur, market makers may take advantage of the resulting price swings to execute profitable trades.
Liquidity Provision: Liquidations contribute to trading volume and liquidity in the market, which is beneficial for market makers. By providing liquidity during liquidation events, market makers can earn profits from the bid-ask spread
Arbitrage Opportunities: Liquidations can create temporary price discrepancies between different exchanges or trading pairs. Market makers can exploit these arbitrage opportunities by simultaneously buying and selling assets across platforms
„But how exactly do we use this information“ you may now ask?
Below you can see a heat map. The color above the price shows price levels where short positions will be liquidated. The colors below show were long positions will be liquidated. When a position is liquidated, it means that the trader's assets are sold off to cover their losses or meet margin obligations- meaning the broker closes the position for the investor when all of the investors capital is gone. This ensures the investor doesn’t loose more money than he has and the broker doesn’t loose the money he lends to investors. Market makers are interested in pushing price to these areas because of the above listed reasons (Volatility Profits, Liquidity Provision, Arbitrage Opportunities).
(Good heat maps are available for free. The example used is from coin glass via https://www.coinglass.com/pro/futures/LiquidationHeatMap )
Many phrases hold truth in the stock market with one of them being: „The train leaves the station with the least people on board“. We will dive into more of these phrases later but this one can be explained via the Heatmap.
What does this phrase mean? It means that if, for example, there are a lot of short positions above the price, as you can see in this foto, the price is more likely to move to (liquidate) these shorts before it goes lower. As we have learned about market makers: They are interested in markets moving in those directions.
What can also explain the theory: We will go into more detail on this later but: 95%+ of traders loose money. If most people think a certain idea will play out that idea will get less likely just by a lot of people being convinced of it. The market doesn’t generate „new“ money. It just distributes it from interested buyers to sellers. It simply doesn’t work in a way where just everyone can be profitable, there have to be people who loose money or at least buy an asset which in the short term decreases in price, so that other people can be profitable.
Now, What can we learn from this?
Market makers are interested in volatility
Heatmaps show us where to find liquidity
Markets tend to move towards these zones
Usually what most people think will happen won’t happen (train)
