Ultimate Beginner Guide to Pro Trading

Hi, let's be real. If you clicked here,

it's probably because you're another

financially illiterate who just goes on

YouTube to search how to make some money

with trading. Maybe you saw a guy

claiming to have become rich by flipping

some memecoin or you saw a forex guru

flaunting his Lambo and his lifestyle.

Just know that's all [ __ ] It's all

a scam. Forget about it. That is not

professional trading. Plus, every video

on YouTube that has a title similar to

this one will likely show you how to

draw a bunch of lines on a chart, follow

some price [music] patterns, or some

magical combination of indicators, and

you'll end up trusting people with zero

credentials. Try trading with a broker

they have an affiliate link with so that

they can earn commissions from the money

you will eventually lose. So, you'll

lose money. You'll have to buy their

premium program or some signal room or

some other shortcut that will not lead

you to trading success anyway. You'll

become a gambling addict, fall for more

scams, and lose money for years. And I'm

not joking. This is literally what

happens to millions of people that

approach trading. But lucky for both of

us, today you've clicked on a video,

which is slightly different. A video

where someone, yours truly, will finally

wake you up on how trading actually

works, where you'll understand it's not

all fun and games and quick money on a

chart. I will be brutally honest with

you so you know how it really works. see

if trading is even the right business

model for you and what it actually takes

to be successful. And I am in a unique

position to teach you this because

unlike most of trading YouTubers, over

the last 6 years, I've been studying and

trading the market side by side in the

professional trading floors of world

trading champions like Patrick Mill, two

times world trading champion,

professional portfolio manager, or Jan

Smolen, three times world trading

champion, who's also a macro hedge fund

trader. people who have documented in

the world stage three-digit returns per

year consistently for more than 5 years.

One of my mentors have managed [music]

$20 billion in a European bank and is

now a hedge fund manager for example.

And we're talking about people who are

barely on social medias at all that I

had to look really hard for and pay tens

if not hundreds of thousands of dollar

to learn their trading strategies which

unlike most retail traders on YouTube

who just show you some screenshots taken

from offshore brokers god knows where

they're from which are 99% fake. These

people have audited results and I have

managed thanks to this professional

education to become consistently

profitable and generate alpha. And I'm

one of the few people you're going to

find online that has actually shared a

live broker login with a regulated

broker. And I'll keep sharing my

performance and my journey fully

transparently on this channel. So if

you're tired of the [ __ ] and you

want to cut to the real stuff, I can

confidently say this is one of the few

places you're going to be able to find

it. This is not going to be that kind of

dopamine friendly video where by the end

of it you'll be automatically profitable

and be able to make $5,000 a day type of

thing cuz that, as we have established,

is complete [ __ ] This will be a

brutally realistic video where I've

condensed literally the best [ __ ]

knowledge you can possibly find on the

face of the internet gathered in 6 years

of trading education, academic research,

and personal experience with world top

traders on how to become a pro trader, a

professional of the trading business.

And like, bro, we're talking about

finance, okay? This is no [ __ ]

[music] game, okay? People study for

decades and have PhDs for this [ __ ] And

it's not an online [music] business

model either where you have to sell a

product to some people. We're talking

about becoming an emotionally neutral

ninja sniper that reads where the banks

and the smart [music] money are moving

their money and being able to predict

this flow of money consistently through

time. It's not quick and easy money.

It's a skill that will take time to

build, likely years. And whoever tells

you that a video is enough or 6 months

is enough, they're lying to your face.

So, this is how it's going to go down. I

will first place your expectations in

the right place so you don't lose your

money like a degenerate gambling right

away. You're welcome. I will show you

what financial [music] markets really

are, the difference between an average

retail trader and a protrader who can

manage to build generational wealth with

trading. How professionals read the

markets. how they analyze it through

fundamentals, [music] order flow and

option flow. How do they build a

strategy and what strategy they use and

being able to not only survive in the

game but thriving in it, making two,

three, even fourdigit return per year.

So, buckle up, save this video in a

watch later list or something. Going to

be a long video packed with value that

normally gets charged tens of thousands

of dollars for, but that will give you

professional trading knowledge and a

clear road map. So, pause the video now,

take pen and paper cuz we're getting

started. So, let's start from the basic.

What is trading? Is it like trying to

buy a meme coin at $1 and then selling

it at $20 for a 20x profit? Technically,

yes. Or trying to trade forex every time

price crosses a weird line. Technically,

that's also trading. Those are retail

trading strategies that 99% of people

use to lose the savings they were

supposed to use to pay off their student

loans. But that's just a more advanced

and cooler form of gambling, right? It's

a casino. Very few get lucky. Very few

times. 99% don't. That is not a reliable

business model. What professional

trading really is is the most advanced

and at the same time the most accessible

glitch in the matrix. It's not a

business, okay? You're not creating a

product and then selling it to a market

for a profit. But for the purpose of

this video, for those who seriously want

to learn the skill of trading and become

able with a couple of smart decisions

every day, repeated for a long time to

potentially make fuckloads of money, we

need to properly differentiate retail

trading from real professional trading.

And for us, a definition of a prot

trader is a person who is capable of

consistently milking money out of

financial markets by executing a

predetermined riskadjusted strategy that

has a statistically valid edge. So when

you want to become a trader, you're not

just starting a new business. You're

embarking on a journey to become a more

disciplined person, a more stoic person,

a patient person who doesn't let

emotions influence his decisional

process. And you have to become capable

of consistently milking money out of

financial markets. Not once, not a

one-time flip. You have to build a skill

and keep that skill sharp, refining it

and sharpen it like a sword, just like a

chess grandmaster or a professional

fighter or a higher ranked sniper who

worked both hard and smart for years

building and refining a skill. Second

point, you don't make money, you milk

it. And I specifically chose this word

because in trading again, you're not

creating something and making money out

of it. You're just taking money from

someone else. Thanks to a smart decision

to click a button on a screen, which is

something that just doesn't happen in

any other business model. And only in

the trading model can you scale to six,

seven, nine figures without a team,

without building websites or brands,

without having to know about marketing,

about fulfillment, customer care, sales,

managing team, dealing with angry

customers, or with any people at all for

that matter. None of this. You literally

just need to push a button, right? buy

at the right moment, sell at the right

moment, any financial asset, and get

paid. But you don't just guess the right

moment. By finding the right moment, I

actually mean executing a predetermined

risk adjusted strategy that has a

statistically valid edge. Again, yes,

you're pushing a button, but you're not

just improvising like just pushing a

button in slot machine and seeing what

happens. Your job is to apply a strategy

and find a strategy that has an edge

before you even think of entering a

trade. Your edge is your boat in this

crazy ocean. So what exactly is an edge

in trading? You have an edge when you

have a profitable expectancy. So when

you can confidently expect your trades

to be profitable on a large enough

sample and there's three main element of

your trading edge. The first one is the

win rate. And the win rate is on 100

trades how many of them are wins versus

how many of them are losses. So you have

a win rate and a loss rate. If you win

60 trades out of 100, you have a 60% win

rate. The second element is the

riskto-reward ratio, also known as RR.

And this means if I risk $1 per trade,

how many dollars do I earn? For example,

if I risk $10 to make $20, that is a 1:2

risk-to-reward ratio. So, if I'm trading

a stock and I buy it, I can place a

stop-loss $10 below the current price

where I choose to accept a loss and put

a takerit 20 points above where I expect

to take a profit. And these are two

levels that I'm willing to sell at close

my trade. But the relationship between

your stop-loss and your take-profit is

your risk-to-reward ratio. So, for

example, if you have a 50% win rate with

a 1:2 risk-to-reward ratio, and you're

able to achieve this consistently as a

result of your trading, you will be

profitable. You will have a positive

expectancy. So, you would expect to be

profitable and have a profit factor

higher than one. A profit factor is the

total sum of your wins divided by the

total sum of your losses. A profitable

edge is anything above [music] one. So

in zero sum games in the field of

stochastic events there is a

relationship between win rate and

risk-to-reward rate which is win rate

equals 1 over 1 + reward or your reward

to risk ratio. So technically if you

were to trade completely randomly

flipping a coin with a fixed 1:1

risk-to-reward ratio on a large enough

data sample you'll tend to have a 50%

win rate. If you were to trade

completely randomly with a 1:2 fixed

risk-to-reward ratio you will tend to

have a 33.3% win rate. And if you plot

on a chart all possible combination,

this line forms, which is the break even

line. This is where random trading

technically brings you. But since for

trading you need to pay commissions and

likely a spread, if you trade randomly,

you will technically lose money. But

let's say below this line there is the

losing area and above this line there's

the profitability area. An area with a

profit factor below one and an area with

a profit factor above one. Your goal is

that your strategy is an anomaly that

manages to beat randomness and have a

combination between win rate and

risk-to-reward ratio above the break

even line. That makes it profitable. And

if you're just going to gamble, you're

going to non-randomly be in the losing

area, which is statistically speaking as

impressive as being in the profitability

area because you are achieving

non-random results. So you could just

take a bunch of unprofitable trader,

copy their trade the opposite way, and

be profitable. That's what brokers do,

specifically CFD Forex brokers. But if

you're here, you want to become

profitable. And there's three ways to

find an edge that gives you a positive

expectancy. The first one is algorithmic

trading or systematic trading. This is a

path that you can choose to follow,

which is not going to be covered in this

video, but it's probably one of the most

common ways to trade in the professional

space. So, you learn how to code with

Python, MLQ, Easy Language. You build an

automated trading algorithm with a

series of if then functions where if all

conditions are met, opens trades on your

behalf. And this is very powerful

because you don't have to worry about

opening the trades yourself and you're

way less likely to incur in

psychological mistake, cognitive biases,

and emotional trading. But that comes

with a very unique set of problems

because someone else out there will tell

you that systematic trading or

algorithmic trading is the best way of

trading that you can simply let money

work for you. But that's absolute

[ __ ] I've met with a lot of

algorithmic traders. I run some

algorithms myself. and algorithms since

they have a fixed set of rules that are

being applied to a very dynamic entity

such as financial markets. [music] These

bots just at some point will break

because markets tend to be efficient

when someone else finds the same edge.

And since the strategy is very

mechanical and very rule-based, very

likely that someone else will find the

same edge or that the counterpart that

made that edge profitable will

disappear. And because of this efficient

nature in markets, algorithmic

systematic edges at some point stop

working. So as an algorithmic trader,

you constantly have to look for new

edges and maybe run a portfolio of 20,

30, 50, 100 different trading systems

and monitor their performance. Maybe

choose to switch some systems off,

switch some systems on based on how

markets condition vary. And how you find

an edge here is you build a hypothesis,

you test it in the past, also known as

back beck testing [music] or insample

data collection and you see if that idea

works in the past. Then there is usually

a fitting phase where you try to

optimize the performance of the bot by

tweaking the entry rules here and there.

And the main risk here is overfitting.

So to perfectly calibrate the strategy

on past data and make it so good on past

data that it will not work with new data

in the present in the future. Plus if

HID has worked in the past there's no

guarantee that it will work in the

future. So it takes a lot of research

and a lot of constant monitoring and if

you want to achieve outstanding

performance with algorithms it is a

full-time job. So it has pros and cons

and in my experience what I've seen is

that most trading system will tend to be

[music] slightly above the break even

line and achieve a profit factor of 1.2

1.3 1.5 [music]

1.6 maybe two in the best cases. So

that's the first way to find an edge.

The second way to find an edge is with

manual trading or discretionary trading

which is completely different and

requires you to build a different set of

skills because with discretionary

trading you trade manually and you trade

based on your personal view of the

markets on the way you analyze markets

the way you analyze price the way you

analyze volume the way you analyze

macroeconomic [music] trend and market

sentiment. So in discretionary trading,

you are the edge. That's why no one can

copy you. And that's why you are not a

victim of edge decay or alpha decay in

the same way that algorithmic traders

do. You don't have to learn how to code,

but you have to learn how to analyze

markets [music] and how to get in tune

with the markets and being able to

analyze the sentiment of the markets.

And [music] by training your pattern

recognition abilities to recognize

patterns through hours and hours of

sitting in front of the charts and

patiently executing your smartest trade

ideas, which is still a logicbased and

rational way of doing trading, but it's

not based on statistical mathematical

probability. It's based on subjective

probability. Something similar to baian

probability where as new factors come

into place the probability of an event

happening vary through time. As you

gather new information and discretionary

trading is a skill that takes time to

master. But it's like training your own

neural network. And not a lot of people

are able to have the mental resilience

to be able to become successful [music]

discretionary traders. But those few who

manage to become one, their edge is way

above the profitability area. The most

successful traders I've met, even though

they do run also algorithms, they've all

built a skill of discretionary trading.

They know how to read orderflow. They

know how to understand macroeconomics.

They've seen the reactions of [music]

market during specific times of day or

when some news come out and they're able

to join the trend with an extremely high

accuracy and potentially with both a

high win rate and a high risk-to-reward.

and that brings them deep in the

profitability area. But a lot of people

since discretionary trading becomes a

mental game where you have to trust your

cognitive abilities and learn how to

refine them as you build them, the

majority of aspiring discretionary

traders fail because they don't have the

necessary mental resilience and

discipline. And that's why there is a

third way which I define as hybrid

trading which is a trading that is

manual but is more mechanical. So it's a

set of rules where on top of which you

add your own interpretation of price

action and orderflow dynamics and your

own interpretation of market behavior to

base your edge on something rational and

solid and rule-based and then gradually

build your skill on top which is I think

the best way for beginners [music] to

start building the right habits.

So we have understood what an edge

technically is and the three different

ways to find an edge. But before you

choose how to trade, there's also other

things you need to consider. And a very

crucial choice you have to take is which

style of trading you're going to

implement because you could either be a

scalper or a day trader. So trading

inside of a single day and take short

price movements and maybe your trades

will last some minutes or some hours.

And that is a trading style that

requires time in front of the charts for

at least 4 to 5 hours every day, which

is likely compatible if you have another

stream of income as a freelancer, for

example. Because in the early stages,

you're not going to make a lot of money

and you still need some stream of cash

flow to survive. And becoming profitable

as a day trader in under one year is

very irrealistic. Or if you work a 9

to-5 for example, you can start with

swing trading which is a much better

option if you don't have a lot of time

to trade because swing trading requires

way less active management of positions

and you open a trade to stay inside for

days, weeks or even months if you are a

position trader. So with swing trading,

you try and join longerterm price

swings. So based on how much time you

can invest in trading, you should choose

a trading style that fits your schedule.

And again, in this video, we're going to

take a look at day trading strategies

and swing trading strategies. Or if you

think that you don't feel ready to

embark on the trading journey that is

not worth for you, you should consider

investing instead and gradually build

your capital through time with other

sources of cash flow and simply use

financial markets as a place to park

your capital. not have any active

management of your capital at all and

have a business, a job or a freelance

profession as your source of cash flow

to pour money into your investment

account to avoid your capital being

eroded by inflation, which is something

I strongly advise everyone to do. And

maybe we'll do a video about investing

in the future here, but now we're

talking about trading. So, in this next

chapter, we'll start understanding

financial markets, how they really work,

and understanding the money flow of the

markets.

So in order to analyze the market and

analyze it in the most logical possible

way, let's ask ourself these five

crucial questions. What is moving? Who

is moving it? When, where, and how,

where, what moves of course are prices

of financial asset. And the analysis of

prices is also known as price action

analysis. traders. We earn from price

swinging up, swinging down, buying at a

low price, selling at a higher price, or

sell short a high price hoping to buy

back at a good price. The second

question we need to ask is who's moving

price? And these are market

participants. And there's a lot of

different types of market participants

which operate inside of the market for

different reasons. And I personally like

to divide them into three main

categories or actually four main

categories. These categories being big

money, smart money, market makers, and

retail traders. And let's define big

money as big market participants such as

central banks, commercial banks, pension

funds, sovereign funds, university

endowments, investment funds, and big

companies. Smart money instead are hedge

funds, investment banks, HFT firms. And

they are still big money as in they are

a big portion of the who the who moves

the market. And we need to make a

distinction between smart money and big

money. Because what we mean by smart

money is not just a big money market

participants such as central banks,

commercial banks, pension funds,

sovereign funds, blah blah blah that are

inside of the market to stay for a long

time and they just pour money into the

markets without caring too much about

filling of their orders. Smart money

participants instead engage and invest a

lot of money in something called

execution alpha which is basically a

field of trading that refers to how do

we optimize the execution of such big

orders in such a way that we pour this

big money without impacting price and

basically not caring about where you get

filled. these market participants are

putting a little more effort into having

an alpha also in how they place these

big trades in the market and they will

engage in smart order routings maybe

some orderflow manipulation tactics and

this is for example a screenshot that

I've taken from a company that as a main

job and business model is providing best

execution algorithms and they have

several way that they implement this

execution alpha such as volumedriven

algorithm and price driven algorithms

where big orders are poured inside of

the market based on volume weighted

average price. So from the open close of

the session as price moves and volumes

moves throughout the day. So the market

volume goes up and the volume that

they're feeling is kind of following how

volume averages throughout the session.

So they don't get slipped too much or

they have time weighted average price.

So they just place the orders gradually

throughout a single session but at the

same level of volume. There's

participation target close only at the

closing of the session or priced driven

algorithms so at steps or momentum

value. These are all techniques that are

widely known and used in the

institutional space to improve the

firm's alpha also in the execution

stage. Then you have the small money

that encompasses not only retails, small

prop firms, maybe some CPOS, some

commodity pool operators, some commodity

trading advisors. And by prop trading

firms, I mean small firms managing maybe

a couple million dollars, 10, 20, 50,

100 up to a hundred million. Let's say

it's considerable a small proprietary

trading firm. So people trading with

their own money or CPOS, CTAs, AMC's

which are a form of let's call it a

small fund and retail traders which can

vary drastically. You have retail

traders that are managing tens of

millions of dollars or retail traders

that are managing a couple hundred

thousand dollars or people just trading

with the $100 in their account. Let's

consider all of this to be small money.

And then you have market makers. And

market firms could be considered smart

money, but their business model is so

unique because market makers are not

trying to speculate. They're not trying

to hedge with long positions. The only

thing that market makers are doing is

providing liquidity. So, as we will see

later, every market has a bid price and

an ask price. The bid is the closest buy

offer. The ask is the closest sell

offer. And the distance between these

two is called spread cuz maybe if you

want to sell, you can sell to a buyer at

99. And if you want to buy, you're going

to buy maybe at 100. And so this $1

spread is what people pay to be able to

trade market. And market makers are the

one selling here and buying here. And so

they and so the spread that is paid by

trader that's what they earn. So they

quote both the ask and the bid and earn

a spread every time price goes up and

down up and down up down a single tick.

That's where and how they earn money in

all sorts of market. And this will later

be important to understand and we will

explain it thoroughly because a lot of

for example the volume that is moved in

stock market indices futures contracts

comes from options market makers for

example but again we'll talk about this

later but it's important to identify

them as a specific market entity. And so

all of these are market participants

that engage in trading and investing and

in pouring money in opening trades,

buying and selling inside of financial

markets and they have different needs

and they're engaging in the market for

different reasons. And this makes us

move on to the next question which is

why do market participants interact in

the market? Well, it could be for

speculative purposes, for capital

preservation and growth or for hedging

purposes. So these are the main reasons

people trade in the market and the

reason why they take such a decision and

the analysis of why traders and

investors might act in a certain way in

the future is called fundamental

analysis. And fundamental analysis is

the analysis of the fundamentals. The

analysis of the nature of markets. So

for example, if someone is trading a

stock, the reason why he's buying that

stock, regardless of the purpose, for

example, why a rich person might want to

buy gold instead of keeping cash, for

example, for capital preservation and

growth purposes, might be for

macroeconomic reasons. So macroeconomics

is one type of fundamental analysis that

leads market participants to take

decisions. If the expectations on

inflation are going to be very high, you

would expect a lot of money flow from

all sorts of market participants inside

of gold because gold is the ultimate

inflation hedge asset or fundamental

analysis declines also in the real

fundamentals of each asset class. So

each market has different fundamentals,

different drivers that drive the flow of

money inside of that particular market.

For example, we just said gold as an

inflation hedge. Stocks, for example,

are driven mostly by in risk appetite.

Bonds, for example, are also used as a

hedge for inflation, but more of a way

to park money, but also used if an

investor wants a fixed income. So for

stock, for example, if Apple has a new

amazing CEO or something bad goes wrong

about the company, that will move price

because it will move the fundamentals of

the market. So the analysis of

fundamentals of each markets answers the

question why the perceived value of that

specific asset or asset class is

changing through time and is as a

consequence going to affect prices. So

as you become a trader it's going to be

very important for you to be

consistently finding reasonable answers

to why the perceived value of an asset

which is its fundamentals will drive

what ultimately moves which is price.

because prices will always be a

reflection of the market participants

opinion of what the fundamentals of that

assets are. So we understand that

financial market prices are moved by

market participants that act based on

what type of market participants they

are for different purposes and basing

their decision on fundamentals. So

fundamentals answer to the reason why

something might happen especially in

long-term price movements. For shorttime

price movement, it might be because of

execution alpha or market makers hedging

activity or some retail traders doing

some crazy stuff like what happened for

example in GameStop. Now how does all of

this happen? So let's answer the

question how how do market participants

move money for fundamental reasons that

move prices. But how does that happen?

This happens with a constant flow of buy

and sell order also known as supply and

demand that enters the market in the

form of order flow or volume. And supply

demands is a very easy concept to

understand. If there's more supply, if

there's a lot of a certain asset, the

prices are going to be low. For example,

water's price is decently low for most

people, but gold as it's rare and

there's less of it has a higher price,

right? Supply and demand. So in

financial markets, supply and demand

exists in the form of buy and sell

orders. And there's a constant flow of

buy and sell orders, which we call order

flow that we measure through something

called volume. So one stock traded from

a buyer and a seller that trade with

each other equals one volume. So volume

is literally the amount of transactions

that happen in the marketplace. And we

can analyze this flow of orders and we

can access through a data feed this

constant flow of buy and sell orders to

understand if there's any sort of

imbalance in the auction of these orders

because these are traded in a so-called

double auction which we'll get deep into

later. And the analysis of the market

based on this double auction mechanic is

also called the liquidity auction theory

or auction market theory which is what

we will use to analyze both volume and

price. And then we have the last two

questions which are relatively less

important but still important which is

where so in which markets is the money

flowing. The answer to this comes from

something called intermarket analysis.

So analyzing how certain markets perform

compared to others and understanding if

money is flowing out of a certain market

in which other market is it being poured

in and when can be anything related to

analyzing market cycles such as seasonal

analysis or intraday seasonals also

known as situational analysis. So by

answering the basic question of logical

analysis, we can understand what we need

to consider, what we need to study and

the main things we will need to study is

what moves, how it moves and why it

moves and then we can add where exactly

in which markets through intermarket

analysis and market cycles and when as

in cycles. One more thing that I forgot

to add is sentiment analysis which is

also something very crucial that is

multifaced. It's diverse and there's

many ways to do sentiment analysis but

it's basically the analysis of

participation. So seeing what's the

overall sentiment, see how different

market participants are participating in

different asset classes and you can you

know use instruments like retail

sentiment there's a lot of retail

sentiment tools that tells you what

retails are technically doing or

institutional sentiment with something

called a coot report etc etc or a lot of

people for example using Twitter analyze

the overall sentiment of traders around

the world. So to recap, what moves

prices? Price action. Who moves the

market? Market participants. Why do they

move the market? Because of decisions

they take based on speculative purposes,

hedging purposes, or capital

preservation for fundamental reasons

that can be due to macroeconomics,

single asset fundamentals, or market

sentiment. How do they move prices?

Through a constant flow of buy and sell

order, also known as order flow. So

through volume where do they do it in

different types of markets for different

reasons when do they do it in different

times of the year in different times of

the day in different times of the

macroeconomic cycle and in different

time of each day. So this is the

clearest framework you can have to

understand the basics of the markets.

Now before getting deep into the why

let's first understand the how. So

understanding how prices move through

what we call the liquidity auction

theory. And do you know what? I think

I'll just give you the whole map so you

can review it if you want. I'll send it

on my Telegram chat that you can find in

the description below. So the first step

of the liquidity auction theory is

market mechanics. So let's understand

that one first. This is the price

ladder. So lower prices, higher prices.

And let's say the current price is 100.

So as we know what drives price up and

down is supply and demand. So a constant

flow of buy and sell orders. And let's

see how these orders actually interact

because there's two types of orders. You

got sell orders at higher prices and you

got buy orders at lower prices. These

are called the bids. These are called

the offers. And let's imagine this is

the price for example of Bitcoin. Just

to make a relatable example for you

gamblers. And let's understand it at a

glance with this animated video. So

these are people offering to sell

Bitcoin. These are people offering to

buy Bitcoin at different prices. So

these are buy and sell offers. And this

is the first side of the liquidity.

These are also called the market makers.

This is passive liquidity. Imagine it

just like in an auction where they sell

paintings of a famous artist. Imagine

all of these being the goods being sold

at the auction being offered at the

auction. Price will not move if someone

in the audience will raise their hands

and says, "Hey, I am willing to pay a

higher price." But the difference is

there's not just things being sold.

There are also things being bought.

That's why we call the auction of of

financial markets a double auction

because it works both for price going up

and also for price going down. Now let's

put them all on this side. So if this is

the paintings of Dainci sold at the

auction then you have the auctioneer or

the middleman the guy with the little

hammer which is the matching algorithm

of for example the exchange in can be it

can be Coinbase or Binance or whatever.

For futures, it can be the CME. For

stocks, it can be the New York Stock

Exchange or whatever stock exchange.

Doesn't change. It works exactly the

same for all financial markets. So maybe

a guy named Fabio decides he wants to

buy market one of the one of these one

of these bitcoins that are being sold.

Which one will he take? Of course, the

one at the lowest price, which is 101.

Let's say he wants to buy three

bitcoins, right? So his order will be

sent from the broker to the matching

algorithms that through a first in first

out system will match it with this order

and this order because he needs to buy

three of them, right? So he will be able

to buy one here and two here. So these

will go here into the matching algorithm

and Fabio will be long three bitcoin,

one bitcoin from here and two bitcoin

from here. And so the current price from

here will move first here and then here.

So if there was a candle that opened

here, the the the candle will go first

here and then here. Now let's say now

let's say another person comes named

Patrick and he decides that they want to

sell Bitcoin. So he wants to sell for

Bitcoin. His order will be sent as well

to the matching algorithm that will try

to match that sell request with the best

possible price where there's at least a

buy offer. So he will buy three from

here out of those four and one will be

filled here. B. So all of these orders

that were filled are not going to be in

the order book anymore. Here we'll only

have three. One of them got here. And

now the price would have gone here and

then here cuz that's where the last

order got filled. The last match was

made. And so the candle will tick below,

turn red, and live a wick above where it

used to be because this is now the new

price. So as you see price is always

determined when an aggressive buyer or

an aggressive sellers choose to accept

any of the offers made in the order

book. So aggressors are the price mover

because because remember Fabio could

have just you know placed a buy offer

there without having to accept a

slightly a slightly worse price and he

could have just placed a buy limit at 98

instead of having to buy at worse

prices. He could have paid 98 for the

same thing he paid 102 for, but there

was no guarantee that a seller would

have accepted that offer, right? So, the

fact that he was not willing to wait,

but he was okay to pay a higher price, a

slightly higher price, that's why we

call it aggressive orders because

they're not waiting. They're kind of in

a FOMO. I I need to buy now and I am

willing to pay a slightly higher price.

I'm willing to pay something called the

spread, which is the difference between

the best ask and the best bid. This is

called spread. So whenever there's a low

level of liquidity between the bid and

ask, we say the book is thin because

there's not a lot of liquidity. And by

liquidity, we mean this. We mean orders

in the book. Someone who can be our

counterpart and makes it easy for us to

trade. So the second step of

understanding the liquidity auction

theory is the auction market theory and

as we have understood price are mostly

driven by big operators whales big banks

hedge funds institutions people with big

amounts of money and you understand that

for example if Fabio were to buy in the

previous example a thousand bitcoins he

would have to buy four here eight here

10 here and so on and so forth and

gradually ally accept really really

worse prices in order to to get that

thousand contracts thousand bitcoin

fail. So the first pillar of auction

market theory is that smart money

prefers slow and liquid markets because

they have such big orders they will

fraction them and instead of buying a

thousand contracts right away they will

buy them bit by bit. So you will see

often price stay in a situation of we

say consolidation where there's no a

clear direction of price and sometimes

yes price do but smart money prefers

slow and liquid markets. So they will

split their orders and slowly put them

into the market rather than having to

put them in the market all at once and

move price super super fast with one big

order. And this happens when the market

is agreeing on a price because the

aggressive selling pressure and the

aggressive buying pressure is pretty

even on both sides and it's creating a

situation of balance. So whenever price

is like this, we call this a balanced

market or a situation of fair value. And

what fair value means is is that since

the market is influencing prices through

buying and selling aggressive pressure

that's based on the value of the

underlying asset or the perceived future

value of the underlying asset. Both

aggressive sellers and aggressive buyers

are agreeing that this is a fair price

both to trade sell aggressively or buy

aggressively. Then this is where a smart

money prefers to trade. But then

something might change in the perception

of the future value of the underlying

asset that will drive aggressive buyers

to be ready to accept higher and higher

and higher prices as we saw in the book

because if this is the current price as

we said we have sell liquidity, sell

liquidity, sell liquidity, sell

liquidity, sell liquidity, right? So if

the value of the underlying asset is

such that aggressive buyers are ready to

pay a slightly higher price just to get

filled just to get their hands on that

asset that's what drives price up. So

for example the market will buy some

here some here some here some here some

here some here some here and every time

they buy some tuck tuck tuck tuck tuck

price goes up up up up but it's not like

buyer necessarily like this ideally they

would like to buy just here or even

lower without having to pay a higher

price every single time. So price going

up and accepting all of these sell after

is showing us is a search for liquidity.

They would hope that there's a huge

liquidity over here already ready to

sell back to all of this aggressive

buyers but there's none. There's not

enough liquidity. And so what's

basically happening is there is this

phase of imbalance or price discovery

which some people like to call fair

value gap which is a name that overall

I'd say makes sense because it's a not

exactly a gap but it's absence of fair

value because the market is not agreeing

that that's the fair valuation for that

asset and so this phase where aggressive

buyers are willing to accept higher

prices will eventually stop or at some

point they will find more resistance

from passive sellers and aggressive

sellers will start to consider these

prices fair as well because if they were

willing to sell here, they're probably

still willing to sell here even though

at not at the same rhythm as buyers. But

hey, if I were selling Bitcoin at 100, I

might also sell it at 110. And so as the

market starts considering these prices

to be fair again we will have another

situation of balance another situation

where both aggressive sellers and

aggressive buyers are agreeing that this

is a fair price to trade and sometimes

price will try and exit from fair value

and it will happen at times that price

breaks this situation of consolidation

and buyers start accepting higher prices

but sellers will still consider these to

these super premium prices to sell at.

So they will push the market back in a

situation of balance. Or it could happen

that sellers are considering these

prices to be very premium, very

convenient to sell at and they will

start pushing price down again out of

the balance. But the same buyers that

consider these prices to be fair are

likely to consider it again. So there's

a good chance they will push price back

into a situation of balance. And we call

these phases failed auctions. And this

is the most accurate model to analyze

market structure and price action

dynamics as well. Okay, let's say price

does this. What Charles Dao did in the

18th century was trying to analyze price

swings. So you would basically mark the

highs, the lows, the highs, the lows,

the highs, the lows of price. And in

order to assess a trend, you would see

where the highs and where the lows are

going. And if there's a higher high and

a higher low, we're clearly in an

uptrend. As soon as a higher low for

example gets broken then we understand

we are in a situation of a bearish

market environment [snorts] or bearish

market structure. Then since this model

presents itself a lot in the market,

people have tried to find again more

visual patterns just like the concepts

of highs and lows and highs and lows

because this is just visual references,

right? And because they repeat so often,

they've tried to predict it by finding

some shapes that are visually easy to

identify. For example, technical

analysts might define this as a pennant

or as a wedge or as a head and shoulder

pattern or a triangle pattern to find

again a type of wedge pattern. And so

people have tried for decades, for years

to find patterns in price and try and

see if they have any statistical

validity whatsoever, but they never

really proved it. But what all of these

are are failed attempts to rationalize

market structure just through price

without understanding the mechanics

behind it. But if we simply think of the

auction market theory model, we would

just define this as an area of fair

value followed by a phase of imbalance

and then another situation of fair value

where yes, at some point there have been

some failed attempts by sellers to

consider these fair prices and push

price lower followed by phases where

buyers are still considering these

prices to be cheap. So they push the

auction up until they eventually stop

and aggressive sellers take control of

the auction. But then again, you would

see a situation of fair value followed

by another situation of balance where

yes, you had some failed auctions

followed by a situation of imbalance

followed by a situation of balance and

so on and so forth. And by rationalizing

market mechanics in a way that we just

look at where money is agreeing and

where money is not agreeing, we can

easily follow where the money is flowing

in the market because ranges is where

the most money was traded. And so if

most of the money was traded here and

now most of the money was traded here,

we have an absolute objective indication

of where the money is going because as

we discussed in our model here is where

most of the time is spent. Most of the

big orders are slowly slowly put in the

market in fraction. We don't spend a lot

of time in these prices. But again we

spend a lot of time here. And here we

move on to the next step which is

volume. If we go back here and we

remember that three orders were matched

around here, four orders were matched

around there. So we had two contracts

traded here, one contract traded here

and then we had three contracts traded

here and then one contract traded here

again. The total amount of contracts, of

bitcoins, of stocks, of gold ounces,

whatever that is traded as every single

level of price is what we call the

volume profile. And the volume profile

shows you basically how much money was

traded at each level of price. And it

may sound obvious but if we had to draw

a volume profile of this whole price

action we would see that where there was

a lot of time spent that's the areas

where volume is really really high.

These areas are the areas where volume

was really really low. There was not a

lot of trading going on but then we

started spending a lot of time here and

this is where a lot of volume of trading

happened and maybe a little bit also

here and this makes you understand that

where the ranges are that's where the

money is and that when price ranges move

upwards that's where the money is

flowing. Now let's take a software like

deep charts and open a new book advanced

depth of market which basically means

exactly what we saw here the market

micro mechanics and for this example

we've selected the e- mini S&P 500 let's

zoom in and we can see exactly what we

just talked about and we can clearly see

in this column all the passive sell

orders in the ask column and here all

the buy limit orders or passive buy

orders in the bid and we can see how

They vary through time. So, for example,

we can activate the volume profile and

we're going to reset it to start from

scratch. And we can see that now the

price is here. That's where the volume

is being traded. For example, 15

contracts have been traded here. Now,

we're trading back here. And now we're

trading downwards. And you see how price

moves up and down depending on where the

volume is traded. Exactly as we said. So

for example, if I were a bank and I need

to buy a,000 contracts, I will have to

accept all of these offers and take 88,

96, 206, 83, 120, 90, 9090 and gradually

buy at worse and worse and worse and

worse and worse prices because that's

where sell offers are. Same thing if I

were to sell, there needs to be enough

liquidity. Now, let's just have this on

the side of the screen and have a normal

price chart on this side of the screen.

And if you look closely, you can

literally see how price moves ups and

down, up and down. And how candles are

created by volume being traded on the

ask or traded on the bid because of

aggressive buyers accepting sell offers

or aggressive sellers accepting these

buy offers. And you can see how now

someone accepted to purchase one of

these 65 64 and they've bought more all

up through here and a spike formed,

right? Because the candle has gone up

here and then down again. And these

movements happen because contracts are

traded upwards or downwards. This is how

the market works. No big deal, right? So

we understand that these are only

passive orders and there but they can

vary. These numbers change through time

because I could, for example, put a

bunch of buy limits here and then just

cancel them. So these aren't there to

stay necessarily. They just express an

intention, not an actual order getting

filled. This is a very different thing.

The that's why we call these passive

orders. The only orders that are

executed out of all of these are the

ones that you actually see traded in the

volume profile. Or if you go up here in

the indicators and you activate the

orderflow analyzer, you can basically

have a split version of the volume

profile where you see exactly how many

contracts were traded in the ask or in

the bid. So, if it was aggressive buyers

in green or aggressive sellers in

purple, this is called a footprint

chart, a deep candle, call it however

you like it, but it's basically showing

you how the candle was formed and a

summary of all the volume and all the

orders that either hit the bid in purple

or lifted the ask in green. Now, someone

is selling here, so price drops, someone

is buying again here. And all of this

data, by the way, comes from a data

feed. I'm currently using DX feed to

gather all of this very important data.

Now, I'm gonna disconnect it for a

second to show you how there's always

sellers one tick up and buyers one tick

down. Right? That's why if I zoom here

on a candle, you will see nine here, two

here, and then zero zero because these

two contract were bought here and these

nine contract were sold here. So when

you read this type of chart, the

footprint chart, you always read how the

auction unfolds diagonally because it's

always one tick up, one tick down, one

tick up, one tick down. This is what we

call an auction. And when you see also

here, also here you have 17 and two.

This was that auction. This was another

auction. This was another auction. This

was another auction. And you have zero

zero because technically here there

would also be a zero, right? Because

there's always buyers one tick down and

sellers one tick up. And that's how the

auction unfolds. So if I wanted to buy,

for example, I could buy submitted and

place a limit order and be here in the

order book or cancel

>> and simply buy. And if I click the buy

market button, I will get filled here

[snorts]

where there's at least a sell offer. So

if I buy, I click buy now.

>> Order filled.

>> You can clearly see I bought exactly

there. My order got filled here, which

is exactly that side of the auction. So,

I basically accepted a slightly higher

price, a 0.25 points higher price as

long as I could get my hands on a

seller, right? Cuz I didn't want to wait

until someone sold to me. If this

mechanism of the auction is not clear,

please rewatch it a lot of times until

you fully grasped and understood the

concept because we're going to need it

later. Now, let's reconnect to the data

feed.

>> Connected. price eventually went up and

a lot of buyers started stepping in and

I'm currently earning money in this.

This is just a demo account though and

for example I could put my take profit.

I could drag the takerit and as you can

see it's minus one limit

>> order submitted. It's a limit order,

right? Because I'm basically to close my

buy position, I have to sell, right? And

I have to sell at a higher price. So, I

can put a resting order, a sell limit as

my takerit as the area where I'm going

to close the trade. Now, I'm going to

put it here and see if I can order

submitted. Order submitted.

>> Put it slightly lower.

>> Order submitted. Order submitted. Order

submitted.

>> And now I'm out of the position. Let's

buy once more.

>> Order filled

>> and buy from the best ask. I can also

click on SL and what this will do is

placing a sell stop

>> order submitted.

>> So a sell order that will not stay in

the book but will simply get triggered

if price drops and I'm going to lose

basically $150 and cap my loss to a

maximum amount. That's a stop-loss,

right? You're probably familiar with it

already. But this stop order is not in

the book. It's only inside of my

platform and will be executed as a

market order because the only sell

limits that are allowed are above the

price. If I place a stop, it will be

executed like a sell market orders. It's

like I'm basically telling my platform,

hey, when price reaches this 6803.75,

execute my order at the best price, like

you were selling market. And this will

close my trade.

>> Order cancelled.

>> Or to close my position, I could simply

sell market. As you can see, I sold here

in this side of the auction. And with

this, the mechanism of the auction

should be clear for you. And we can move

on to a deeper level. Since markets

often go this way, they often go up one

tick, down one tick, up one tick, down

one tick, up one tick, down one tick,

and so on and so forth. As you see, it's

doing now. Constantly going up, down,

up, down, up, down, up, down. There are

some specialized firms that are called

marketmaking firms. And what they do is

exactly this. They always sell at the

best ask and they always sell the best

bid. So they always quote both the ask

and the bid to earn the uptick down tick

uptick down tick movement and earn the

spreads that traders pay. And this is a

massively profitable business model by

the way. And why this is so important is

because it helps us understand even

deeper the nature of the markets. So the

next thing we need to understand is the

different types of matching algorithms.

Now let's make the exact same example.

We have one contract in the bid and one

contract on the ask. Let's put it this

for the sake of this example. The first

type of matching algorithm is the first

in first out algorithm also known as

FIFO. This is the most common type of

matching algorithm in let's say most

exchanges. And how this works is if I

place a sell limit order here and then

someone else places it after me in a

chronological order even let's say it's

a bigger order then someone else put

another order and someone else puts

another order and the same thing happens

for example in the bid one more order

one more order the first order that was

placed here chronologically speaking so

the earlier you place an order the

earlier you're going to get filled so

even though you ultimately end up seeing

only one number. For example, hey, there

is five orders here. Okay, five

contracts and here you have six

contracts. So, slightly more. In the

normal order book, you will only see

this. But in the back, this could be six

different people that place one single

order. Or in this case, four different

people, one order, one order, two

orders, two orders, right? Or it could

be just one person placing six contracts

all at once. But what happens in the

background really is if a buyer comes

and buys one contract market, the

matching algorithm will match it with

the first sell order that was put in the

queue. So this order as it was the first

one to be placed here will be matched

with this buyer. That's why we call it

first in first out. The first order to

be placed in the queue will be the first

one to be filled. But this is not the

only type of matching algorithm. Another

form of matching algorithm is the FIFO

with LMM that stands for first in first

out with lead market maker and this is

slightly different. So in this model

there is a lead market maker. So a

market making firm that is both quoting

the ask and the bid and there's

basically an agreement between the

exchange let's say it's the CME the

Chicago Merkantile exchange and a

marketmaking firm let's say it's Citadel

Securities one of the biggest market

makers in the world and with this type

of relationship the market maker will

make sure to always provide liquidity to

the CME and the CME is happy because

because people want to trade there

because there's always someone to buy

from and someone to sell to aka the

market maker. This service is also

called liquidity provision. So the

market maker acts as a liquidity

provider for the CME. In exchange for

this service, the CME will grant the

market maker with different formulas,

but for example, let's say 40% of

aggressive volume. This way the market

maker can profitably run his business

and have some guaranteed flow of buyers

and sellers, buyers and sellers and

basically do like we just did and earn

from uptick down tick uptick down tick

uptick down tick and earn a spread. So

the market making business model is to

earn a spread. The business model of the

CME is to facilitate trading and the

goal of traders is to get filled at a

decent price and not pay a huge spread.

So if this matching algorithm is in

place and let's say that 10 buyarket

contracts are entering the market and

let's say this is our market maker

liquidity and let's say we have 10

orders here and some of them are placed

here by the market making firm. Well in

this case out of these 10 four of them

will be saved for the market maker and

six will be granted to the rest of the

market participants that place their

orders here. So in this case, even

though someone might have placed orders

here before market makers did, market

makers will still have a priority up

until 40% of the total aggressive volume

coming in the market. But there's only

one problem here. And let's get back to

our chart. What happens if let's say I

do this, I sell here and buy here,

right? If price happens to go the other

way, I'm losing money, right? Minus 12.

Let's see if price starts going to one

direction, right? Okay, now I just

earned some money. I'm going to sell

back again here. See, now price is

moving lower and I'm losing money as a

market maker and I'm again buying and

selling one tick, buying one tick down,

selling one tick up. If the market take

a clear aggressive direction, I will be

losing more and more money. And for

example, here I will be still buying

here and selling here. Right now, let's

do it again. Let's sell here and buy

here. And what a market making firms

looks like, it's actually like this,

right? This is the book of a market

making firm. It will always sell to the

ask, sell in the ask, buy in the bid and

up and down and up and down. Well, you

clearly understand if price suddenly

takes a very firm and constant

direction, you will sell, sell, sell,

sell, sell and keep losing money

basically. So the risk of a market maker

is that price will start going in one

direction without doing down ticks.

Because if it does this, this this the

market maker business is still

profitable, right? But if price just

goes tick tick up tick up tick up tick

up and without any tick down they don't

get a chance to close profitably their

position as you can see also it's

happening now I'm losing $62 now we got

very lucky because price is just going

up and down so market makers are now

happy whenever there's a flat action

they're happy now we're booking some of

that profit let's see yeah so what will

happen is the market makers will provide

liquidity under one condition only they

can not provide liquidity during

macroeconom economic data releases. This

is the only condition because when a new

macroeconomic data is released, let's

say for example, let's say for example

in 2021 inflation was a big problem and

the stock market was super bearish

because of fear of inflation. And if a

new inflation data came out and it was

suddenly really positive and inflation

was going lower, coming down more than

the market expected, it's very likely

that that the stock bulls will be happy

and keep buying, buying, buying, buying,

buying, buying. Well, who they're going

to buy from? are dear market makers

because if they're constantly quoting

all of the ask and suddenly they're all

bought, they're losing a lot of money.

So what they can do during macroeconomic

news release is basically delete all of

their orders. Okay, for example, let's

take the latest FOMC data release which

happened September 17th and let's see

what happened in the footprint chart

during that release. Well, you do see

something interesting here. See a lot of

zeros. A lot of zeros. What this means

and what this signals us that is

happening is there's a lot of buyers

accepting all of these sell offers even

though they're very little as you can

see and there's little to no aggressive

selling literally zero aggressive

selling. If market makers were to

constantly be the sellers of this

movement, they will be losing money all

the way through, right? And they do not

want to take that risk. That's why they

delete all of the liquidity. And I'm

going to share with you a clip now that

will make you exactly understand this

phenomena of spread widening. When a

news is released, such as NFP, CDI, or

FOMC, here's what's happening behind the

scenes. In every market, there's two

types of traders. Market makers in the

order book, buy and sell orders resting

above and below price, and market

takers, people actually buying and

selling to the best price. When a market

maker and a market taker agree on a

price and trade, that price becomes the

current market price. So a market making

firm will provide liquidity by placing

both buy and sell limits. So its

business model is to sell at a slightly

higher price and buy at a slightly lower

price from and to all traders who buy

and sell market to earn a spread. This

is a massively profitable business. But

if the market would start rising all of

a sudden, maybe because the Fed has

finally cut interest rates.

>> Good afternoon.

>> And stock bulls are happy for a market

maker, that means trouble because it

would have to keep selling at a higher

and higher price and lose a lot of

money. So to prevent this risk, market

making firms before any news release

have the ability to cancel all the

orders and stop providing liquidity for

some seconds. This way, the spread

between the best sell offer and the best

buy offer will be really wide. All it

takes is a buy market order which will

be matched with wherever there is at

least one sell offer. So price will

immediately jump wherever there was a

sell limit in a matter of milliseconds.

If someone in this time frame sells

market it will be matched with the first

buy offer which could be substantially

lower and in a matter of milliseconds

price will drop and just like that with

two very small order that can be a huge

volatility simply because of a lack of

liquidity from market makers.

So we have understood the basic of

market mechanics also in depth with how

the different types of matching

algorithms work and why since the market

works like an auction the liquidity

auction theory is the best model to

analyze market structure and basically

follow where the money is going and

instead of simply using highs and lows

as visual references or weird shapes

simply look at price with the lens of

volume and with the idea of following

the flow of big money. And this is what

we will ultimately do. We will try to

find the better ways to rationally

follow the big money by looking in real

time at the activity of buyers and

sellers through the footprint chart if

we are day traders or in general to

price action and volume if for example

we're swing traders. And this is what

we're going to talk about now in this

next chapter. But even before we get

into all of that good stuff and how do

we actually study the auction market

theory and find models to enter the

market for intraday setups for swing

setups I think it's important that we

clarify first what are the reason that

will push market participants to either

buy or sell through the matching

algorithm and all the liquidity auction

theory that we've modeled out and hence

causes price to move in such a way but

why so let's get a little bit deeper

into fundamental analysis and the first

element I want to address is

fundamentals themselves and every market

has its own fundamentals. For example,

one of the most famous market for sure

is the stock market and to understand

what moves the stock market, we need to

understand what the stock market is. And

the stock market is the market of stocks

which are shares of companies that are

listed in the stock exchange. So in the

stock market you basically trade company

shares and you can either trade single

stocks for example Apple, Microsoft,

Tesla, Nvidia and so you basically trade

by buying and selling stocks of the

single companies or you trade index

funds for example the S&P 500, the

Nasdaq, the Dow Jones or the Russell

where for example the S&P 500 holds

together every single stock the top 500

single stocks and by top 500 I mean the

500 00 stock with the highest market

capitalization or market cap of the

entire American stock market. The NASDAQ

100 takes the top 100 companies listed

at the NASDAQ. The Dow Jones Industrial

Average Index or Dow Jones 30 takes into

consideration only the top 30 companies

but mostly from the industrial sector

and the Russell 2000 takes for example

small cap stocks. So you have different

index funds that are composed of

slightly different companies and they

have a slightly different composition of

single stocks. And here is an example of

the entire S&P 500 visualized. This is a

graphics from visual capitalist. Shout

out to them. And in 2023 for example,

these are the different sectors. You

have the info technology sector. You

have the financial sector. So companies

like Apple, Microsoft, Nvidia, Adobe,

Salesforce, Intel, AMD are all tech

companies. Then you have for example

Fizer, Johnson and Johnson that are part

of the healthcare sector. In the

financial sector you have Birkshshire

Hathaways, JP Morgan, Mastercard, Visa.

Then you have the consumer discretionary

sector that includes stuff like Amazon,

Tesla, McDonald, Nike, Home Depot. And

they're considered consumer

discretionary because they're

discretionary. So they're not primary

goods such as, you know, food or water.

They're discretionary. Consumers don't

always buy from these companies. They're

secondary. Unlike, for example, consumer

staples like Proctor and Gamble,

Coca-Cola, Pepsi, Costco, Walmart,

Mundles, all of those companies that

sell staples, stuff that people buy all

the time. And this is already something

you can start understanding. These type

of stocks are more solid, more stable.

They pay dividends because they

constantly have revenue. While consumer

discretionary, for example, if the

economy is going good, they might

perform really well. But for example,

during a phase of recession, people will

care less about buying new stuff from

Amazon or eating outside at McDonald's

or buy a new pair of Nikes or buy a new

Tesla or even buy a new iPhone. But for

sure, they'll keep spending on consumer

staples. They'll they for sure do their

groceries at Walmart, do their groceries

at Proctor and Gamble. So consumer

staples for example is one of those

sectors that maybe has a better

performance during bare markets that are

mainly affecting consumer discretionary

sector and the infochnology sector.

Financials also normally are really

solid but if there's a financial crisis

this is the kind of sector that is going

to perform less or healthcare for

example is another really evergreen set

of stocks because there's always going

to be a need for healthcare whether the

economy is good or the economy is bad.

Then you have the energy sector which is

heavily influenced for example by oil

prices. You have materials, utilities,

real estate that for example is very

much affected by interest rate policies

decision because as you know most of the

real estate is bought through loans and

the interest rate you see in loans are

determined by the interest rates set by

central banks. So central bank decisions

on monetary policies will affect the

financial sector a lot and the real

estate a lot. And so you already start

understanding in general the different

types of sector how would they respond

to the economy but in general the stock

market the reason why it moves. So the

fundamental reasons one of the main

drivers of the stock market is risk

appetite. So in general the stock market

when you invest in a company so why an

investor a person with big money should

or shouldn't invest in a stock it is

typically because they expect the

company valuation and the price of that

stock to grow so for growth or because

for example it's a company that pays a

lot of dividends. For example, a company

like Tesla didn't pay dividends at all

to its investor, but it had an intense

growth in its price that generated a

return for investors, but it does not

pay dividends. Coca-Cola instead is a

company that pays a lot of dividends,

right? So another thing that influences

risk appetite so incentivizes investors

to put on capital into stocks and to

invest in the stock market or in some

specific stocks is expectations on the

company's earnings. And as of today,

every 3 months, all publicly traded

companies have to release their earnings

once every 3 months or quarterly because

earnings are both a driver of growth and

also earnings which for all of those who

don't know is simply revenue minus

expenses. So the net profit of the

company is the earnings is equally

divided and distributed to shareholders.

So if you bought a stock, you bought a

share and a lot of companies will pay

you earnings because you hold a share.

you're a shareholder. And so a lot of

investors might invest in a company for

income, not for growth, income. So

income/ dividends. So this is everything

that relates to the company itself,

right? And each company has its own

fundamentals. And by fundamentals, that

could mean for example, who is the

founder or the CEO of that company? How

trustworthy is him? How are the

financials of the company? So you

basically take the balance sheet of each

company and analyze their earnings,

their EIDA, their leverage ratio. So how

much in depth they are and their

financial solidity overall. Another

crucial thing is how how is the

sentiment of markets towards the sector

they operate in. These are all parts of

the fundamentals of the company. And of

course it's a part of the fundamentals

of the stock market in general.

everything that relates to the economy

they operate in or the macroeconomic

context. Of course, if the overall

economy is expecting to shrink

drastically, that's not going to help

stocks go high. It's going to decrease

the risk appetite and investors maybe

take money out of the stock market into

a safer type of asset. So, if the

macroeconomic content is overall good

and there's a positive sentiment about

the economy, the stocks tend to be

bullish. If there's likely to be a

recession, this is typically bearish.

But always remember, if during recession

stocks are bearish, doesn't mean that

that money is being lost or burned. Like

some newspaper like to say, trillions of

dollars burned in the stock market in a

single day. Yeah, but it doesn't burn.

It just moves somewhere else because

markets are just this money moving where

it thinks it will get a better

treatment. And the macroeconomic context

is heavily heavily influenced by

monetary policies which we'll get deep

into shortly and fiscal policies which

we'll also get deep into later. Now,

another important thing about the stock

market and the reason also why the stock

market is one of my favorite market to

trade and this is where I mostly trade

by the way. I mostly trade the S&P 500

is because it's in some sense more

predictable because we can truly

understand what the intentions of the

market are very very clearly much more

clearly than a lot of other markets I

would dare to say. And the main market

participants of the stock market are for

sure investors. investors who invest in

the stock market and they create an

upward bullish pressure by constantly

buying, buying, buying, buying, buying

and accumulating money into the stock

market for capital preservation and

capital growth reasons. And these are

long-term traders. They affect the

long-term direction of the stock market.

And as you can see in most big economies

since more money is being printed as we

will see later investors have more and

more money to invest in the stock market

and the market tends always to go up. So

the fact that there is investors creates

a skew in the probabilities of prices to

go up more than they go down most of the

time which is already in and of itself a

great edge already which is the reason

why simple trading setups like the

opening range breakout always works in

stocks. And then of course you have

speculators and speculators can affect

more let's say the short-term price

action and the short-term volatility.

And while investors might simply buy

stocks or investors often for example

buy/sell

ETFs of certain index funds or of some

specific sectors cuz for example each

one of these sectors of the S&P 500 has

its own ETF. speculators instead

together with just using single stocks

or trading ETFs. They will also use

derivative contracts such as futures of

index funds and I would say mostly

options and all of these are derivatives

but they are such huge markets that they

end up affecting the underlying asset

cuz you should know that a future an

option a CFD it's a derivative contracts

because it deres it price from the

underlying asset right but if most of

the volume is traded in future contracts

and in options the hedging activity or

the arbitrage that can happen between

different markets will affect the stock

prices itself. So [snorts] as you will

see later sometimes options especially

are the underlying asset themselves and

also both speculators and investors but

just the big ones trade in something

called dark pools especially single

stocks and dark pools are a different

type of exchange that is not transparent

is not regulated. It's not public, but

it's a private pool of institutional

liquidity where big investors, big money

participants can more comfortably trade

big amounts of money and trade in

blocks. Okay. And get a feel to their

so-called exactly block trades. And this

is a considerably big part of the

market. I'm not sure what's the current

volume overall, but at some point I'm

sure it was around 40%. And for the rest

of the market, there's also a lot of

calculations of where is the most money

traded in single stocks, in ETFs of the

index funds, in the futures of the index

funds or in the options of both stocks

and and index funds. And the answer is

options. Most of the market, most of the

public market of stocks and index funds

are not traded in ETFs, not in futures.

Most of the daily volume happens in

options, specifically zerodte options,

which became very popular in the last

few years for both retail traders and

institutional traders. And this leads us

to the third big market participant of

the stock market, which are market

makers or marketmaking firms, the same

ones we saw here like Citadel

Securities, which are market

participants that are basically

liquidity providers that earn a spread.

And the biggest one and most influential

ones are option market makers for sure

because as most of the notional volume

in the stock market is traded through

through options and specifically zero

DTE. The way market makers stay neutral

and basically hedge their position

creates a flow of hedging orders in the

futures market and in the stock market

that according to some estimate is

around 10% to 15% of the total volume

which is a lot. So hedging flows from

market makers specifically in the option

market are really considerable in

specifically the short-term market

action and we will get deep into that

later but I already want to show you

something which I consider very

interesting. Go on squeezemetrics

squeezemetrics.com and you get this

chart that basically has the S&P 500 but

you also get two very insightful

indicators. The first one is the DIX,

which which could be kind of a funny

name, but is the darkpool indicator or

dark index, which basically take

darkpool data from all of the stocks of

the S&P 500 and basically creates an

index of darkpool activity. So for free

on squeeze metrics, you can get a daily

recap of darkpool activity. And

typically whenever you see big peaks up

or down, they happen because some huge

market participants are whether buying a

lot of stocks or selling a lot of

stocks, which can be a crucial data

point because you understand that if

someone this big is joining the party or

quitting the party, then he might know

something you don't. And we might want

to be careful. It is not random that

these short peaks in the in the market

happen right before a big stock crash

and instead the high peaks happen right

before big bull runs. And this is one of

the indicators you get here. Another one

you get here which is very insightful is

the gam exposure. And the gam exposure

is to properly explain it. It takes a

little more knowledge on how options

work and we will do that in this video

because I truly want you to understand

it. But for now just know this. When the

gam exposure is in the purple level, we

typically expect volatility to compress

and when the gam exposure is in the

yellow area, we expect swings to be much

more volatile because of the hedging

flows of options market maker that I was

mentioning, but we'll get deep into how

that work later. Now, this is the chart

of the S&P 500 index or the S&P on

Trading View. Let's use the monthly

chart and set the chart on logarithmic

scale. Well, you can clearly see it has

a very clear direction. Let's put a line

chart and let's walk through a little

bit of the history behind it because

you're probably familiar with the stock

market bubble of 1929 and the following

stock market crash where the stock

market lost 85% of its value. This was a

clear example of a bare market

unfolding. a bare market where investors

who invested their money here basically

saw their value wiped out and had to

wait more than 20 years to see a profit.

But in general markets tend to go up and

sometimes a crash happens. This is the

crash of the '60s, the crash of 1966, of

1969 and the crash of the '7s. And

unlike the great recession of the 1930s,

all of these bare markets recovered

pretty quickly. And so the stock market

has this V-shaped reversals that happen

because people bought the dip, right?

Because we expect stocks to go high. And

when everyone panics, typically it's a

good time to buy. Another famous stock

market crash happened in 1987. In the

2000s because of the explosion of the

stock market.com bubble and then again

in 2008 during the housing crisis and

the great financial crisis. And then

other important bare markets happened in

2015. in 2018 and during COVID. Then we

had another bare market during the

inflation crisis of 2022. And the last

big buy the dip happened during the

Trump tariff war. And these are the main

things you need to know about the stock

market. And I would say the little

brother of the stock market is the

crypto market for sure because one of

the main drivers of crypto is risk

appetite. So in some way it is similar

to the stock market but it's completely

different because cryptocurrencies you

have the main one which is Bitcoin of

course which is a completely different

cryptocurrency for example than than

most of the other altcoin and the

drivers of cryptos are risk appetite and

purely growthbased. Some people might

say they are a valid alternative payment

method and for some things they are.

Some altcoins maybe could be better than

bitcoin as a payment method. Then you

have all the world of stable coins. And

for example, especially with Bitcoin, we

have seen a very consistent, even though

not always, but pretty consistent

correlation between the price of Bitcoin

and the price of stock indices such as

the S&P 500. They tend to move not the

same way, but a lot of the time they do

because of the fact that they're both

risk assets. But a lot of the investors

of Bitcoin or the traders of Bitcoin,

the holders or the hodlers truly believe

in Bitcoin. And so through time, Bitcoin

is likely to become not just a risky

asset, but treat it almost like a

digital form of gold, so a store of

value. Most altcoins, I would say 80% of

the altcoins are mostly attractive to

gamblers. And with altcoins, there's a

lot of insider trading. You could trade

them with market sentiment because the

cool thing about cryptos is they're more

transparent than most market thanks to

the blockchain which is mostly public.

So you can follow the trades of all

market participants, the big ones and

the small ones with a very high level of

detail and do the so-called onchain

analysis. And specifically with

altcoins, meme coins are the favorite

tool for pump and dump schemes from

scammers, influencers, and even

politicians at time where they pump

price up, they sell before anyone else

can, and then they lose all of their

value because they have no intrinsic

value whatsoever. So while with Bitcoin

and also other altcoins such as XRP or

even Ethereum, you could argue that

there is some level of intrinsic value,

with memecoins, it's just a pure

lottery. It's pure casino and some

people might get lucky, some people

might not. Or some people might be aware

that is a casino and place themselves

smartly on the right side. There's a lot

of successful traders of meme coins that

simply take advantage of the dump money

there and take smart decisions instead.

But this is not going to be part of this

course that we're doing. Even though for

more liquid cryptocurrencies like

Bitcoin, you could use roughly the same

models of the liquidity auction theory

because there's a lot of big

participants now involved and now ETFs

are involved and there is more and more

institutional interest in Bitcoin and it

will likely keep rising in the future.

But for sure this is a market worth

mentioning as one of the types of

financial markets. The next market is

the commodities market. for example,

oil, natural gas, or even water or

cocoa, coffee, live cattle, even orange

juice, wood, cotton, copper, lithium,

sugar, and so on and so forth. All of

these commodities of prime materials

that are used to then produce other

stuff. They're the basics to create

other products. We will not get deep

into every single one of them now

because it would be a very, very long

video. It's already pretty long. But

they mostly revolve around expectations

around supply and demand. These are the

main fundamentals of each market. So for

example for oil there are producers that

are the supply and the global industry

which is the demand. So for oil the

supply can be the OPEC plus countries.

Big producers is the US, Russia and

Canada. So the global supply is the

producers of oil. The demand is the

global industry as oil is used in every

possible industry whatsoever. So the

expectations around how much production

of oil there will be and how much demand

there will be because of for example how

well the global manufacturing industry

is likely to be active in producing new

stuff. These are the main drivers that

drive oil prices. And for example, we

have seen a lot of volatility in oil in

many instances throughout history where

there was a supply shock. So this is the

chart of oil. And for example, in 1973

during a war that exploded in the Middle

East that and remember this was a period

of time where most of the global oil

supply was Arab countries, Iran decided

to stop oil production and stop

supplying oil and that created not one

but two oil shocks where price simply

exploded creating if we take the

inflation rate and put it on top we can

see these two big waves of inflation

that were caused by this shock in the

prices of oil And this was all a supply

shock. Then also during ' 07 there was

this huge also speculative move in the

price of oil that then dropped

drastically because of the global

financial crisis where we would expect

the demand of oil to radically get

lower. Same thing happened during COVID

where all the world shut down. So the

expected demand of oil dropped

significantly and drove traders and

investors and hedggers to basically sell

oil and even go below zero at some point

because if everything's closed, there's

no transportation, there's no

production, that's a shock in the demand

of oil. So supply shocks and demand

shocks are the main driver. For example,

during 2021 2022, because of the war,

both oil prices and natural gas prices

had a huge supply shock. And that all

happened because of the expectations

around the supply and the demand of that

asset. The same thing happens with

natural gas with all of these for

example CCOA where when you see this you

could think this is basically a

cryptocurrency but what happened here

was a shock in prices caused by

unexpected weather condition in the

countries that are the highest producers

of cocoa and that drove prices up

significantly. And this is basically the

driver behind commodities. And the

participants of this market are big

companies that use these commodities to

produce and they are the demand usually

and big producers. And they are a big

part a big portion of the volume because

for example they hedge the risk of

prices increases suddenly through

futures contract which you know it's the

most common type of contract to trade

commodities in even though also here you

can find options, CFDs etc. But futures

are the main one. And the reason why

participants engage in trading

commodities is also because of hedging.

But also there's a lot of speculation.

So also you have big and small

speculator as one of the significant

participants in this market. But in

general, I would suggest you if you want

to be a commodities trader to study the

fundamentals of each market one by one.

Take your time and truly understand what

is influencing the supply and what is

influencing the demand. And of course

even here the constant and as you will

see it's the constant in all market is

macroeconomic conditions because if the

overall economy is going really slow oil

prices might fall and so on and so forth

and especially for stuff like oil global

international conflicts and geopolitical

dynamics are a huge influence. And the

next big important market is precious

metals such as gold and silver and they

are technically commodities but they

deserve a category of their own. And

together with the bond market and the

forex market before explaining you the

fundamentals I cannot explain you the

fundamentals of these markets without

explaining you how monetary policies

work and how money creation works. what

is inflation and laying down some basics

of macroeconomics. So the next step is

macroeconomics and one video is not

enough to properly explain you

everything there everything that someone

should know about macroeconomics but I

will try my best to summarize the best

and most crucial information for traders

specifically because the sentiment of

the market around macroeconomics is one

of the main drivers of all sorts of

markets. So, it's really important to

know if you want to become a

professional trader. When we're talking

about macroeconomics,

we mostly talk about the economics of

big systems such as nations or the

global economy. And whenever we're

talking about macroeconomics, when we

talk about the economy, we have what

exactly do we mean? How do we measure

how the macroeconomic landscape or the

current economic scenario the current

economic status let's say we imagine the

economy as being a person if a person is

healthy or unhealthy we have some key

metrics some data points that we need to

kind of connect to understand if a

person is healthy or not right the same

thing we do with an economy and the most

obvious metrics are GDP which is the

gross and by gross it doesn't mean it's

and disgusting. It means it's not net.

The gross domestic product and the gross

domestic product basically takes into

account how much in dollar terms a

nation is able to produce. What's the

output of the economy including how much

investment there is, expenses there are,

import, export, everything that relates

to the wealth that the nation was able

to output in a single year. Typically,

for example, now the GDP of the United

States is above $30 trillion. And other

important metrics in macroeconomics is

employment. And the current status of

employment in a nation can be understood

with something called the unemployment

rate, which is the percentage of the

labor force that is not currently

employed. Another important metric in

employment is job openings. So is there

new job offers being open? Because also

the employment works with supply and

demand, the supply being the workers and

the demand being the businesses asking

for labor. And another important metrics

for example is new monthly payrolls. So

were there new people employed this

month in an economy? And we can see this

for example in the US with the ADP

report or with the NFP, the non-farm

payrolls, right? The next important

metric is for sure inflation and the

current unemployment rate in the US is

around 4% which is not much. Anything

above 4% indicating a not so healthy

economy because if people has no jobs

they buy less. So consumer spending

declines, business revenues decline and

so businesses will have to lay off

workers which will bring this even

higher and bring more unemployment to

the nation for example. Right? So

probably since Kanes which is one of the

greatest economists of the last century

we've understood that achieving maximum

employment in a country and we keep

people spending money will make everyone

earn more money and have an overall

stable growth in the economy. The second

or third most important macroeconomical

metric in an economy is for sure

inflation. And what inflation is growth

in consumer prices. Let's say for

example a coffee now costs $5. If next

[snorts] year the prices of the same

coffee is $55,

that's a 1% increase in prices or a 1%

inflation rate for the prices of coffee,

right? And you have multiple metrics for

inflation. For example, in the US, and

we're mostly talking about the US

because it's the one with the most

amount of data and the amount of

transparency with economic data compared

to the rest of the world. We're not

saying it's perfect, but it's probably

the best one. We have different metrics

for inflation. The first and most famous

one is the CPI or the consumer price

index. And for example, I can look for

US CPI, United States consumer price

index. And I can clearly see that prices

mostly go up. Okay. And you can clearly

understand here if prices go up which

means that with $5 I was able to buy one

coffee. Now $5 are taking me 0.95

coffees. Right? So an increase in prices

means that the value of the money is

actually going lower. So actually if I

divide one by the US CPI, so one over

CPI, I get and maybe I put it in

percentage terms, I can see that over

the last 75 years, the US dollar lost

around 92% of its value. There's other

ways to calculate inflation. Another

pretty famous one and one of probably

the most realistic one is the PCE

or the personal consumption expenditures

which is a kind of more accurate

representation of inflation because

consumer prices just takes the prices of

apples, the prices of oranges and

averages out the overall inflation rate.

The personal consumption expenditure

instead takes into account the behavior

of consumers. So for example, if apples

are way more used by consumers and way

more common commonly bought by consumers

rather than oranges when then apples

will have a higher weight in the overall

calculation of the inflation rate. So

the personal consumption expenditures

takes into account consumer's behavior.

So it's a kind of more accurate

representation of how prices are

growing. But as you can see this is a

number, right? This is a number. This is

not a percentage term. Indeed, both the

CPI and the PCE are typically expressed

in yearoveryear

increase. So, how much did inflation

increase over the last year? By the way,

also the gross domestic product is

typically measured in year-over-year

growth rate. So, here we're talking

about the GDP growth rate yearover-year

or even quarter over quarter. And here

we talk about not inflation but the

inflation rate year-over-year or quarter

over quarter. In fact, if I write USI,

so US inflation rate R year over year, I

get this chart instead, which basically

is measuring the speed of US CPI. And as

you can see, the steepness of this blue

curve is pretty stable. It's not really

vertical, and the inflation rate is

here. But as soon as the speed of this

line rising goes higher here we measure

the speed basically the rate of change

of this particular economic data. So

when it rises fast the inflation rate is

high because it's comparing this to

maybe this. So one year prior and as

soon as prices tend to flatten you can

see the inflation rate goes down. And a

high inflation is typically very problem

problematic because it consumes wealth

especially from poor people especially

from the middle class especially from

consumers and it's very bad in the

economy. Typically an inflation around

2% is considered healthy because let's

say the GDP is growing by 2%. If the

economy grows by 2% it's fair to expect

an inflation rate of 2% because yes the

economy grows there's more money into

the economy more money has being spent

by consumers and if consumers spend

prices of goods gets higher. So if

inflation is driven by consumer spending

it's typically healthy and will stay

around a healthy range of 2%. But let's

say for example that oil prices in

suddenly increase. Look at what happens

to inflation. Yeah, that's exactly what

happens. And you can see a clear pattern

here, right? Boom in oil prices, big

wave of inflation. Boom in oil prices,

big wave of inflation again. And these

were the wars in the Middle East and the

oil shocks. And here you have oil prices

getting really low, inflation dropping

down, boom in oil prices, war in

Ukraine, inflation going up. These booms

of inflation did not come because of an

increased consumer spending but because

of global conflicts. So these are what

we also call hard data. But there is

also soft data. And soft data are mostly

surveys such as business sentiment

surveys such as the PMI, the purchasing

managers index, which basically tracks

how confident are businesses, how much

products or commodities they're

warehousing, if they're investing in new

productions, if they're hiring more

people, blah blah blah. And also talking

about businesses, another type of

inflation is the PPI, which is the

producers price index. So if the

consumer price index is based on prices

that consumers pay for while buying

groceries, while buying new car, buying

a new house, producer prices instead

measure the inflation that businesses

feel that businesses pay for. And

typically inflation will first hit

producers and then consumers. Because if

oil prices go up first, the businesses

will have higher costs for production

and then those higher costs will be

reflected into the consumer prices. So

if for example you add US PPI

year-over-year, you'll also tend to see

a pattern where typically producer

prices peak before consumer prices do,

they drop before they do, they rise

before these do. So they tend to have

some level of predictive effect

understandably. And now that we know the

main metrics of an economy, there's way

more by the way. I'm just summarizing

the most important ones. We now need to

understand macroeconomic cycles. Now, in

order to understand the macroeconomic

cycles, we first need to understand how

money is created. Right? In the early

stages of our civilization, people used

to trade goods and services in exchange

for goods and services. So, hey, here I

have five apples. Give me 10 potatoes in

exchange. And they would exchange this.

Then this thing evolved to exchanging

goods for some more measurable units of

some stuff to make trade easier. For

example, pounds of rice or pounds of

salt. Something measurable that is easy

to use as a currency to buy from others

goods and services. And then they

started using coins made of precious

metals such as gold, silver, copper,

because they were a much more easily

measurable unit. So if I want to buy two

oranges, that's going to cost you three

coins. And so precious metals became the

currency. But then carrying around huge

amounts of gold became sort of

dangerous, right? So Jewish people

invented banks, places which basically

said, "Hey, we are going to keep your

money safe." So people started

depositing gold into banks and in

exchange for the gold, the bank would

release something known as a bank note.

the note of the bank. It was basically

an I an I owe you. So whenever you want

your gold back, you just give me back

this bank note. I know it's yours and

I'll give you your coins, your gold

coins back. But then since banks started

having a lot of money that was sitting

there for no reason and they realized

that people were not often coming and

picking all of that money up, they used

to keep it there as savings. So they

started thinking, hey, it doesn't make

sense that I keep all of this money. I

can start for example lending it and

earn an interest rates and only keep in

the bank what I am confidently sure

people will come and ask for for their

daily expenses and the rest of the money

I will just put it to work and basically

lend it to someone else. And gradually

banks started issuing more bank notes

even though they did not really have all

of that gold to back all of those

banknotes because they just cared of

earning an interest rate counting

counting on the fact that the money then

would be given back. And this is the way

fractional reserve banking was born. And

up until 1971, you could still somewhat

exchange your bank notes for gold at any

bank. This era was called the gold

standard. You could exchange your money

for gold or silver. But gradually

throughout the 20th century,

specifically 1971, the world decided to

abandon the gold standard and decide

that money itself was the currency even

though it was not backed by gold. And

that was the birth of the fiat currency

system. And fiat is a Latin word that

means faith. That's why it's also called

fiduciary currency because we all trust

that these dollars or euros or yens have

intrinsic value because we all agree on

it. But they're just pieces of paper.

They don't really have value. They have

value because we all have faith in it in

its value. We trust the value of money

because other people will accept it to

exchange for goods and services. It

started even earlier but in 1971 when it

really became the only way of creating

new money. Money was not created through

gold. money was not created through

anything to back it up other than debt.

So for example, a government would go to

the central bank and the central bank is

in charge of printing money and deciding

monetary policy. The government would

issue a IOU or a debt security also

known as a government bond for let's say

$100,000 and the central bank will print

$100,000 lend it to the government. The

government will give the bond to the

central bank will pay an interest on

this loan basically to the central bank

and lastly give the money back. The debt

doesn't exist anymore and also the money

is canceled basically. Or with a normal

bank a person who needs money will ask

for a loan. The bank will create money

out of thin air, loan it to the person

that will have a debt that will owe a

debt to the bank, will pay an interest

to the bank, and then give the money

back. The money is canceled, the debt

doesn't exist anymore, and the bank has

earned interest rates. And that's how

money is created. Money is created in

central banks and in the commercial

banks out of thin air through the debt

system. And because this system is in

place, new money is created through

debt. And since a debt will have to be

repaid, we have cycles in the economy.

Because if now I can spend this, but

through debt, I'm able to spend more. So

because of debt, at first I can spend

more than I earn, but then I'll have to

use part of my earnings to give back and

to pay the debt. So I will have to spend

less. And this cycle of a lot of

spending at first, a lot of wealth and

perceived wellness at first will result

later in having to spend less blah blah

blah. And this does not happen just to

people. It happens to the economy

overall. So if we plot on a chart the

GDP of a nation through time in an

economy without debt, the only way to

increase GDP, which basically means to

increase productivity, is with

technological innovation. And for

example with a strong demography. So if

technological innovation and strong

demography contributes to an increase in

productivity that's what we call

structural growth because there's more

people working and we can increase the

production increase productivity and

increase the economic output in a

system. But through the debt system, I

can input more money, more gasoline into

the economy and basically the economy

can grow at a much higher pace at least

at first because people and businesses

and governments will ha will ask for

loans and they will be able to spend

more and that will increase the economic

activity and the economic output because

if we have more money we can make more

stuff, people can spend more and the GDP

grows and this is called a leveraged

growth because it's growing through the

leverage of debt. But at some point

businesses, individuals and governments

will have to pay back that loan. And so

there will be a phase that in economy is

called deleveraging. And then at some

point people will start getting into

debt a little more and that will fuel a