The Steamroom Tools: What They Are and How to Use Them
August 24, 2020

Gather round greenhorns, today we’re explaining the tools in the Steamroom and how you can use them to augment your trading.

This article is a part of series meant to introduce Steamroom members to what’s possible if you know your way around, and to educate non-members about concepts that could help their trading, even if they’re not in the Steamroom.

Today, we’re focusing on the tools in the Steamroom and how our traders use them (so, probably not as valuable to you non-members out there). Since you’ve read Steamroom Terminology Explained, you’ve already got a basic understanding of important concepts and how we talk about them. If you haven’t read that article, go do it before you get yourself all confused.

It All Starts with Flow

None of this can help you if you don’t understand the basics of Flow.

Flow exposes interesting options orders that have the potential to dictate future price action in the underlying. While other rooms and scanners look at ALL the Flow, we filter for what has the potential for real, substantive impact. If it’s not big enough to cause some damage, we’re not paying attention to it.  

After all, the whole point of watching Flow is to reduce noise. We’ve all got enough of that in our lives these days.

The name of the game for Flow is repetition. One large order probably doesn’t mean that much. But a series of large orders back to back to back… now you’ve piqued our interest.

Whether you’re in a position or looking to put one on, your main goal in reading Flow is identifying which side has more strength. Are buyers stepping up and hitting the call market repeatedly? Or are things souring and Sharps are turning into to put buyers? The specifics don’t matter for the sake of this post, but what matters is that you understand that we’re simply trying to identify strength—in terms of what side is getting the most play—and looking to stay on the same side as that strength.

Anyone who’s ever spent an entire session watching raw Tape or Flow knows that it’s a metric ton of information unfurling in front of you. At times, it’s too much to keep track of for a single trader—your brain just craps out.

That’s literally why we’re here.

The Wiseguy Alerts

The Wiseguy Alerts are a consolidated feed of the most important Flow.

What does “most important” mean? The Wiseguy Alerts represent action that lies outside of a normal distribution for activity in the name. In other words, we’re seeing a deviation from the norm significant enough that it could mean something unusual is happening.

There are two steps to our process for selecting what gets published to the Wiseguy Alerts:

  1. Proprietary algorithms. This part is fully-automated. Our filters scan for the criteria we have identified as the most important. Some of orders that fit this criteria get automatically published to the Wiseguy Alert board (bypassing step #2 below).
  2. Wall St. Jesus. Most orders don’t get published until Wall St. Jesus looks at them and decides they’re relevant. This is one of the biggest things that makes then Steamroom unique. Our process ensures that the Flow expert—the man who has spent more time watching Flow than you have Netflix, ESPN, Twitter, and your children’s baseball games combined—is deciding whether an order is relevant or not, which further cuts out a huge amount of noise. We’re still not at the point where we can automate the supercomputer that is the human brain.

How do you use the Wiseguy Alerts?

When it comes to gauging sentiment, you’re going to simply look to take an imperfect average of the alerts. A quick look through the last hour or so of alerts will give you a pretty solid idea as to which way smart money is leaning. Are there more call buyers coming through than put buyers? Are market participants repeatedly hitting the market, or is it a slow period? These are the questions you’re asking yourself as you see each alert come through.

As you spend more time getting familiar with the alerts, you start to notice patterns. Strong markets illicit repeated call buyers and participants come out of the woodwork to get their piece before the move happens. And the same happens when the market is overly weak.

Trends reverse, and sentiment shifts. At some point the clear picture becomes murky and you’ve found a transition period. The market is going to transition from long to short ( or short to long) or it’s going to sit, build steam, and make another push to continue the trend.

It’s in these moments, where there’s a mix of call and put activity coming through the alerts, that experience pays off. The more time you spend watching the alerts, and watching the market react, the better you’re going to get at utilizing the information to identify tops and bottoms versus stalling action that’s going to continue later.

You can also use the filter and pin functions within the Wiseguy Alerts. Filtering allows you to set predetermined criteria for alerts that will populate that filter view, so you can toggle back and forth between names and different types of activity, size, order type, etc.

Pinning allows you to keep track of important orders as you build a thesis around a certain name.

And, most importantly, never forget the live broadcast from Wall St. Jesus! It’s like you’re sitting right next to the master of Flow himself as he narrates what he’s seeing. He often provides vital color and context that goes way beyond what the Flow itself communicates.

Can’t get much better than that.

The Squeeze-O-Meter:

The Squeeze-O-Meter is a sentiment indicator that sits exclusively in the Steamroom. It’s set by Wall St. Jesus throughout the day based on his ongoing analysis of a number of different factors, including Flow and put/call ratios.

When the Squeeze-O-Meter is giving us a bullish reading, we’re looking to find a good place to start working into a long position. Why?

You can think of the number in the middle of the Squeeze-O-Meter has being an indicator of the percentage of retail flow that is leaning Bullish. And here in the Steamroom, we typically do the OPPOSITE of what retail is doing.

In the example above, that number is 37, which means 37% of retail is leaning Bullish. That would of course mean that the majority of retail is leaning Bearish. And since we want to do the opposite of what retail is doing, our Squeeze-O-Meter is tilted to the Bullish side.

This can get a little mind bendy, so if you want to keep it simple, just know this: the Squeeze-O-Meter is set by Wall St. Jesus based on a number of different data inputs, and if it’s leaning Bullish (to the left) you might want to consider a long bias. If it’s leaning Bearish (to the right) you might want to consider a short-bias.

The Squeeze-O-Meter is by no means a simple buy or sell signal. Rather, it’s a valuable gauge of sentiment that you can factor into your decision-making process. Many of our members will build their own thesis about a trade and then will consult the Squeeze-O-Meter to give them either a confirmation o an indication that they should reconsider.

That’s it for a primer on the tools in the Steamroom.