Consistent Profitability with Just one Order Flow Trade

 There are myriads of ways traders get to CP. One of these ways could be by finding just one good setup that repeats itself many times a day in the periodicity you prefer to trade.

The chart below is the MNQ 39 Range using Orderflows footprint software. It has a long list of hard wired order flow conditions, each of whican be both alerted and signaled with colored triangles and other objects. You can see some bars have a very large triangle either below or above that bar. The large triangles show Delta Breakouts, one of my favourite metrics. Delta Breakouts are exactly what it says on the box:: there is a price breakout with a large delta.

Now imagine adding some other order flow conditions to a bar that has a delta breakout, say multiple delta imbalances and say a volume metric. You now can trigger a bar with these metrics. The next job is to look how far the bar(s) after your trigger moves and where to put a stop loss - testing. You now have your one setup to learn to trade in your goal to get to CP.

 

Surviving & Prospering in These Volatile Markets

 I think we are in the 17th year of this blog. WOW, how time flies when you are having fun. About 25 years since I came off the floor.

 What has changed a lot is the technology and the numbers. Volumes have exploded. New markets have appeared. Volatility has exploded. I remember trading the SP future - the original one in the very early 1980s. It was worth $250 a point and my target for a trade was half a point. Initially no intra day data and I had my broker on speed dial to make a trade if I was off the floor. Then Jim Schmidt, the original coder for Computrac introduced software to chart (not trade) intra day data through a 300 baud dial up connection. Broker still on speed dial.

The big change came in early 1990s when the German DTB funded electronic only trading through dedicated terminals. I traded Eurex on one of those.

Now we have almost instantaneous connectivity to the markets almost 24/6 and click a mouse to make a trade based on analysis either done by a computer or done in our heads based upon a visualization we have created of the live market on a screen.

Trading has become a lot simpler, not easier.

 To become CP, traders set up a workstation showing fairly detailed order flow information. They can then take a blank piece of paper, select a market, and look for one very repeating pattern with a setup, a trigger and an exit. They then buy a straight to funded account with a so called prop shop (one that actually pays) and if they have done everything right they can earn a living. But still a lot of traders can't get CP :-(

 

Where should I exit using orderflow?

 One of the many trading challenges I had and still have to an extent is to choose an exit. This has become even more important than just leaving a lot of money on the table since a lot of traders are trading through the so called prop shops where there is a trailing draw down. You can blow an account with a trailing draw down if you are making profit but are continually exit after the price pulls back from a peak profit.

One tool I use is the info I can get from the order flow on a footprint chart.

 The chart below shows a trade I took today near the beginning of the European session for NQ. The bars are renkos to get rid of some noise and to give a little more smoothness than range bars. 

If you look at the bar that the left red arrow is pointing to, you can look down and see that the bar had an extremely high volume in comparison with the previous bars. The other feature of that bar that is important is that the POC of the bar is in the wick. So we have a high volume bar with what must be a high volume POC. Now when you look at the right arrow pointing to the down bar that ended that swing, you can see that the bar touched the POC of the bar I have just described and that the POC stopped the up move. So watching my long position as it came up to that level it was clear that the POC was stopping the up move. You could play it a number of ways depending on what was important for you and your trading style: get out so the trailing drawdown is not invoked with the idea to re-enter if the POC broke, or if you held multiple lots you could scale out of some here hoping for the POC to break and trade it up to one of the bands above.

 

 

Reading the Flow - sometimes a little more noise is good.

 The key to profitable trading hasn't changed - its the order flow but sometimes a little noise is good. 

The markets continuously evolve and change their rhythms but following the order flow is how we can tame them. Sometimes we need to get rid of the noise by using range or renko bars but othertimes we need time bars or volume bars. As always, context is what makes the order flow readable. The chart below gives me information per bar from the markers generated from the footprint bars as well as for groups of bars as seen in the volume profiles. The NQs need more bar type changes due to the speed and slowing they undergo in each 24 hour period. All I am tryingto do is read the market and when I can't, I make bar changes.

 

Order Flow Can be Very Clear

 Order Flow Can be Very Clear if you read it like a book. The chart below has arrows pointing to three different oversold areas where I would look for a reversal, yet only one, the third,  did reverse and it clearly gave me the setup to go long there.

 The first one was a possible candidate - it had multiple imbalances, bar closed at max delta and there was an exhaustion print - often good for a setup in the right context, maybe could be taken for an 8 point stop. Second one - rejection of low wick, VA in wick and quite oversold - not enough. The third one was the entry at the close of the third green candle - first candle had exhaustion print with close at max delta, second candle had even more bullish metrics but it was after the VA gap of the third candle that it was a trade. It also was the third push down into oversold.

Waiting for the short to set up

 I just love those Dire Straights! and the technology that really makes us electronic locals.

Whether you trade daytime or nighttime, RTH or ETH, there are great trades out there. Its a matter of choosing a bar type and periodicity that shows the action you want to see and allows for the stops to be the size you want.

Remember, we are trading probabilities. If your back testing shows that your setup is 63% profitable you still do not know when those 37 losing trades out of 100 will occur. The only things you can control is your entries and exits and the amount of RISK you take on each trade. If the math works then you can get to CP,

The Numbers Cannot Lie

 It was a very slow Independence week but none the less there were profits to be made. NinjaTrader has a nice Trade Performance table you can create to see how you really traded. It showed my win rate as around 58% which really surprised me. I thought I was over 80%. I did a little digging and saw that some of the losing trades had been for just 1 tick and were the result of scratching trades but numbers are numbers.

I scratch quite a few trades. I guess this is an inheritance of the time that I spent on the floor when we all scratched a lot of trades. Many of the trades I scratched would have been winners but I scratched them probably because I had been in the trade "too long". Instant gratification is still a big deal and although I am much more patient these days as I get older, I am also more risk averse and believe that a trade can die of old age.

 Anyway, looking at you stats every week or month will help find those areas where you need to focus to change to either get to CP or to earn more.