Friday, 22 January 2016

Stress and Trading

I just came across a webinar delivered by a psychologist, Dr Andrew Menaker, for my friends at MarketDelta about 18 months ago.

This is probably one of the most interesting takes on trading psychology I've seen since Mark Douglas' work.

You can see it here.

If you know your enemy.....

Tuesday, 19 January 2016

Seeing Orderflow Change to Sell where I Expected It.

As I have said so many times - Context Rules. The pix below shows the bigger picture first: The market traded a swing down and then retraced - our typical pullback in the direction of the trend. While we used to just use the CCI to track this we can now use orderflow. The indicator is the Logik Volume Wand which creates the Volume Profile of the swing. There is also the VWAP there. The second pic is a close-up of where the trade triggers. As I said, there was a swing down and then a retracement. The retracement went to the POC of the swing and right below the VWAP - VWAP is the average value of the swing. The red arrow shows orderflow changing from buy to SELL and this is the trigger.

The context is very important as orderflow changes direction often and often without follow through. What is different here is that the context says that if the orderflow changes direction at the POC or VWAP then there is a good enough probability that there will be a big enough move in the direction of the change. The next piece is the trade management: stops and targets. This last piece of the trade is a very big part of being CP.


Sunday, 17 January 2016

It Just Got a Lot Better - My New Tools.

I thought the beginning of 2016 would be a good time to share where I am now in my trading. Let me be clear, the basis has not changed. I trade inside out trades by trading the pullbacks in the trens as well as outside in trqades fading overbought and oversold conditions, all in a Market Profile context.

Lets start by talking about where Pete Steidlmayer is now. Here. Pete talks about trading the swings between accummulation and distribution. He tracks VOLUME. Now that actual live volume is available, he says that TPOs are outmoded. While I don't totally agree with that as I believe that Market Profile provides both support and resistance information as well as a big picture information of where value is moving, I do agree that we now are able to rtrack volume on a much more granular scale.

I tried using Pete's Volume Strips that he refers to in the video when they first became available, but I did not "see" the order flow clearly at all.  I then tried to use Pete's Cap32 software and had a guide with me for a week. Sadly, this did not add anything to my seeing order flow. Perhaps it was just me.

What began to provide me with more information was firstly cumulative volume delta and then MarketDelta's Volume Imbalance charts. Finally, the order flow was becoming visible.

What I have now done is to capture both the order flow and volume information to trade the same way I did before in order to more precisely see my entry and exit points. You still see the CCI to measure trend as well as Keltners and Bollingers to identify overbought and oversold. What is additional is the inside the bar trades and the Volume Profile (VP) to understand the order flow in each swing and to identify, more precisely, my entries and exits (stops and targets). These changes to my chart have provided a huge improvement, especuially in the types of markets we are trading in this modern eara where:
  • there are no floor locals - everyone is an electronic local
  • Algos make up for a great majority of the trades and volume that takes place every day in most markets
 So lets talk a few specifics. The VP identifies whether a pullback is a probable entry point or not. The VP also allows me to use tighter and better stops. To achieve this, I use multiple VPs on my chart as the swings develop.  The inside the bar information you see allows me to fine tune entries and to better identify exits.

The final piece is the buttons on the right I call GEL. These buttons allow me to hybrid trade and use specific rules in specific context whwre a set of pressed buttons are only valid for the particular trade I am attempting. They reset to zero after the trade is entered.



The Volume Profile is available from PureLogic. I'll provide more info on this great tool in subsequent posts. You can see the Volume Profile on any bars you select and shows, for that selection, VA, VAL VAH, POC, VWAP and Standard Deviations plus a lot more.You can buy it here.

Wednesday, 13 January 2016

Algos for Hybrid Trading

For me, the optimum way to trade is hybrid trading: a mixture of algo and manual.

What this means is that I have an algo that I can turn on and off, and more. The more is that I have buttons for the different components of all my trading pictures and trade management and I can select which parts of which picture I want to use in a particular context.

I do not believe that its possible to achieve the same profitability with an algo as a proficient discretionary trader. However, with a hybrid algo I can achieve a larger daily consistent profit for less risk than discretionary trading of just one market.

It is not possible for me to program all of the context into an algo and that is why hybrid trading - turning on and configuring the algo for each trade - works best for me. You can see more about this in previous posts and pictures.

Wednesday, 6 January 2016

Technology Wins! Algos Take First prize.

I saw an interesting article in this morning's Sydney Morning Herald here. My day starts with reading this newspaper, not only because its the newspaper I grew up reading but also because the international dateline is very near Sydney and the day starts there so by the time I wake up in Europe, the news has been well researched and written and I get a good summary of the day before.

What this article talks about is something that I started believing in 1979 or even before, that technical analysis is the only way to get a true idea of what is happening to a particular instrument in the market and that fundamental analysis is flawed due to latency and hidden information.

There can be no better technical analysis than orderflow and price action in context.Using algos to hybrid trade takes this approach to its logical conclusion. Not using algos to action and see the orderflow puts the trader at a significant disadvantage and at the other side of CP traders' trades.

Monday, 28 December 2015

Beating the HFTs

Its been estimated that the algos are responsible for almost 70% of the trading volume on futures markets. So as the pit locals disappeared as the pits were made redundant, the algos came in to take their place.

I've been writing about this transition for years and I think we have now come to the new normal although there will probably be more evolution due to regulation and technology changes. Most traders are still trading as if the old normal was still in existence.

Seeing the writing on the wall I started using hybrid trading also some years ago as chronicled in this blog. I defined hybrid trading as using an algo and turning it off and on and choosing different logic for a specific context. This is, I believe, what is required to beat the algos. The speed and reactions of an algo are needed to match the speed and reactions of algos if I want to win trading short time frames. Also, my algo can read and react to the order flow much quicker than a human can.

I have hybrid algos in MultiCharts, Ninjatrader and MarketDelta. The Ninjatrader version makes more efficient use of the PC's resources and now, with Ninjatrader 8, there are microsecond time stamps on each tick so that the order flow can be correctly followed. Each platform is better at something than another platform so it is a matter of using the one that best meets your needs in both functionality and ease of programming.

My algos use a button system that allows me to combine a number of conditions and rules with specific orders that will only execute when everything is true. The pic shows the completed Ninjatrader 7 version which requires tick recording. The Ninjatrader 8 version, is still being developed but has better volume capabilities in addition to correctly tracking order flow.

The functionality needed is a series of buttons that allows me to create a triggerable set of rules that shoot an order immediately those rule conditions are true. I watch the context and when I see the right context I arm a number of the buttons so that the algo can trigger the order from my Virtual Private Server that is co located at the exchange so that I get a less than 2ms latency from the moment that the conditions ar met and the time that the order hits the exchange matching engine.

The series of buttons decribe some context as well as order flow conditions. There are also trade management buttons so that I can have the trade management orders shoot out immediately I have a fill.


This type of functionality is available in a number of platforms out there now.

Saturday, 19 December 2015

Nothing Has Changed Except Everything

If you go back to the beginning posts of this blog you will see that I emphasize that the math of your trading plan has to work or you can't be CP.

That has not changed nor can it ever. The three legs of the stool ate win rate, average profit and average loss. Those three metrics have to work to enable CP. However, there are many permutations and computations of these three metrics. basically, a high win rate allows a lower average profit. That's how scalpers make a living, keeping losses small too.

Remember, you can still be marginally CP if your win rate is just 35% as long as the win to loss ratio is 2:1 or greater.

That being said, if one randomly puts on a trade either long or short there should be a 50% chance of profit. If that is the case then just putting on a trade and having your stop loss marginally smaller than your profit target should make you CP as long as commissions are covered too.

So why do most traders find it difficult to get to CP? The answer has to be that they don't follow the trading plan. As someone who is also guilty of that sin more often than I'd like to admit, I understand the problem. If this is the issue then putting the majority of your effort into becoming more disciplined must be at the top of every trader's To Do list.

My focus for the last year has been to use technology to help me better execute my trading plan. Its not the latest indicator. Its not the latest methodology. Its just following order flow and managing my trade so the math can work.


Happy Holidays to everyone and I wish you all a profitable 2016.

PS. The everything that has changed is the markets. No Locals except electronic locals and lots of algo action. But its still just order flow.