Tuesday, 17 July 2018

Then and Now

We keep talking about how the markets have changed since the pits disappeared but I haven't really said how.

On the floor our job was to provide liquidity. That meant that we faded most moves. I've spoken about the inside out trades and the outside in. Those were with the trend and against the trend. My focus used to be outside in until a trend day appeared.

So what's happened now? Well, the swings have gotten longer most of the time. That means its more profitable to trade inside out - trade with the trend. The HFTs have taken on providing the liquidity so all I need to do is identify the order flow and trade with "them".

The chart I posted in the previous blog and which I repost today is a good example of what I'm talking about. The move starts on the left hand side of the chart and tops very clearly.  Most of the move was the trend up. Now when the order flow changed direction I can go short, not for just a quick scalp, but to trade the retracement swing. The idea is to stay in trades longer - more bars - no matter what periodicity I'm trading.

Tuesday, 10 July 2018

Trading Outside RTH

There are lots of opportunities in the emini ES futures outside of the regular trading hours of the stock market, especially after the RTH close. There are many, many traders and institutions who have to re balance positions after each settlement period. Also, Asian markets are opening for a new day when U.S. markets have just closed.

Its at these times that markets find themselves out of balance on the majority of days. Additionally, I think its easy to find a bias at this time so understanding the order flow is very easy.

The pic below shows the settlement close on the left and the reopen into the "new" day. I use the series of volume profiles to track what is happening in the order flow and the bars for execution. You can see the moving averages that can be used to trigger a trade if you need some extra training wheels or a specific reason to trigger the trade. This I guess is more psychological than tradecraft but if it helps ............................. It is quite simple but not simplistic as there are quite a few nuances to be learned to trade like this.

Saturday, 30 June 2018

Day Time or Night Time is Always the Right Time

I remember as a child an ad that ran in Sydney: "Day Time or Night Time is Always the Right Time, for a cup of Bushells' tea".

Well, the emini ES is that cup of Bushells tea. Its an almost 24 x 6 market that has opportunities whenever you sit down in front of your workstation. 

As the Chinese and other Asians discovered day trading and the algos found volume during that 24 x 6, the old RTH are not the only times that there is money to be made. As Pete Steidlmayer said, using market Profile in the old 1980s way is not very helpful in the 21st century. With the technology available today and live volume 24 x 6, the tools have changed. Everyone can be an electronic local. We have the edge.As Frankie Lane sang, "Move 'em on, head 'em up, Cut 'em out, ride 'em in, rawhide"

If anyone has a couple of hours in any time zone its rare not to find profitable trades if you "follow the money". Its the same as always if you go back almost 10 years since this blog began what are "they" doing? The "they" of course id the order flow. 

The chart below id the closing hours of the ES on Friday, 29th June 2018. The left of the chart shows the time when the market turned from the uptrend and migration of value upwards and ended the day as a reversal day.

As you can see, I am capturing the order flow information in several ways. The key, I have always believed,is to trade a mechanical discretionary method. My trading plan is still comprised of pictures I want to see completed before I pull the trigger. By seeing what "they" are doing now I can understand what will happen next on the balance of probabilities. Its simple if "they" are selling then the market will go down. How far? Until "they" start buying again. When will that happen? I don't know the "when" but I have a good Idea of the "WHEREs". I say "WHEREs" because I have identified areas where buyers can come in and it is in those areas where I would scale out.

In the picture you can see the market break and retrace to resistance and break and retrace to resistance and repeat. Whether your style is to take the first break and scale out at each support and then reload when you run out of bullets or to size up at the first break and then scale out until you can clearly see the trend is over can result in the same profitability.

Trading multiple contracts is important for profitability. With a small account trade a smaller contract but trade multiple contracts.

Thursday, 7 June 2018

I Love It When a Plan Comes Together

Now lets put the training wheels on. The chart below shows the tried and true original ElectronicLocal indicators I started using before all the direct order flow information was available. These indicators are now a filter or help in seeing the order flow.

The triggers are purely off the Volume Profiles, price action and Cumulative Delta but the indicators, which I have been watching for well over 12 years, are a good security blanket and also become the judge in case of any analysis paralysis. I must also confess that using the indicators as well, results in me seeing things more quickly at this time.

I have marked an entry and exit on the chart. As you can see the trade made the proverbial 10 point buck as we used to say in the "good old days". One of the aims of this methodology was to enable me to take more profit out of a trade - resulting in a much higher average profit over time. There's a lot of noise as the HFTs and other algos go about their business in the markets and being able to filter out this noise, rather than trying to trade it, has become one of the important "to do" actions in this new trading environment.

I'm currently adding the semi automation to the charts. Still being tweaked as the technology is catching up to my needs. The semi automation means I can arm Flo (see previous posts about automation) when I see the context is coming together so that Flo triggers the trade fully automatically once all conditions have been met. Flo will also shoot out the scale out targets and stops. When I eye ball the chart, these targets and stops can be adjusted if necessary. This way I can trade several markets at the same time. Adding alerts to markets can also help this multi tasking so that as context is coming together I can pay more attention and arm Flo if applicable.

This has now become a whole new trading plan that is both back testable and applicable to all time frames and markets.

To the Moon it Went.

The evolved order flow methodology I'm using with the reconfigured charts is adaptable to any timeframe. When there is a lot of noise, going less granular can be clearer. Also, higher periodicity brings larger average profits albeit with larger stops but position size is the balancing factor.

The ES broke out, AGAIN! My next target is 2850 based on my FavFib calculation. As the Russell 2000 orbits to yet higher life of contract highs, the ES is in its footsteps. I can't help being mindful that stops need to be in place because as usual it will end in tears for those that don't do that.

The chart below is pure order flow. I know after the event it all looks clear but at the right edge of the chart in the heat of battle it often is not. However, if you are trading order flow in a structured methodology the probabilities take care of it if you follow your trading plan. When I say this, I always think of that wonderful character played by Herve Villechaize in the TV show, Fantasy Island, where he says: "The Plan! The Plan!" While Herve was referring to the aeroplane, his boss, Rourke, always had a plan and stuck to it.

Wednesday, 6 June 2018

"To the Moon, Alice!"

As the Great One often used to say, "to the moon, Alice. Bang! Zoom." The pic beow is the Hang Seng future traded on the Hong Kong exchange. If you're finding the DAX a little too slow then this market is worth looking at. Lots of opportunity to both make money and to get your head handed to you. Caveat Emptore.

Having said that, the open of this market at 9.15am Hong Kong time often has a great move and the style of trading using almost pure volume can really capture the moves in this and most other markets. Not a lot of magic in the chart. Volume Profiles and bars. Below that there's Cumulative Delta with a moving average on it. That's all I need.

Funny how the market often stops at my Fav Fib.

So the magic is not in the chart but how you use it. I have a discretionary but mechanical way of trading this chart that I really like. It is really easy to learn with a short learning curve I think. I'll put a video course together for those interested in learning the finer details if there is enough interest. My goal is to get people to CP faster and surer.

Sunday, 3 June 2018

"Everybody has a plan until they get punched in the mouth."

The title to this post is a well known quote by Mike Tyson, an ex heavyweight boxing champion of the world. While I'm not an admirer of much of Tyson, this quote epitomises what goes wrong with most traders.

So why is it hard to stick to a trading plan. The answer is quite simple if you can take it down to basics. Most traders have a trading plan based on squiggly lines. They trade squiggly lines. They focus on squiggly lines.

To succeed in trading a trader has to see the orderflow. That simple statement separates the winners from the losers. If people are buying more aggressively than they are selling with sellers retreating then the price goes higher until that situation changes. So it makes sense to focus on getting the information that allows us to see that orderflow. But don't forget the context.

I'm not knocking indicators as such. The right ones have a purpose. What I am criticising is how traders use indicators when they trade the indicator rather than use it to give them a piece of information about the orderflow.

When you use your computer to process the datafeed to give you the correct information about the order flow "the punch in the mouth" is usually just a tap that draws your attention to something happening in the orderflow. Most times its a punch you just want to absorb because it is expected as part of normal rotation.

I have been working hard during the last few years to adapt the technology that is becoming available to us all to see order flow more clearly. Back in 2009 when I started writing this blog, order flow information was just beginning to evolve. You can see in earlier but more recent posts in this blog how I have been evolving my charts so that I can see what is being traded.

Now, the technology has caught up. The chart below is what I am using now. I can now see the order flow even more clearly than I could as a local on the floor almost 20 years ago. Ive been fairly quiet on the blog as I did not have much new to say. Now I do.This chart makes it very easy to see the order flow. It has objective triggers and objective stops as well as a trading plan on how to to take profits.

I am still working on how best teach people how to be able to use this chart configuration to see what is happening and trade it successfully. I've been getting a steady stream of emails from traders looking for help in getting to CP. More about this later.