Sunday, 16 September 2018

Are You Getting Cheesed?

Are You Getting Cheesed? It was Terry Prachett who coined the term "cheesed" in one of his books. "Cheesed" is like getting creamed but its longer and harder.

The feedback I have been getting from traders is that trading is tougher these days. Our job as traders is to identify what is happening by looking at order flow and context. That has not changed. While volatility is continually changing, if we keep to our basic methodology then we should stay on track. If you go right back to the start of this blog now over nine years ago and step forward the you will see that really nothing has changed. However, our tools to look at the markets have improved dramatically.

The chart below is a good example. NQ futures from Friday. Just another day.
  Now compare the above chart which clearly shows what "they" are doing and is probably tradeable as it is, with the chart below which has two added elements of context.

The key to understanding what is happening is to relate the order flow to the context. How far are we from the mean? Where are there large volume nodes?  Price and volume without context is not too meaningful.

So if you are getting cheesed, go back to basics. Keep it simple. While trading is not easy only because of how we tend to think, our process can be simple.

Friday, 3 August 2018

The Most Important Indicator in NinjaTrader

There is a very often repeated theme in this blog going back to when it began in October 2009: the math of trading has to work.

If your stats are not right there is no way you can get to CP.

This is an aspect of trading that most people don't focus on at all. It's all about entries for most people and this is fine if that includes knowing where your exits have to be for you to be CP.

When I enter a trade I have a good idea of what the market has to do for me to be wrong so I know what my loss will be. I also know what my win rate is going to be, more or less. Those two numbers tell me what price has to be exceeded for me to be CP.

If my win rate was 34% and my stop was 2 points away then I need a profit of at least 4 points to break even. So I look at my charts to see where resistance is. If its les than 4 points from my proposed entry then the trade is not "good".

If my win rate is 67% and my stop is 2 points away then my break even is 1 point from my proposed entry. I can then need resistance to be only more than 1 point away.

Of course I am looking for trades where resistance is far enough away to make 3, 4 or more times my risk. Reading the order flow and trading the swings from accumulation to distribution allows this to happen often enough.

Well, what's that MOST IMPORTANT INDICATOR in NinjaTrader? Its in the pic.

It's the Risk-Reward tool found under Drawing Tools. Using it can make you CP.

Thursday, 2 August 2018

Love These Trend Days

Price opened below value and it was a a matter of watching when order flow started buying responsivly. That happened almost right off the bat. Big CCI overbought and turned up. In fact, I was long before RTH based on what had happened in the London session.

The volume profiles showed value moving up all day. I took the pic at about 1 pm EST and it was then a question of whether my Fav Fib target would actually be hit or not. By then it didn't matter a lot for me as I was almost out of bullets after scaling out all the way up. These trend days can be recognized by the narrow breadth of TPOs. I start off by buying the order flow and Profile and then make my exit strategy based on what happens next. The Trend Days cannot be predicted after the RTH close but often the Asian and London sessions give a good clue.

I tend to scale at resistance points as those areas may be all that's in the trade. First scale is usually 50%. I am very mindful of the fact that the math has to work: win rate and multiples of risk need to provide a very positive expectancy.

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.