Friday, 31 July 2020

Micro ES and Orderflow Trading

I've been looking at the relatively new micro ES contract. Its volume has now reached a level where its very very liquid. If you have been reading the blog then you know that one of my trading styles is to put the position on and then scale out as the trade goes in my favour. The converse of that is that I double down, sometimes more than once, when the trade is still valid but goes against me.

With the extreme volatility we have with the ES, these scaling in and scaling out with these larger number of contracts has become more difficult as:
  • Stop losses can be further away from entry price
  • Higher margins
The "medicine" for these issues is the micro ES. Same as the regular ES except $5 a point instead of $50 a point.

Taking an initial position of only 1 ES contract means you cannot scale out. Doubling down twice gives you 4 contracts, still not a lot to scale out. However, an initial 10 lot of the MES (micro ES) provides the flexibility needed to trade this style.

Had you entered the trade on my multi Volume Profile orderflow chart at the break at 3233.00 with a 10 lot MES position, you were able to take half of the position off at your first usual target and still have 5 scale outs left to trade until the swing was over.

Thursday, 2 July 2020

Profit is Buying Below Value and Selling Above Value in either order

Profit is Buying Below Value and Selling Above Value in either order. And then there is trading the change in trend.

This defines the essence of trading.

Lets go back to the basics again. There are two types of trades: Inside out and Outside in. Inside out is trading the trend and Outside in is fading the trend. Both types of trading can be profitable as you have seen in this blog.

To be profitable therefore, first I need to determine two things:
  1. what the trend is, and,
  2. what value is
Both these metrics are related directly to the periodicity I am trading. The trend and value will not be the same for a 30 minute periodicity and, say, a 9 tick range periodicity.

Once I have determined these two metrics on the periodicity I am trading all I need to do is join the order flow in the direction I want to trade. When choosing that place to enter my trade I try and buy below what I see as value and sell above value. I pick those spots where I either see order flow telling me or where I expect order flow to reverse in favour of my proposed trade. These choices, although discretionary, are rule based.

Here is today's chart trading the ES during RTH  on a basis of 1 contract and adding contracts when the position goes against me. Rule based. Its possible to trade this methodology with $10,000 using low day trade margins. Today's chart made over $600. Average for the week was over $800 trading from 8qm until about 11am. Green every day. The purpose of this post is to provide a m less than etric on what could be a basis of a trading plan. Trading is a business and a trading plan should include a projected cash flow. Again I remind you of a story early in this blog about a T-Bond trader I knew in Malibu in California. He traded to make 8 ticks in the T-Bonds in the opening half hour to make his goal every day and then hopped into his Porsche and went to the beach. That was part of his trading plan.

 The takeaway from this post is that its now fairly easy using today's technology to create a trading plan that allows for a good living to be made trading. The chart above is a scalping type trading style designed for lower capitalized accounts who have learned the required skills for a very high win rate and smaller average trades. The chart above shows that all the trades were either profitable or break even. That is the goal to aspire to. It all starts with the trading plan and the continual SIM trading until CP is achieved. I thought that today would be a good day to trade 1 lot as a demo because it's the day before the 4th July holiday and yesterday was already a smaller daily range.

Happy 4th July to all in America.

Thursday, 4 June 2020

It's Still the Order Flow

I remember Pete Steidlmayer telling me that we are information processors and that the Market Profile was just a tool that we can use the put the information (data) into a format that we can process more easily.

Market Profile has evolved with the technology. While the original TPO format still has uses for context, it is the putting of data into volume profiles that, for me, has become more useful for day trading.

As the title to this post says: It's Still the Order Flow. How can it be anything else!

The chart above places the price and volume data into volume prices. NinjaTrader 8 has the ability to create these volume profiles automatically as the data comes in. MultiCharts also has this functionality. The lower section of the chart is the cumulative volume delta. This shows the aggresive volume driving value vertically.

Again, for me, this chart is very clear on how value is moving and what is driving it. The line on the chart represents the mean.

The last component of my trading plan is my money or trade management. As you have seen in the blog since it began more thn 10 years ago now, the key for me is to scale out of contracts as the price moves vertically in my favour. After I'm out of bullets I find a logical place to reload if there is not a roadblock close in front of me.

I've been using the extra time I have during the current situation to refine my trading plan. It was worth the effort.

Good trading!

Saturday, 14 March 2020

Changes to Make to Handle the Volatility

I've had a few requests from students on what else to do to handle the new volatility. Here's a couple more ideas.

One of the main issues for discretionary traders is the SPEEED.

I don't know about you but I can't trade off the usual range bar charts in this environment. Also, my algos have been getting more slippage and with the increase in the number of bars printed in a day with those range bars, the slippage is taking a lot of profit away.

One compromise is to go back to those "old fashion" time based bars. They're not so old fashioned now. But I make the timeframe very short, say even 30 seconds.


Another thing I do is backtest for what is the largest target I get with winning trades about 90% of the time. I make that T1 and exit half my position. I've mentioned in a previous post that I have cut my size. I then have T2 and T3 each of which scales out 25% of the original position. T3 can be far out if you add a trailing stop that kicks in after T1 has been filled. 

Finally, with algos, I have several that trade the same symbol with non correlated strategies.

Trade safe, Trade Smart and Trade often to let the math of your edge to work.