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.


Thursday, 1 February 2018

It's the Numbers that Count in an Algo

The reports below are for another one of my algos. This one is for the DAX using 18 minute bars,  It was created using the last 3 years of data.

Interesting stats in the extract below, the last almost 6 months of trading,  is that has a nice average trade profit that can handle any slippage that is likely to occur, the Profit Factor is robust and the win rate is unlikely to make me turn off the algo after 3 losing trades in a row. Also, the drawdown is quite acceptable. When I look at the month by month stats I see that the profits are spread evenly over each of the almost 6 months.


However, all this is not enough. Its not hard to create a set of stats that show a great historical result. It's easy! Just curve fit the algo to the data and it looks great. What I do after creating an algo is the robustness tests, more than seven of them. The final one is the walk forward analysis. Here is the WFA summary that was the final PASS to go live.



I use three platforms for my algo trading: NinjaTrader, MultiCharts and TradeStation. All are great platforms but have some differences in how they do the various testing and optimizations.

Wednesday, 24 January 2018

This Algo Trades Intra Day off Daily Data.

This Algo Trades Intra Day off Daily Data is the title of this post and that's exactly what I want to highlight.

Some more volatile markets trade very well of daily data and I only need to trade intra day and take the sweet spot out of the trend. I must confess that I could only discover this by data mining, using genetic code creation software.

Using genetic programming technology has an added benefit: I am more disciplined in not turning the algo off and on as I don't really understand the algo's logic. This is by design. I believe in the process I went through to create the metrics behind the algo and satisfied with the results of the robustness I built into it.

Once again, the harder I work the luckier I get.

Tuesday, 16 January 2018

An Algo Creation in Progress

To create an algo, I reverse engineer it to get the results profile I want. The results below show an algo for the DAX that trades 3 minute bars but can only enter during the first 2 hours of the session. I have identified this time as one that has opportunities. I then looked at the metrics of the results I wanted. This is how far I have gotten so far. There are 3 years of data in the results.


The next step can be to just do a Monte Carlo analysis to test for robustness as well as to test the algo with different periodicity data. Or, I can add rules to reduce risk or drawdown by eyeballing a chart. The risk is curve fitting. I rather accept risk than do anything that curve fits. My goal is to ensure robustness and there are a number of things that can be done to check for robustness.

I've been getting quite a few emails regarding algos. People are beginning to understand that algo trading is a lot easier than discretionary trading for most people because instead of the decision making process using discretion, you are using a tested algorithm whose past results you know and which give you expectations (but not a guarantee) of future possible profitability. See the disclaimer. Adding a number of algos into a portfolio is designed to further add robustness and smooth out the equity curve.