Tuesday, 2 September 2014

Trading the Order Flow Today

The DAX is a great market for demonstrating order flow. Its fast and furious but has all the elements an order flow trader needs. These principals apply to all liquid markets and all time frames.

Today the DAX opened at one of my support and resistance numers. The buyers were immediately in control. Order flow bars (Volume Imbalance) lit up green. The yellow boxes were the POCs of each bar. It was easy to see the sellers coming in and distributing. The spreadsheet in the lowest pane on the chart provides good info.

Friday, 29 August 2014

Nice Trade Today

Today's chart has the CCIs back on it. A student I am currently training wanted to leave the CCIs on his chart as training wheels while he learned the new stuff. It has turned out to be a real benefit on days like yesterday when the market trended strongly by finding confirmations of lots of re-entry points so the CCIs are staying.

Today I came in with Asia firm and so looked for a long entry point. Looking at the MP and this chart it was easy to see the 9476 area where I went long. I then watched the order flow bars (Volume Imbalance) to determine whether I should stay in the trade. Offers were lifted so I did.

I scaled out at the previous VAH and the VWAP standard deviation very automatically with a resting order and watched whether more buying would come in. It did so I held the balance until consolidation started and the lights went red.

The chart has the CVD and the Volume Breakdown as the CVD bars are too thin to see well. The yellow boxes on the VI bars is the POC of each bar. The spreadsheet on the bottom of the chart shows the actual volume of each POC.

Wednesday, 27 August 2014

Sell Til Your Hands Bleed

On the Floor,we traded using hand signals. Of course, from that, a whole lot of sayings evolved. One of those when you were really selling a lot of size people talked about "selling til your hands bleed."

Today's pic shows my bar chart in it's latest incarnation. I keep finding some subtle new things in MarketDelta which makes the order flow clearer. The spreadsheet at the bottom is one such things. Coincidentally, a reader asked about this yesterday in a Comment and I'd added it a few days before.

The pic shows the topping of the market with the order flow and the FavFib. The Market Profile chart did not help as we had made a new high but I didn't need it as the chart was so clear.

Saturday, 23 August 2014

The Evolution Continues - Market Profile + Volume

I'm still fine tuning my chart. The original Market Profile is unchanged - splitting the Profile into distributions is what is important. The bar chart is being tweaked as I find settings in MarketDelta that give me more information. The new concepts of Pete Steidlmayer have proven to be quite revolutionary when translated into the functionality available in MarketDelta. My new normal allows me to track order flow intimately just like we did in the pits - perhaps even more closely.

The chart below uses a volume breakout bar with the order flow bars: Volume Imbalance. A new bar is created when
The range of the bar is determined once the volume level specified is achieved. Then when price breaks out of this range a new bar is formed.

The whole chart is very volume related and very visual. The way I think when I trade has returned to the way that I thought when I was on the floor - which way is the order flow and how strong is it? My win rate is pretty high and as I get more screen time with this chart I'm confident that my average profit size will grow - this was my goal in making the change to my charts. The "was" works pretty well but the new normal will more than double my average profit per trade, trades like buying the low area on the bar chart and selling it at the expected target at the magenta line when order flow lost it's power.

Wednesday, 20 August 2014

Evolution and Transition: My New Normal

Market Profile with Footprint Volume Imbalance = Order Flow

-          I have updated what I have on my discretionary charts to take advantage of the latest technology to trade the markets in transition. I recently showed the order flow bars - Volume Imbalance Footprint from MarketDelta. I have taken things further using Volume Profile and the new ideas that Pete Steidlmayer is using in recent updates to Market Profile. Pete has moved on to using volume and order flow in a quite complex series of database interrogations that create a number of charts and spreadsheets he uses to trade intraday and short swings. I have taken that and created a single chart and a legacy Market Profile chart that is more visual and intuitive.

T   Today's pic shows the further development of looking at order flow. I am using MArketDelta for all my discretionary trading as it provides all the information I need in one platform with the best support when I need to chart something new. As you know, I have been using the CCI to see the footprints of order flow for years and years. Now I can see the order flow directly. Win rate is even higher. I am not quite at Pete Steidlmayer's 85% win rate with these new charts but I am confident that with practice I'll achieve that.I made these changes after considerable testing. Leaving a tried and true setup was not easy but when you read the introduction to the book I am writing you will see why.

The Markets Today

The markets have been going through a great transition during the last few years. The transition is still underway. The reason for the transition is:
·         The Pits have all but disappeared which means there are no locals or specialists. This has eliminated the major source of supply to the markets. In the “was”, when a large order came in the locals or specialists took the other side of the trade. They then managed their position to spread it back into the market. This no longer happens and paper now trades with paper creating more volatility if the order is large
·         At the same time, the paper has increased in size. We now have many large hedge fund type customers trading so at the same time as the locals disappeared, the customer size increased dramatically
·         Also, technology is playing a greater part in market activity. The technology provides a cheap and instant access to the markets allowing traders to make more and shorter term trades at a lower cost of entry
All this has resulted in a much more order flow driven market place. While markets were always driven by order flow, the present markets have no intermediaries that dampen or shock absorb the instant activity which therefore results in more relative volatility.
The outcome of this is a much more supply driven market. So we have to trace order flow and supply in order to be Consistently Profitable (CP) in our trading. This means that we need to use technology to capture the information now instantly available and present it to ourselves in a way that enables us to make objective assessments of what is happening and there allowing us to infer what will happen. This means that we need to create a market framework within which to operate so we can see:
·         where there is inventory
·         when accumulation  is taking place
·         when distribution is taking place
·         when accumulation is likely to occur
·         when distribution is likely to occur

Once we have a mechanism for “seeing” this information we can trade CP. The goal of the ebook is to show how I have created this framework and how I identify the conditions I need to make profitable trades.


Here's the MarketDelta chart I now use. It looks a bit busy because of the Volume Imbalance numbers but I only look at that AFTER the trade is on to see how I need to manage it. Pete's mantra is to get the trade on when it fits the plan and then manage it. He's really right as otherwise I get a worse trade location.Trades have a "WHEN" and a "WHERE". This chart plus the Market  Profile chart gives me that. The book will show all. This part of the chart had 7 short trades worth 200 euros each per contract. The decision making was pretty objective, There are two modes: the first hour or so and then the rest of the session.

Wednesday, 13 August 2014

MP for Context, Bar Chart for Timing

Today's DAX trades worked according to Hoyle. These are the type of very high win rate trades that are needed for CP. I was done for the day for discretionary trading within about an hour or so.

DAX opened with a drive up. Job of the electronic local, like the floor local,  is to fade these moves by offering liquidity. We get paid well for this service. The bar chart provided the tining in the zones identified by the Profile. Market then retreated back to the 33EMA where accumulation began which told me to turn the position around. The subsequent pop got me out at a nice profit.

The book is going better now so hopefully I'll have it out before the new year.

Monday, 11 August 2014

It's All About the Context, Still !!

Thee key to discretionary trading is context. A pattern "works" sometimes and sometimes it doesn't. The distinguishing feature is the context.

I woke up with the ES in Asia up about 4 or 5 handles. Firmish. So I was looking to buy the DAX around the open if I had something to lean on. DAX opened a bit too low I thought  so I was there at the bid on the open and filled.

My target was the nearest resistance as the DAX would then catch up with the ES. Q.E.D.

This stuff is not complicated. I keep it simple. It just needs the hours to create the belief.

I'm done for the day as a discretionary trader. Flo is taking over the heavy lifting. We have a full house here in France for the August summer and we'll be off to the mountains for some tobogganing once the sun burns off the clouds.