Saturday, 14 October 2017

The Times They Are aChanging, Still!

Bob Dylan said it in the 1960s. 

And the times are still changing as people are using technology more and more and in more innovative ways. It has been estimated that algo driven activity is responsible for 80% or more of current volumes.

From the feedback I'm getting from past and present students, markets now are more difficult to trade than ever. Traders need to adapt to markets day by day as they evolve.

And this has not been happening enough.

Having repeated that markets are driven by order flow ad nauseum since 2009 when this blog started, I am amazed every day that order flow is still the most misunderstood activity in the market place. This is perhaps because context is being ignore.

Different order flow activity means different things in different contexts.

I have been asked to create a new course focusing on trading the markets in this new and continually changing environment. I've started working on this but have not decided whether to just present it in this blog or to deliver it in a series of workshops online.

There are two NinjaTrader8 charts below. The first one is a bar chart that shows what is happening with the order flow and second one is a Market Profile and Volume Profile chart. This is all that is needed to trade successfully if you have a valid trading plan.

I have drawn attention to the arrows that have been programmed to give me order flow information. One can see the swing up, the stall and the push back down. This is repeated continually on different scales and periodicities as the auction process is played out.

Tuesday, 19 September 2017

40 DAX Handles

I've been quiet as I haven't had a lot new to say for a while, until now.

The new MultiCharts64.Net release has made some significant changes to its Renko bars. I can now create a kind of Renko Range bar at but my order flow rules into it.

The chart below is a very simple trade off the FavFib using Market Profile as context. The trade ends at another FavFib and MP support area. The bars on the chart are just the containers for the volume order flow. They are the new FlexRenko bars that I have configured to my requirements.

I don't sit in front of my workstation all day. Its not required. Have a look at the ES for today where there is another trade for the day. Done in less than an hour.and a half or so.

While the markets are continually changing, placing trades at specific support and resistance areas so that I know quickly when I am wrong, still works. Its still the three legs of the stool: Context + Location + Order Flow.

Thursday, 18 May 2017

Trade of the Year or Just Biz as Usual

The chart above is a very typical EL trade that you have seen in this bloh for some 8 years, although today's trade was really hard to miss. First entry was at the old EL entry with the CCI overbought and the market pulled back and ready to return to at least the mean. Second entry opportunity, you could call it a confirmation or a wake up call,  was the confirmation that order flow had decided to sell. "They" began to unload again. It was then a matter of scaling out as price went down and hope that you don't run out of bullets, although there was an opportunity to reload if you did.

Sunday, 16 April 2017

Why Most Traders Fail

The answer to the question: "Why do most traders fail?" has been a source of research by many people, both within our industry and outside it.

I have had a lot of ideas about what the answer is and it is only now that I believe that I know why. Much of the reason has already been discussed in this blog.  The missing part of the answer is that we take mental short cuts in our decision making. The problem is that these mental short cuts often don't work.

This "solution" became clear after reading The Undoing Project: A Friendship that Changed the World, a book by Michael Lewis of Liars's Poker fame. The Undoing Project describes the collaboration between two psychologists, Daniel Kahneman and Amos Tversky, who created the field of behavioral economics and won a Nobel prize in economics. Kahneman subsequently wrote Thinking, Fast and Slow and received the American Presidential Medal of Freedom.

I highly recommend both books if you want to understand how we can fool ourselves in our decision making process. It takes work to change the way we make decisions, especially if we are discretionary traders who make lots of decisions with not a lot of time to make them.

Saturday, 11 March 2017

Trading Order Flow - the Series Part 3

Its pretty obvious that the criteria we are searching for as a trader is when to enter and when to exit. Obvious! But what traders don't seem to deduce from that fact is that the "when", to have a high probability of success, depends on the "where".

What does the "where" mean? It means finding trade locations where it is most likely that a trade can be entered and that it goes in the direction we propose that it goes.

OK, where are those places? For me, those places are where there was volume before that caused the behavior that I want to rely on. That means I am looking at extremes, VAHs, VALs, POCs, LVNs, HVNs. I also take into account where VALUE is moving.

The process is simple. Before tarting to trade I look at the previous day and the left hand side of the bar chart and mark the places where I COULD trade. When price gets to one of those places I look at the current context and order flow and put on a trade if I judge that the trade is viable . For it to be viable, I need to be able to see when the trade is wrong quite quickly and there has to be enough room in front of the trade to make a big enough of a profit. What those numbers are depends on style - whether you are a scalper who needs a high win rate or a trader who needs the ratio between their risk and reward potential to be a high enough R number.

The pic of the charts in the previous post gives me all that information.

Wednesday, 28 December 2016

Trading Order Flow - the Series Part 2

This is the same pic I posted recently. Lets look at what I have on the chart.

The large chart gives a larger view of what's going on. It doesn't really matter what the periodicity is - it can be 1 minute, 9 tick range, 99 contract volume - anything really because we are going to trade order flow. The periodicity is to break the bars into volume measurable significance and to allow the indicators to fill in some of the contect.

We then have Market Profile or Volume Profile. This an importand part of the context. Finally, I have a chart that mirrors the main chart's last few bars but with the inside the bars information exposed.

Lets talk about context. Exactly what is it? I started talking about context in this blog from the beginning years and years ago. Since then I have seen it mentioned all over the web but without it being explained.

Context has a number of components which include;
  • what is the trend
  • where is the mean
  • how over bought or over sold are we
  • where is value
  • where are the edges of value
  • where is the centre of value
  • how is volume moving
Having this information, I can now make informed decisions about trades to take and exit in accordance with my trading plan.

More to come in subsequent posts.

Friday, 16 December 2016

A Workman and His Tools

There's really only one constant in trading and that's Order Flow.

With the advent of personal computers in about 1979, markets began a series of changes. My Apple II was great in 1980 using CompuTrac software to provide daily technical analysis. This then went to Intraday analysis using the same but evolved CompuTrac software.

The tools became more sophisticated as PCs got better. The next big thing was 1993 when the internet opened up to private individuals. This coincided with Microsoft Windows appearing. This brought a host of software tools to help traders.

PC, software and the internet all improved and then markets went electronic. I left the floor in about 1991 and traded off a DTB terminal for a while until software appeared that made trading from home possible. This is when algos started making their appearance in a bigger way.

Today there are people that are estimating that algos are somewhere between 80% and 90% of the market.

Without updating the tools, traders don't have a chance against the algos. We need to use tools to both disclose order flow, analyze it and then semi-automate the execution. I'll write more about this in subsequent posts.