Saturday, 25 June 2016

Winning-v-Losing Trade with Same Setup

The difference between a winning trade and a losing trade with the same setup is the order flow.

This is key. I don't think I can emphasize this more. If you are not tracking order flow then you are trading with a blindfold.

Order flow should be in the direction of your trade at key levels where you trigger the trade. Whatever you use to trigger a trade, requiring the order flow to be strongly in the direction of the trade greatly increases the probability of the price moving in the direction of your trade.

The first pic shows the same indicators I have used since this blog began in 2009. What the arrows show is the order flow meeting requirements I have had programmed. The order flow helps not only identify the trades at key support and resistance areas but also show continuity of order flow. In this pic, price hit my FavFib and order flow confirmed that the sellers hit the market hard.

Pic 2 shows even more information about the volume imbalance within each bar. This more detailed information does not always need to be seen unless I am scalping. I do look at the detailed bar at the key levels. In this case, you can see the sellers inside the bar hitting the bid.

NinjaTrader 8 is still in beta and still has a number of issues. Hopefully all these will be resolved soon. However, the ability of NinjaTrader 8 to load ad use bid and ask data and micro second time stamping is a quantum step forward for order flow traders.
 
 

Wednesday, 16 March 2016

Finding the Top of a Major Swing

The hardest thing for me to do as you will know if you are a regular reader of this blog is to hold onto a trade. I've been working on this issue for the whole of my trading life.

The charts below show how such a major top or bottom can be found. Its a matter of using order flow at the right context spots. The bar charts shows the latest tools I use. The buttons at the top of the chart allow me to have Flo trigger trades that meet most combinations of context and order flow combinations. The human eye is still needed as yet to verify the context. The second chart - Market Profile - shows the split's POC that held the market twice. The bar chart shows the reversal of the order flow at the right context for that chart. All that is needed is to have enough contracts so you can scale out at relevant chart areas.




Monday, 7 March 2016

Why Algos Work!

One of the reasons that algos for hybrid trading work so well is that it makes me focus on what's important and to ignore what's not.

Recent studies, talked about here, show that if you know what to ignore you can focus on what's important. The article is well worth a read.

Applying that to trading means that I create a trading plan and then strengthen my ability to stick to that plan by having an algo do the triggering based on the rules in my trading plan but only after I arm it for each specific trade after I have determined that the extra context components of the TP are present.

This means I have plenty of time before the trade triggers to arm my algo and then let it shoot the order with just 1 ms of latency when all the rules are met.

As the Great One said, "how sweet it is".

Friday, 4 March 2016

Numbers and Orderflow and Algos

Writing this waiting for the monthly unemployment numbers.

The pic tells the story. Selling revealed itself after the market went overbought. It sold all the way down to the POC of the day's Volume Profile. I've been doing a lot of work on using Volume Profiles intra day and I'll be showing more about that. We've got a lot of information about order flow in our data stream and we have the technology to reveal the information we need to trade CP. Its now just a matter of learning how to use it. We're in very competative markets. We are competing against a lot of smart people and HFTs. Using algos is a must for most of us if we are to succeed.


The markets liked the number, at first but over cooked it. Then the opportunities showed themselves. The buttons at the top of the chart allow me to place trades based on a combination or orderflow and context. Go Flo.


Sunday, 28 February 2016

Scalping and Short Term Trading is Like Jujitsu - Using the HFTs to Profit

As these markets continue in their transition, one think looks like it will remain a permanent part of trading: the algo. There's algos and there's HFTs. While a retail trader can't be an effective HFT, we can use algos and we do.

This leads me to Jujitsu. The Wikipedia here says:
Jujutsu (/ˈts/ joo-JOOT-soo; Japanese: 柔術, jūjutsu About this sound listen ) is a Japanese martial art and a method of close combat for defeating an armed and armored opponent in which one uses no weapon or only a short weapon.[1][2]"" can be translated to mean "gentle, soft, supple, flexible, pliable, or yielding." "Jutsu" can be translated to mean "art" or "technique" and represents manipulating the opponent's force against himself rather than confronting it with one's own force.[1] Jujutsu developed to combat the samurai of feudal Japan as a method for defeating an armed and armored opponent in which one uses no weapon, or only a short weapon.[3] Because striking against an armored opponent proved ineffective, practitioners learned that the most efficient methods for neutralizing an enemy took the form of pins, joint locks, and throws. These techniques were developed around the principle of using an attacker's energy against him, rather than directly opposing it.[4]

The part of the quote printed in bold above was emboldened by me to highlight the main idea I'm talking about: "use an attacker's (HFT's) energy against him.

In previous posts I've talked about seeing the order flow. Its something that has been the focus of this blog since its beginning in what seems a lifetime ago now, October 2009.

On the floor our function was to take the other side of the trade of the "paper". We were liquidity providers. However, where we differed from market makers was that we only took the other side of trades that we wanted to take. So if, say, we identified a broker coming in with what looked like a big buy order, the smart thing to do was to sell him the last 100 contracts. In addition, we may have also front run his order, buying ahead of his big order and selling to him as he filled his order pushing price in our favour.

No more floor locals.

But we have something now that we didn't have then. We can count the volume contract by contract and see whether the buyers or the sellers were more anxious.

The nub of all this is how to use the technology we have now to trade the way we did on the floor. We had an enormous edge on the floor and this edge is here now, using the right technology and the right strategy.

Traders are looking for a way to use a relatively low amount of capital with limited risk per trade and the ability to make a living trading small size. "Using an attacker's energy against him" is the way to do it.

More to come on this subject.

Friday, 22 January 2016

Stress and Trading

I just came across a webinar delivered by a psychologist, Dr Andrew Menaker, for my friends at MarketDelta about 18 months ago.

This is probably one of the most interesting takes on trading psychology I've seen since Mark Douglas' work.

You can see it here.

If you know your enemy.....

Tuesday, 19 January 2016

Seeing Orderflow Change to Sell where I Expected It.

As I have said so many times - Context Rules. The pix below shows the bigger picture first: The market traded a swing down and then retraced - our typical pullback in the direction of the trend. While we used to just use the CCI to track this we can now use orderflow. The indicator is the Logik Volume Wand which creates the Volume Profile of the swing. There is also the VWAP there. The second pic is a close-up of where the trade triggers. As I said, there was a swing down and then a retracement. The retracement went to the POC of the swing and right below the VWAP - VWAP is the average value of the swing. The red arrow shows orderflow changing from buy to SELL and this is the trigger.

The context is very important as orderflow changes direction often and often without follow through. What is different here is that the context says that if the orderflow changes direction at the POC or VWAP then there is a good enough probability that there will be a big enough move in the direction of the change. The next piece is the trade management: stops and targets. This last piece of the trade is a very big part of being CP.