Tuesday, 24 November 2009

Its a Long Way to Tipperary

Learning to trade can be a long road, as the song says. I have managed to set up a way of teaching my methodology that  has reduced the learning time for Kiki to about 6 months, although she has been listening to me talking about trading for years.

I get a number of questions by email and PMs to forums where I post, mostly asking similar things. I'll try to answer as many of the questions as time permits, here in the blog.

Patrick and others wanted to know what to read to get started. There are three books I would recommend and you can find them on the great river of books, Amazon.
They are, in no particular order:
Mind Over Markets by Jim Dalton - for structure not how to trade
Trading in the Zone by Mark Douglas
Trade Your Way to Financial Freedom (2006 edition) by Van Tharp
Clicking on the title will take you to links with full details
Sadly, you cannot learn to trade from a book but you need basic knowledge before you start to learn.

Another message compared my training Kiki with the Richard Dennis experiment with the Turtles. If you google it, you will see the whole story about Rich believing that he could teach anyone to trade and proved it by creating the Turtles who traded Rich's money with Rich's system.

I am a strong believer that most people can be taught to trade if they have the ability to focus, have the passion, have the determination to spend the hours and hours in simulation and also not have any fear of losing the initial minimum capital they need to put up to trade live.

But, and there is always a but, I do not believe that a scientific mechanical method such as Richard Dennis' works for most people.  The Turtle system, like most mechanical trading systems, had large draw downs, long strings of losing trades and in the end "stopped working" (that is, the draw downs put it out of business when RD started managing other peoples' money). Trading is an art not a science and there is no way a computer can be programmed to be as efficient as the human brain in evaluating all the variables and nuances that are required to put a trading plan into practice. If you look at the trades in the posts you see low draw downs and a high percentage of winning trades. Without these qualities in a methodology, most people cannot stick to a trading plan, me and Kiki included.

Others have asked about charts and indicators. The bar charts are using MultiCharts which can be programmed in Easylanguage (like TradeStation). My two volume indicators are not supplied by MultiCharts but were programmed externally. The second from the bottom looks at bar by bar buy and sell volume, the lower one smooths and accumulates that information. Each gives me different information that I use in my trading plan. The MomDot is something I use when I need to further qualify an entry or exit. It's what it says on the box, it looks at momentum in a tighter way.

The MP chart is an add-on to Ninjatrader. Its from fin-alg.

Datafeed: If you want to look at data then you need a feed that gives you unfiltered data. Some of the broker feeds filter or aggregate data, other don't, so you will need to do your due diligence as usual.

Finally, Sam and a bunch of others have asked me for mentoring and training.I'm concentrating on Kiki at the moment and that is taking all my extra effort. But follow the blog. There's a lot of good information here.

And now for the day's trades.

Click to enlarge


  1. First Thank you for nice blog.
    I would like ask ,is your POC LVA HVA same as in this web side www.mypivots.com/Board/Topic/4936/4/value-areas-point-control-2009-q4 .
    for exam. for Thuesday 24 nov. was 1107,75 1104,25 1102,25 ????
    I wonder if you use volume point of control and volume value area lines or TPO point of control and TPO value area lines ??? I think are different. I hope you understand me . For example TPO HVA at Monday 23 nov. was 1107,75 (acording to side above) and volume HVA (70%) was 1108.5 (according to my study in charting software)
    Please can you write what SR levels was your base for entry and exit at Thuesday ES and what was your HVA LVA POC for Thuesday ?? Thank you very much

  2. I know the site you referred to. Its a generic TPO count people use if they don't have their own MP indicator. I look at both volume and TPO POCs as well as highvolume areas in general.

    You cannot compare my Value Areas becuae I split and merge profiles to find the true support and resistance. I have been teaching Kiki to do this every day. I don't look at hard numbers but draw the S&R lines and look around them.

  3. Thanks for the article Tom. Good stuff, you posted here.

    You mentioned data a few times. Which feed do you use? Esignal? Not talking that data is the core for ones trading, but using range bars doesn't it become less important? Or are you refering to volume data explicitly?

    I use IB data at the moment, which is known as snapshot data.


  4. Tom,

    Thank you for the info about the charts. This blog has been a true inspiration for me and I've already incorperated some of the tools into my arsenal. I trade stocks and it's amazing how well following order flow can work with them. Just to clear up one things about the customized indicators that help you follow the order flow. Does that bottom histogram measure the net difference between volume executed at the bid vs. volume at the ask and then represent it either a net positive or negative? Is that all it shows or is there more to it?.