Wednesday, 30 December 2009

To Market, To Market

Yesterday, I had a question about whether I trade anything else besides the ES and the ET (DowEuro50). It got me thinking back a little as you do at year's end.

I started trading stocks in about 1963 or 1964. I remember trading my first stock, I made about a 20% profit and was hooked for life. Subsequent trades where not all so successful. I rode the gold boom, traded t-bonds after Richard Sandor invented financial futures in about 1982.  I was lucky enough to have the great man in my trading room in London one afternoon. He changed the financial markets for ever.

I traded options before the famous Black-Scholes model was created. We just made up the prices based on time and what we thought might happen. Not very scientific.

A famous firm, Donaldson, Lufkin and Jenrette (DLJ) had a great FX operation where they had a number of banks on their dealing desks and made pretty tight spreads for those days. The IMM currencies were there too but the volume was low. In those early days I loaded my daily data down via modem and had 5 or 6 Apple computers grinding out charts on dot matrix printers all night. I need so many computers because it needed that many to be able to produce the technical analysis charts during the night for the 10 or so markets I was following.

I read an article about Market Profile in about 1983-84, and got the CBOT manual and stayed up all of the first night studying. I knew that I had something important in my hands but could not find a focus. I then met Pete Steidlmayer and sat through a couple of his seminars in the U.S. and London. I went to Jim Dalton's seminar too. I still really hadn't yet worked out how to consistently use MP for short term intra day trading.

I then became a local on LIFFE after seeing an article in the Financial Times about a local called David Kyte, a really great trader and a great guy too. He still runs his own clearing firm in London with Peter Green, another of the world's good people. I had visited the LIFFE floor in about 1983 after it had opened and you could have rolled a bowling ball from one end of the floor to the other without hitting anyone. I didn't think it would take off after seeing the pits in Chicago. My mistake. Three or four years later I was on the floor and there I really learned how order flow moved the markets. The Berlin Wall collapsed, the Germans unified and I was trading up to 2,500 contracts a day. Then the Germans started the DTB and soon the writing was on the wall.

The pits are shrinking and for the last 10 years people have been leaving them and trying to convert their skills into electronic trading. Trading volumes have, except for recent times, been increasing exponentially and new contracts created to meet the new requirements.

I mainly trade stock indices now because that's where the volume and money is for me. Highly liquid markets seem smoother to trade, are less influenced by any one trader, and, most importantly, allow me to scale trades up to the size I want without having to make any other adjustments. I don't trade FX any longer because of the lack of transparency and volume information.


  1. That's a LOT of experience! Thx for the detailed reply. My goal for 2010 is to switch to full-time trading; preferably with a prop firm.

  2. I use Investor RT (Market Delta without the Footprint charts) and found a way to adjust the CDV indicator you use to make it identical to what you had before you made the switch. If you'd like to change it, keep all of your settings the same except under the Volume Breakdown indicator change the "Draw As" from a histogram to "Line, Two Color (U/D)". This changes the indicator from the candles to a line that changes between colors as it slopes up and down. It's much easier to read the smoothed direction of the order flow this way in my opinion.

  3. Hello Boss,

    Dude, it like getting to hang out with a rock star, only in the derivative world.

    With so much road traveled (speaking experience wise) what do you see
    as you stare at the chart on your screen, Is there like a virtual pit in your head
    that your standing in? Do you ask yourself questions? Are you at the point were
    you do not have to think and just react based on concept recognition?

    When you and Kiki sat down for the first time, what was the first conversation you had?

    Since you are a teacher is there homework assignments?

    Your groupie,


  4. Thanks....Enjoy your blog and the posts. I stumbled across MP and it was a revelation. I've been trying to learn as much as possible about it. I've been trading futures full time for a year....still trying to refine my process. Thanks again for your insights. I wasted a lot of time before I knew that much about profile. Hopefully - year 2 will be profitable.

  5. I do not understand how you read the market profile. How can I find more information on this?

  6. First off I wanted to just say thanks for all the time you spend posting on this blog. I've learned a lot from the info. I'm in a similar spot as your daughter, Tired of working for a big corporation and dealing with all the butt kissing to make others rich, I learned my lesson quick as I'm only 20 yrs old. I have spent the last year trading equities/options with only limited success. I have been sim trading futures for the past month or 2 and I find it fits my strengths better. Now for my real question. I am making a indicator similar to your CVD smoothed indicator you have, and I was curious what the period is that you have it set for? Currently I am using a 14 period triangular MA. Thanks

  7. Thanks for the great article and everything Tom.

    All the best for the upcoming sun cycle!

  8. E-Mini Player, looking forward in 2010 to hearing that you met your goal.
    AaronP, thanks, I'll look at that.
    Rino, I ask the question Pete Steidlmayer taught me to ask: what is price trying to do? where is the order flow, buy or sell? Is the market facilitating trade here? The picture tells it all but I keep evaluating every time a candle closes.
    The first thing Kiki was taught was to ask herself the similar question: what is the market trying to do and WHERE is price in the CONTEXT that we are trading.

    Seeing the order flow in the MP context is THE thing for us. You can still make mistakes and not lose money if you understand the context.

    Anonymous, I would start with Dalton's MIND OVER MARKETS. The difficulty is that none of the books really teach you how to trade using Market Profile in your timeframe. This was the problem for me when I learned about MP: how to use it to make money. My webinar might help after you learn the basics.

  9. Dave Spurr, go for it. You will go through a break even phase and then you will know you are very close.
    Mitch, I use a 9 bar smoothing, see the post for Dec 31.