Wednesday, 27 January 2010

Is it me or the Context

I'm writing more on this subject as I am getting mails and comments saying that it's helpful.

If you get the context right, you can get the timing wrong and still make money.

A  good example is yesterday's comment about why I didn't take the trade a few bars before the Trade 3. I said that if you had taken the trade it would not have really mattered as you would not have been stopped out.

This is true of many setups. It takes a lot of experience to make "perfect" judgments in the heat of battle when you don't have a lot of time to make that decision. So what do you do until you get enough experience? Well, you use range bars to slow the action down. In addition to revealing vertical development, range bars also get rid of the horizontal development which is what I want. In doing that, it gives me more time to make a decision. Also, it makes timing more forgiving if the Context or as Rino so eloquently puts it in a comment ( the interrelated conditions in which something exists or occurs) is right.

The big caveat for all of this - just getting the trade on and managing it. Using whatever methodology you use, that you have back-tested, to prove that it is profitable and that it's other stats not only meet your requirements, but that you are immediately aware of the possible and probable maths of your methodology.

For about 30 years I have been using a  computer to test my ideas. During that time the technology has moved ahead dramatically and the costs are lower. I take advantage of that and back test and forward walk everything I can. Sometimes I need to use the computer as well as eyeballing as I cannot program some of the context and nuances I use. But if the setup works well enough without the nuances, I know that it will work better in real time as I will manage and filter the trades within the context I am trading in.

The ES is in paralysis waiting for Godot (= the Fed).


  1. Hello,
    I have a question about your cummulative delta. From what I've been able to see in your posted charts it appears that many times your trades\entries will be opposite to what the direction of cumm. delta is. I'm wondering how you are using it and what info you're looking for. I understand from following your blog that everything on your chart is very important in your decision making, yet this is one part that doesn't consistently seem to be a part of the trade decision.
    I would also like to say I found yesterday's blog post to be one of the best yet, particularly the way you described the sequence of trades at the RTH open. Thank you very much for all your work in sharing this.

  2. Hi,

    Fist of all thanks for this great blog and all your sharing!

    at 16:19:29 we had a long @ 1086.50 (if im correct...) i was thinking that we had some room to Yesterdays val @1090.50. We had already 1090.50 high.

    But trade didnt get far.
    Was it a valid trade? was context correct?



  3. Hi Tom,

    Yesterday you said, "I enter on close of bar." My question is: HOW do you enter? (a) Market order? (b) Limit Order? (c) Stop Order? (d) Some other type of order?

    Thanks again for your excellent website. It's the best trading site on the web.

  4. Great post. I have taken a serious interest in your blog, and have been and will continue till I am finished, reading and disecting every single one of your posts and webinars. I am a heavy proponent of the profile and volume analysis, and have had trouble lately correctly executing my ideas in real time. I decided to look outwards and see if I could find anything that would help with my in the moment tactics and execution, and I found your way of viewing the market through range bars and delta, with other "indicators" essentially to give you an in the moment view of how order flow was coming in especially helpful for my trading. I have now have a defined reason to execute and manage risk more approaprately with your set up. What I have found most rewarding in regards to your work and learning how to understand and execute off your methodology was extensive screen time. Screen time which, I have been not getting because I have been mismanaging my risk and hitting my limit for the day and just discontinuing trading for the day. I decided to trade through any limit I hit and switch to simulation and trade the entirety of the day to begin to get back my feel for the markets, which I felt I have lost in the past couple of months. After the market was closed I continued my deliberate practice by downloading as much tick data as possible and running market replay in market delta at various replay speeds. It was almost an awakening for me when I started to do this again with your methodology and my profile analysis. After one has done extensive replay and extensive work with any methodology, one begins to develop a feel for the patterns and begins to anticipate the various scenarios that can occur. The more one does the better one becomes. The more focused the practice and the more detailed the records kept in trade logs and chart books the more intuitive one will become in their trading in real time. For a while, I forgot this and thought I could intellectualize my way out of the rut I was having by doing more work and reading more and overworking myself more. But none of it was actually trading. Just like a batter who has been in a slump doesn't just stop taking batting practice or work less with his hitting coach, so should a trader who is in a rut not stop trading, but actually trade more till one develops an intuitive feel for the market and the order flow. I have only just begun to scour through your blog, I am using this saturday to focus solely on market replay, deliberate practice, and reading, screen capturing as much insight I can get from this blog. Thank you.

    - Matthew Fahmie

  5. Bill, the CVD is a lagging indicator and at turns I don't put much emphasis on it except where it is in relation to previous peaks & troughs of volume.
    Otto, I would not have taken that trade as you you were near the top of the developing VA which was resistence.
    Anon, either limit or stop limit entry.
    Matt, I'm glad I helped. To me its all about the structure/context and trading the flow within that.

  6. Thanks for your informative blog.

    In cases of big announcements like Fed rate on Wed, do you typically stand aside at report time, or do you use your method(s) to take trades?

  7. EL .. you say you go in on the close of the bar. But how can you know where the bar closes? You don't know it until you see next bar and sometimes market just goes in the direction of the new bar. Please clarify. Thanks for great blog. Thomas

  8. Hi Anon, it's a range bar once the range is in it just has to close normally, not as a hammer. If it's a 5 tick range bar and its traded 5 ticks and offered with the bar in the direction of the proposed trade, I just buy it at the 5th tic offer. Rarely, I get stuffed but then I would have been in a loser anyway.

  9. But still it can trade 5th tick and turn and go opposite direction. That is my problem. I want to see next bar to make sure the bar is closed and often will not get the price of the high or low of the bar. Thanks

  10. Hi
    yes I have same problem as Anonymous , very often happen that entry executed but new bar did not start , and if wait for starting new bar entry is sometimes 1-2 tick late. It is bad software ????

  11. Anon, Paul, I don't wait to be that sure. If everything else is OK, I will enter as soon as the range is complete. If I wait until a new bar it will usually cost, as you said, and over a year that's heaps. Also, and most importantly, if you enter late and get a worse price but still maintain the same stop loss point, your risk is bigger. If you use the same number of points but from your worse entry then you will probably get stopped out of a good trade. Aggressive entry works best for me.

  12. EL
    yes, clear, nice thank you