Wednesday, 13 January 2010

That's the Point

There were a couple of interesting comments yesterday:

tickvix said...
Tom, I have gone thru most of the blog, but I may have missed the criteria you use for entries. Do you have specific criteria you look for in delta, cumdelta, keltner, cci, mom dots, and MA when entering trades at the S/R levels? Do you look at all of the indicators or a subset to line up? Can't wait until the webinar!!!

Severino said...

Hello Boss, I am glad there is only 2 days left until the webinar, because truth be told, today’s post completely threw me for a loop. How do you program context? You can program conditions, such as relationship to MA’s and if long CCI is under 0 and short CCI crossing 0 from above, etc. But how do you program order flow Or MP zones or...? Not sure how anyone would program it with TradeStation. They don't even have a way to allow VB on a range chart. (Actually in TradeStation what you use are called momentum bars). Kiki rocks, Rino

Nowhere in the blog have I set out my exact criteria for entering a trade. What I have done is show you the tools that I have taught Kiki to use - MP, Range Bars and various "indicators" that show me the order flow and momentum within the context I am trading in. I have then shown the trades that result from my processing the information that I get from this information, exact entries. What Kiki had to do (an assisted version admittedly, because she had me as a mentor)and what blog readers are doing is to reverse engineer a systematic approach from the entries using the tools provided. This way, you are all making the methodology your own. You see what works and what doesn't work. You back test and walk forward. In essence, you do what you need to do to believe. This is a critical part of becoming consistently profitable.

Anyone doing any extreme sports for example, may first experience the sport handheld by an instructor. But once we start doing the sport we take responsibility and check everything - our environemnet, weather and equipment so that when we dive deep into the ocean, we know that we are safe and can properly access risk. We need to be supremely confident in what we do. Not arrogantly trading without a plan but confident that we know what to expect and can manage the risk for an expected outcome. So no, I haven't provided "rules".

As far as autotrading goes, yes, its a big ask. Again, the way we are going about it is to identify the entry we are trying to automate and then add the filters, layer by layer. The context is more difficult as it can be more subjective but it is an additional layer. As a first stage (and perhaps as a final stage) we will only  part automate. We may only automate entries that put us into the market and then have to look at the trade in progress to decide whether to stay with it or to exit because the context is wrong. Of course the automation will also provide the drop dead stop loss with the entry. Pete Steidlmayer always told me that you have to get a trade on and then manage it. As long as this can be done making a tick, I don't mind as it will take care of the hard part - finding the trades and pulling the trigger quickly enough. The failure rate in trading as I have said before is, I think, not a function of just not finding good setups.

People fail in this business mainly because they don't have the discipline to follow a trading plan and hesitate when a trade presents itself, hoping to avoid a loser. By even part automation, we will be able to enforce discipline and cover more markets at the same time while ensuring that the entries take place at the correct trade locations. I'll make a few more comments about this at the webinar as we are getting a lot of email questions.

Some nice Euro FX trades today. The more I think about automating entries the more I like it. Volatility in markets come and go day to day. When I was in the pit we'd stand there all day waiting. Most traders on the floor trade the same market every day. They don't move or change pits. Trading electronically, we need to leverage every advantage there is. Now, Kiki and I can watch 2 to 4 markets because there are two of us. Often, we can and have missed the first trade because we were watching something else. With the computer watching, we will be in the market. Maybe a mix of science and art will provide bigger profits.


  1. Thanks for all that you do EL. Your blog and advice have really helped me to turn the corner in my trading. Quick you use a two range bar (18 tick) hard stop on the Euro and is your first exit at 18 ticks profit?

  2. Great post!

    Question in reference to your first answer and to the webinar. Will you be discussing in your webinar what role the CCI plays in your decision making? I don't really understand from your posts what the CCI tells you?

    I am extremely familiar with Delta (VB) and Market Profile. I have never used CCI and all I know about it is that some nutty guy named Woodie has a bunch of trades with silly names based on the CCI. :-)

    Alternatively, if this is not part of the webinar, could you direct me to a resource online that explains what is "in" your CCI?

    Thank you!

  3. Guys, I'll cover this in the webinar

  4. In my experience I have to admit that it is just as easy to mess with, override, or generally play around with a fully automated trading system as compared to a discretionary one. It's the system between the ears that needs adjusting.

  5. bakrob99, if someone wants to deliberately fail that's easy to do but with automated entry the step the trader has to take is an exit. If the trade is good then by the time the trader messes with the trade, it should be in profit already and hopefully it will only be the first scale out. I am convinced that if it is possible to program all the nuances then it will be a hugely positive step for Kiki and me to ensure that we are there when the right setups occur in any one of many markets we could follow at the same time. Having said that, I completely agree with you that the problem is ourselves.