Friday, 19 February 2010

Oh My Gosh, the Price Moved

I get a lot of emails, and some comments too, asking questions about "how did I know" or "why...".

Guys, you are trading in a vacuum. Context and envisioning is everything. There is now a huge advantage in being an electronic local or day trader instead of trading from the floor. You get all this information in picture form so you can imagine what can be happening. You can see the bias and the possibilities of the market. You can see that if this happens then that is likely to happen. Then, when price moves and order flow in the form of the VB and CVD shows itself and the range bars do something and if you have MarketDelta and see what is happening with volume at each tick inside the range bar, you make a deduction. If momentum is picking up and you are leaning on support then you can pull the trigger.

The interplay between the two CCIs and the relationship between the two EMAs give an enormous amount of information. The way to learn their language is to look at charts. Look at moves in hindsight and see what commonality exists. Once you see the commonality you can create a setup and backtest it, fine tuning as required. You then "own" the setup and believe.

I have been watching the winter olympics and the one thing in common that all the athletes who are successful have, is they believe. They have worked out their setups, practiced them and then just put it all into practice. The same as in trading.

I have taught Kiki that she can't just sit there until something happens and then decide what to do. You are part of the market and must be part of it completely, thinking and working out what is going on. At the end of my trading day, I'm exhausted. It's not because of laziness that I stop trading by RTH lunchtime. It's because I can't function at the level I need to for any longer.

Here are today's morning trades in the DowEuro50. I traded the ES in the afternoon but have run out of puff so no afternoon charts.

Each Trade is 3 Contracts Exit Types
Date 19-Feb-10
Trade # Points W/L
Trade 1 9.00 Reversal
Trade 2 39.00 3 scales
Trade 3 55.00 3 scales
Trade 4
Trade 5
Trade 6
Trade 7
TOTAL 103.00 1030.00 Euro


  1. Hi Tom and Kiki,

    Thanks for this informative entry.

    I would highly agree that the trader has to be one with the market; ebbing and flowing with the orders.

    Though trading is for the most part an individual sport, I like to think of it also in terms of successful basketball or football (soccer) players - they are always thinking about what I am going to do if I get the ball; where will I pass it to (in what space, not where the individual necessarily is at that moment); what has my opponent done in the past when I've gotten the ball, etc.

    Much like you say, anticipate, react, and manage the trade. It needs to become automatic and I for one, have a long way to go but this blog has certainly helped.

    Best wishes for a restful and enjoyable weekend.

  2. No loser today? Keep care or you miss your 73% win rate, seems more likely to become 95% ;-)


  3. Thanks for another thought provoking post Tom. I'm still a bit confused about how you use context with specific setups. Take your pullback setup you mentioned in your "Setups or Upsets" post. Would you take into account where the pullback started from, the previous days POC for example? Or would the fact that the CDV needs to be green in a pullback long entry mean that the selling from the high hasn't been significant, indicating a weak pullback and likely continuation higher?



  4. I love your blog and there are only a few that I bother reading anymore, but I have a question regarding this statement..."There is now a huge advantage in being an electronic local or day trader..."

    I've heard this before but I wonder who the advantage is over? Everyone has the same tools now and locals are a very small percentage of the daily volume from what I understand due to all of the algos, and they all have handhelds and electronic access anyway now don't they?

    I enjoy trading and I enjoy your blog, but I've never felt that my retail trading tools are anything that everyone else doesn't also have.

  5. Well put.
    Regarding Range Bars, I clearly see the benefits, however the lack of time element is proving a bit hard getting used to. I like to see how long price has been stuck at a certain range. When you started using it, did you ever encounter a bit of difficulty, and how did you get used to it? Thank you for this blog. It has been extremely helpful on my journey towards CP.
    Nick F

  6. 30 years trading, no apparent large draw down and only clipping 3's. I just dont get it, what are you afraid of?

  7. el,

    Great advice on how to view and go about to create our own set ups and trading. In the Olympics, watching Torah Bright taking the Gold for Halfpipe, after she scored very low in the first run, is really inspiring.


  8. In another post I asked you how you determined that 5 ticks was the ideal range bar size. You said testing. Can you elaborate on the type of testing that you performed in order to determine that 5 ticks was the ideal value for your range bars.

    Thanks and have a good weekend.

  9. Marcus, I'll post about this next week.
    Aaron, it's all relevant. Its
    's a picture. Look for pictures that repeat themselves. If it doesn't look like a picture I know or understand, I pass on the trade. That's one of the reasons I say to start with one setup - you only need to look for one picture. I'll post more next week on this.
    clean, your advantage is over the other people who don't use your tools and information. Sadly or gladly, it's 90% of traders.
    Anon 20:06, I don't trade 3 lots but there's no point in showing size when everyone can convert the basic 3 lot trade into their own size. I typically try and scal out 3 times.
    tickvix, yes, I enjoyed Torah's victory too.
    Anon 03:44, We program the basic setup in easylanguage and run it over a couple of years of data and see the results.

  10. Anon 20:16, I don't know which platform you use but there are indicators floating around that measure the time between the bars. Not too hard to program if you have a MD or easylanguage platform.

    MY CHARTS: Sometimes you will see a chart with my settings non standard. I change my settings during trading if I want a more granular look. Typically I change the smoothing on the CVD and then change it back again.

  11. Its funny. In this last blog post I saw something that really stood out but no one is posting about it (its all about the other stuff that doesnt matter like size, indicators, etc..). Tom I was going to ask you about it but you brought it up today in your post so you answered my question. What am I talking about? The key word is "BELIEF." It has taken me many years of reading and thinking about it but "BELIEF" is so key in anything you do. Even if your a brand new trader your "servo mechanism" will find the path to success if you truly believe. If you dont believe, it doesnt matter what you do, the path to success will never be shown to you. Thanks for the blog Tom.


  12. Hello Boss,

    I probably should spend less time looking
    at your charts and just focus on building my
    my own belief structure, however with that being said.

    I have noticed that before you would mostly take trades in the direction of the longer term EMA and CCI. Meaning, if price was above EMA99 you looked for longs. Or CCI45 under 0 shorts, etc. I have noticed lately that does not matter as much. Is this just a part of the teaching evolution? (I did originally have the Kiki evolution but that looked funny,
    Lol. Hope you’re doing something fun, and not playing with that robot.)

    On a different note. Speaking of the Olypics, this was on the good Dr Bretts site a short while back for those that have not seen it. It is a short video about Shaun White and how he would use Sim trading, I mean jumping to build a belief structure before he did it live.

    You Rock,


    Ps You are turning out to be the Shaun White of the web.
    (In a league of your own)

  13. Hi Tom,

    As a UK based trader can i ask which broker you use and how you have found them to be? Thanks.

  14. For all interested Sierra Chart users - maybe there are more than TrueBalance and me - this is an updated electronic local study collection including the footprint style chart, Tom uses now.

  15. timokrates,

    Would it be possible to show a snapshot of your
    chart so if you do not have Sierra and are interested in them may see it?



  16. EL - Thank you and Kiki so much for taking the time to share your thoughts on the web. After reading the entire blog twice w/comments, and watching both webinars, I think it's interesting that most people are so focused on your indicator settings. It's kind of like getting hit by a car and worrying about what kind of tires it had, vs maybe not walking on the highway at night.

    Anyway, I trade a similar chart as you which I am comfortable with, but thought that I would share what my takeways were from your very insightful posts. These are ideas that you presented that resonated with me, in no particular order:

    - Keep it simple and trade one chart (I realized I was looking at WAY too many marekts and timeframes looking for that perfect signal confirmation - and hence actually missing alot of great trades)

    - Don't forget that candles represent order flow and can be very useful for gauging sentiment (added back some key candles like engulfing and piercing and coded them to highlight bars in yellow when coinciding with delta divs)

    - Setups are really just a tool to get into a trade that has a contextual basis (focus more on what the market is telling you, and use the setups to execute against that vs just searching for setups all day long)

    - Location, location, location (similar to above)

    - Use your statistics to improve your trading, not just to track your performance (my biggest issue right now is my exit strategy, or lack thereof, and the way to fix that is to look back at what my trades do time and time again)

    - Trading the market profile should be an ACTIVE process (I realize that I am looking at the profile in a very static manner, and should really focus on learning how to read what it's telling me real-time, and to look back at previous profiles with a much more critical eye, decomposing prior price action)

    Needless to say your blog has inspired me to spend less time tinkering with my layouts, and much more time going back through charts and looking at how price acted around various MP pivots. Market replay is vastly underrated, and to your often repeated point, it will benefit me much more to do this exercise myself, then to simply ask YOU how price trades around VAH. Thanks again for producing one of the most honest and useful trading blogs on the net, and sharing the story of your and Kiki's road to CP!

  17. ...I almost forgot, the other key takeaway I had from your presentations is to really KNOW YOUR INDICATORS (I realize my indicators are fine, but I haven't put nearly enough energy into REALLY understand what they are telling me - they are so much more than just setup highlighters...they are giving you information about what is happening in the market at any given point in time). It was obvious to me from your blog that you really know your tools, and that is probably far more important than the tool itself!

  18. timocrates: I am also using (with trial) Sierra charts and I appreciate the studies being shared. I decided to overlay my CVD line over the VB bars, thereby allowing a wider pane yet still saving some vertical space for the main chart. Market Delta could not do this.

    I like all aspects of Sierra Charts except the TPO charts, which are somewhat primitive and annoying. I started the thread on their forum regarding planned updates (which you just posted to, I believe,) and if they aren't going to make some horizontal scaling changes I think I'll go to Investor RT.

  19. This is for timocrates. I am a sierra user but I can not get this link to work.