Every day I get a number of comments to this blog as well as a host of emails. Many traders searching for CP seem to be caught up in looking at the trees rather than the forest.
I trade order flow and enter positions either leaning against support or resistence or when support or resistence is broken AND momentum is in my favour.
If reading order flow has been a problem, then one way of solving this is what I did with Kiki in the early days: ONLY TRADE OBVIOUS ORDER FLOW and pass on anything that is not 100% obvious. OK, you will miss a lot of trades and your profit per trade will be lower due to late entries but your WINRATE WILL BE HIGHER.
I think you know that for me, winrate is hugely important. Winrate is the centre of my universe because I can build everything on it: average profit per trade and more importantly, I can increase my size to earn what I need.
So when is the order flow obvious? Well, its in the eye of the beholder. For Kiki and me, it's the smoothed Cumulative Volume Delta.
Today's chart is not a trading chart but a chart that I have market up to show a trade that could have been taken when the order flow was "obvious". To get this trade, I first looked for a turn in the order flow from the smoothed CVD. I then qualified the bar for my momentum and support or resistence entry criteria to decide whether it's a trade or not. If not, I wait for the next bar and repeat the process.
If you look at the marked entry bar, you can see the starting point of the analysis is the turned sCVD. Price had come down from a high. The bar before the marked entry bar, where I would have entered this trade as I am aggressive, showed the possibility of a change from BUYERS to SELLERS. The VB already clued me in. So when it was "obvious" that the order flow had turned, I saw it broke the EMA support and the CCI showed the momentum was down. A perfect trade. These major turns in the order flow are forgiving of a later entry as there is so much profit in the trade. These major turn are the ones that make your daily bread if you scale out rather than taking an all in-all out approach. The major turns are characterised by these new highs and lows. If you did your SIM work correctly, you will be able to recognise these easily.
If you look at the marked entry bar, you can see the starting point of the analysis is the turned sCVD. Price had come down from a high. The bar before the marked entry bar, where I would have entered this trade as I am aggressive, showed the possibility of a change from BUYERS to SELLERS. The VB already clued me in. So when it was "obvious" that the order flow had turned, I saw it broke the EMA support and the CCI showed the momentum was down. A perfect trade. These major turns in the order flow are forgiving of a later entry as there is so much profit in the trade. These major turn are the ones that make your daily bread if you scale out rather than taking an all in-all out approach. The major turns are characterised by these new highs and lows. If you did your SIM work correctly, you will be able to recognise these easily.
Tom,
ReplyDeleteI think the dimension we're now missing is the "when" are those technical setups applied?
Based upon your understanding of Market Profile where are the potential reversal areas. Could you add the "when" to look at your technicals.
It would be nice to know when to not even consider the technicals, no matter how perfect the technical setup because perhaps there is no part of a profile to lean on for support / resistance.
Do you also lean on the developing profile? Why not simply use your technicals to help you lean on support and resistance areas easily seen on a bar chart?
Thank you, Cory clmacdougall@yahoo.ca
EL,
ReplyDeleteIs the smoothed CVD a custom indicator? If so, can you please post the RTL script or the logic / formula that you use?
Thanks!
John
Hello Tom,
ReplyDeleteVery informative post, what is not really clear to me, is how you time your entry, or said another way, what is your trigger?
Do you use the short CCI for that?
How do you do this?
Thanks again for your great blog, it is very very helpfull!
Hello Tom,
ReplyDeleteYou said in your post Setups? What setups?, that you look for setups, which have sufficient momentum to reach your first scale, how do you determine that?
Thanks!
Hi Tom,
ReplyDeleteGreat post and what you say is very clear. My one questions is do you also use the Foot Print for order flow or just the smoothed CVD? Also, where do you find the smoothed CVD?
Cheers!
PJ
PJ,
ReplyDeletethe smoothed CVD is a Volume Breakdown Indicator
accumulated and averaged, see Chart Settings under Key Posts.