Thursday, 11 March 2010

Down the Yellow Brick Road to CP Part 2

After looking at the markets for a couple of days from the Oz point of view, I remembered again why I left here in the early 1980's to trade the U.S. markets from Europe.

For me, it's just a lot easier to make money trading the U.S.and European markets which are more mature and have higher volume. Asia is still the tail and it's not wagging the dog. China is a powerhouse that will eventually show its strength but not yet. The consumers here don't have the same strength as the U.S. and European consumers and it's the consumer who rules. It's not that you can't make money in Asian markets because you can, and lots of it. It's just that I don't think I would make as much as I consistently do back in the Euro/ U.S. world. Even on a quiet day back there I can usually make my minimum without really taking on much extra risk. That's not the case in Asian markets. When it gets quieter in Asia you have to take on considerably more risk to make yout daily nut. But if it's your only game in town then you need to set your risk/reward parameters in your trading plan and trade accordingly. I think that it just means that for every dollar of capital you will earn less here than in Euro or US land. I guess its also the style of the markets.

You then need to firm up your setups. You can do this in either of at least two ways: You can create them from scratch after doing all the reading and looking at my trades, or, you can reverse engineer my trades.

To do the reverse engineering, print out all the charts and then sort and mark the trades that have a lot in common. I would look for as many trades as I could find and categorise them in a broad way. Then go over each winning trade and look what happened when the entry was made. Once you have done this on 40 or 50 trades you will come to a conclusion on what makes a good entry. Write this down for each type of trade, separately for longs and shorts. You now have a basic setup.

Next, SIM trade the setups using the first logical scale out point for an all out exit. You will then probably see that your "rules" need tweaking. Make those changes and test them again in SIM, Keep doing this until you are happy with the result. Being happy with the result means that you can go over a chart and with HINDSIGHT you ARE CONSISTENTLY PROFITABLE using your rules.

Now, you need to develop that "muscle memory" in SIM using replay, very slow at first. Painfully slow, bar by bar. Then go to normal speed or faster. When you are CP on replay you can graduate yourself to real time SIM. This is where you perfect your skills at reading what is going on. This will not be a short process. Keep going until you are CP.

Todays Hang Seng trades had a bit more volatility and follow through. That lunchtime break is not my favourite thing.

click to enlarge


  1. EL
    problem is that in new charts you entered according "volume profile" bars in MD soft and in old charts clasic 5 ticks bars. So conditions for entry may be different,you said that if you didnt see inside of bar volume you didnt entry to some trades,so I think entry conditions ( ema cci mdot ...)are not same.I hope undestand.

  2. EL, when will you be back trading es or notating es? really would love to compare notes..i think at this point we all want to ask for one full day(USA) of es session with notations...why you have bought/sold....just entries to go alone with yellow brick road..

  3. Anon 10:42, nothing has changed except I can enter more aggresively, maybe 1 bar earlier.
    driven, I'm back to the ES now. See next Monday's post.

  4. Great idea of a chat room. I would definitely be like to be a part of it as well. Count me in.

    As of this moment, I am walking down the yellow brick road as directed by EL. Look forward to Monday's post......Ken

  5. Hi, This is a request to anyone using Ensign Windows: Has anyone managed to get a similar Cum Volume Delta set up, perhaps using the Design Your Own functionality? I have a simple Ask-Bid averaged over 33 bars, but it is not as smooth as the one EL uses, and only gives signals for change of direction on the close meaning I miss loads of trades, or too late.

    PS - EL, praying for your son.