Friday, 5 March 2010

Is the Trend Your Friend

The answer to the question is definitely "YES"! But there are trends and there are trends.

I have stressed the importance to Kiki and everyone reading this blog, including reminders to myself of only trading one time frame. One of the reasons for this is because every timeframe has it's own trend. The daily trend could be down but your 5 tick range bar trend for the time being can be up. The same for any other intraday timeframe.

So for me, the trend is the trend of the chart I am looking at. I have tried the multi-timeframe approach and it only confused me. There are too many conflicting indications and by the time everything lined up, the move was usually over.

The best inside out trades for me are pullbacks in the direction of the trend, leaning on support if possible. Many of the setups are based on this. Everyone can find them with some work.

The starting point is defining the trend. The simplest definition is that the trend is in the direction of the 33EMA. It's a stronger trend if the 99EMA is in the same direction. If the two EMAs are separating then it's stronger still.

If the 45CCI is above or below zero that is another indication. If the 45CCI is going up or coming down through plus or minus 100 that is another. 

Once we have our trend, Kiki and I look for a pullback and then wait for order flow and momentum to resume in the direction of my trend. Bang! We pull the trigger and manage the trade.

These inside out trend trades are the highest percentage trades I have found. Some people just trade to the first logical scale out point, all in and all out, and then look for the next trade. Its a matter of style or risk tolerance. If you shoot for smaller but more certain profits then to earn the same amount your size needs to be greater and therefore the risk per trade (not per contract) is higher. Everything is a trade off. On the other hand, if you scale out of part and can get to breakeven on the rest then you have free exposure, as Pete Steidlmayer called it. For my part, I do a mixture of both depending upon market volatility. If there is reasonable volatility and I read the order flow correctly I can get more than the first scale, risk free.

Next week I will be in Australia on family business and will probably be posting trades of the Hang Seng Futures. I'll have to wear a safety belt because that market is on steroids if it's anything like it was before.

Well, what an anticlimax today was. The market didn't give us too much today. But that's trading. I remember standing in the pit BSing with the guys that the market was dead and we would never make money again. And then all hell broke loose and we were happy again.

Click to enlarge


  1. Repost from 2 days ago. Persistance is good, right? Lol

    Hello Tom,

    Would Tom have taken this trade?
    Having a little problems with pullbacks.


  2. Rocky, No, I wouldn't have taken it as both the EMAs were horizontal, the \vb was flipping up and down - there was no CVD which makes it harder to resd the order flow. And most importantly, the short CCI was above zero so there was no strong downward momentum.

  3. EL, now that I've really started staring at them, the volume / range bars are really really great. It seems as though you can totally see how traders react and what is actually driving the market (i.e. a buying climax, bears selling highs, and then their stops being hit one tick above which starts a new wave upward.) I hope that I am correct in my assumptions, but it tells a bit of a story to me, which makes it a bit more fun :)

  4. On March 4th did you take your first trade at 11:41 or 11:37?

  5. The first trade was into the globex point of control, why didn't you get long the previous bar?

  6. Hi EL,
    (another repost from comments two days ago. march 3. hope you don't mind :) )

    I have a question on Trade 4 (march 3). (Assuming arrows show the trigger bar and you enter at the close or near the close of that bar), I am confused at why you chose to enter on a trigger bar which showed negative VB (it was showing divergence, bar closing positive with negative VB). When compared this with bar at 15:18 (two bars earlier), it seems like it gave stronger signal with bar being green, VB is green and CVD is increasing, CCI's are similar on both bars.
    I appreciate your work and sharing of knowledge. Thanks.

  7. EL: I have found your trade critiques, like for Rocky above, to be very helpful. Particularly any description about specific nuances that the indicators were telling you about the Context which help you to create your picture of what the market is trying to do.

  8. In regards to the trade Rocky posted, Tom would you agree that the buying which came in when price came back from the lower keltner channel would indicate a potential long if it would remain together with momentum at the 33 EMA?

    And Tom, thanks again for your work. For me, it means lot.

    In terms of your post I have to say that I underestimated the role EMAs and Keltners can play as a quick reference for trend and also range. It is something which can be a good criteria for developing setups.

    Have a good time in australia, I'm looking forward to your Hang Seng postings. Did you ever thought about trading FDAX, FTSE or even Crude Oil?

  9. I've just re-read the entire blog (once again) and and I am quite stunned (once again) by your generosity.

    A simple question: do you ever look at time based charts during the day, when a range bar seems to be in it's box like forever? Or are range bar charts the only charts on your screens?

    And by the way - you could get a job writing the article headlines for any paper, any day. Some are priceless.


  10. First, I want to thank you for sharing your trades on your blog. I have noticed in the comments lately that people have been getting a little frustrated trying to decipher your trades. I have been frustrated as well. However, this latest post, especially paragraphs 5-7, has probably been the clearest post regarding a trade set up to date. You have said that giving us your exact setups would not help unless we make them our own. I respectfully disagree. For newbies, it would cut down on the learning curve tremendously. So if you please, be more specific regarding your setups and just exactly what you were looking for, how your indicators lined up, etc.

  11. EL, Your posts are insightful as ever. Thank you very much for sharing your knowledge. I was wondering if you could give some pointers on when you enter a pullback into 33 & 99 EMA and close in direction of prior move as a trend continuation and when you look to trade it as a trend reversal even if 33 and 99 are pointing in the opposite direction.

    Many Thanks

  12. Rocky, i have imported Volume Breakdown into the Tradestation, but it looks like this indicator does not want to work with Range 1.25 9 tick. It shows me straight line at 1 Looking at your image you made it work in Tradestation. CAN YOU HELP?

  13. Hey Tom, looking forward seeing some HSI trades...

  14. EL, what is your reason in trading hang seng futures, over NIKKEI or KOSPI index? Thanks

  15. Tajir, if VB was only because of pullback, I ignor it as long as everything else fits.
    Anon 19:32, Bar close.
    timokrates, broadly, yes.
    TrueBalance, only the one range bar chart. That's the only trend I'm trading. More charts confuse me and make me indecisive.
    Anon, 23:14, I strongly believe that you have to create the setups so you own them, especially in the format of this blog. If I was mentoring someone like I was Kiki and have daily contact and see the trades then some extra guidance may be OK but not at the price of the newbie trader doing the extensive research required. You neither value nor "believe" what you get so easily. In any case, you can reverse engineer the trades and create setups, but you have to do the work to achieve that and that's the idea. Have a look at some of the comments of successful blog readers asking questions that gives some additional nuances to what they have worked out.

  16. Driven,

    I provided the TS indicators that EL is using so I can try to help. You need to set up your chart with Momentum Bars set to 1 tick interval. Not sure what the 9 tick is that you are mentioning. The only chart setting with a 9 should be cumulative volume set to average by that amount. Volume Breakdown has no user inputs...just set up your chart as described above, add the volume breakdown indicator out of the box and you should be good to go. Let me know if you have probelms.


  17. Thank you Mike...looks good, although still deviates from Tom VB. Does your TS chart althoug deviate? Would be nice to see exactly what he sees on the VB undicator.

  18. Hi Tom,

    I hope your visit "down under" allows for some vacation time as well. We have never been there, but have plans to vacation there over the next few years, as long as the Trading Gods are It has been said in the past many times, but I feel compelled to say it here again… Thank You, for sharing your knowledge so unselfishly. In today’s age of a dime a dozen Trading Guru’s out there, all peddling this Indicator, or that Indicator, this Automated System, etc, etc, all at thousands of dollars in cost, with NO proof of CP offered, it’s actually extremely refreshing to see someone want to give back to the trading community, and NOT look to profit from it, since they make their own living from trading, not selling or promoting trading indicators, systems, etc.

    Driven's questions regarding Tradestations (TS) VB being different than yours actually reminded me to ask you the following:

    1.) It has been a while now that you have been using the Foot Print chart style, which to my knowledge Market Delta is really the only credible solution too. Have you had enough time with this now to say anything one way or the other about its usefulness? I have seen at times you mention that it helped you make a decision, but I am thinking more along the lines of has it become a "need to have" now, rather than a nice to have?

    2.) As I am sure you have heard many times before, Market Delta is not an inexpensive charting application. Understood that it's a cost of doing business though, so I have been working on where to move my trading too, since at this time I am a TS user, and it simply will not allow me to trade the way I want to perfect. The use of Market Profile and Order Flow just resonates with me, and I think that is a large part of the battle in figuring out the style of trading that we need to work on being CP with. Driven pointed out that TS VB does not match yours, nor will it ever, including CVB, because of the way TS captures the Bid/Ask data. This along with essentially NO Market Profile capability has made me realize I must move on. Is there a Charting/Data/Brokerage solution that you would recommend if one did not want to, or could not justify at the moment, the cost of Market Delta? I think I read in an earlier post, that you were advising one trader that the OpenECry and Sierra Charts solution is a solid way to go. Is this what you would recommend as your "second choice" to a Market Delta solution? Would this solution, or whatever other one you would recommend be prone to the same “issues” that TS has with portraying VB and CVB correctly?

    3.) With respect to the Market Delta solution, I am curious to hear which data feed and broker you are using with your solution? I am an Infinity brokerage customer, and I do like their customer service, rates, DOM, etc., and it looks like they are potentially a solution here. Do you have any thoughts on any of the brokerage solutions and data providers that Market Delta supports? I have noticed that some provide the data free, well, it's not free, and we know it's buried in the commissions, but you know what I Yet others like E-signal, etc are yet another monthly fee. I do like the replay functionality, something else that TS does not support, so I think some of these data choices within Market Delta allow history to do this, while still others do not. So this has to be a part of the solution scenario as well I guess.

    Tom, thank you for your generosity and your sincerity about what it takes to become a CP professional trader. Not only is Kiki very fortunate to be mentored by you, but we are all Blessed that you have allowed us to be able to come along for the ride as well. Have a wonderful time down under, and I look forward to continuing to learn from you.