Friday, 9 April 2010

Trade 100 times a day, Drive a Porsche

Lots of us really like trading the ES because of it's deep liquidity. When volatility drops off it makes it a less rewarding market to trade and also makes it frustrating for those of us that can only watch one market at a time.

There is a converse to waiting for the best opportunity and then hitting it with size, once a day. Its one of the buzz words of today - HFT (High Frequency Trading)- and its another way of trading. It requires less discipline in one way but needs different qualities, some of them technical and some of them managerial.

I get many comments and emails about the difficulty of focusing - its my main problem and the main problem for Kiki too. This was the last comment that asked about the focusing problem:

Anonymous said...
Looking at your chart seems so obvious entry points. But I know that is in hind sight. Doing it live is still a challenge as these opportunities come and go. I guess I get distracted a lot due to twitter/emails/internet browsing. I am not focused enough. Any advice

My reply was:
Anon 0:47, Turn it all off except the music or switch to autotrading.

This was a trite but true suggestion as many of us are not capable of focusing intensely for long periods of time. I found it much easier when I was in the pit as there were fewer distractions. Technology has moved forward enough that the price of autotrading is within any trader's budget now. Maybe it's the answer for many of the people reading this blog.
Kiki and I have been working on this for a while as you know. The FloBot project has been going in the HFT direction. MarketDelta has not completed the final version of this functionality so we are using MultiCharts and upticks-downticks. We are still in the testing phase with a few technical issues still to fix - our logic engine is fine as you can see from the statistics in the screenshot below.

There is about a year's data being tested so statistically it should be good. However, there is one point to note: stops and targets should be changed when there are major changes in volatility, preferably from within the algorithm.

As you can see, there are lots of trades. Commissions in the simulation are $4 round trip and there is no slippage allowed for, as the model enters on limit orders and takes very small profits. This means that in live trading some trades will be missed - all winning trades - if there is no overlap between the range bars. How many trades will be missed and how it will impact profitability in live trading is unknown. This is one of the deficiencies of back testing that could be mitigated but not with certainty.

A thing to note here is that with autotrading you have to take the good with the bad. You get sideways choppy markets and most autotrading systems will be paying back profits to the market. There needs to be enough logic in the system to keep you out of most of the chop. But there is a price for this too. When the market takes off, you can be left on the sidelines.

Between the one trade per day as in yesterday's post and the 100 trades a day (slight exaggeration here) with autotrading, you have the discretionary trader which this blog is mostly about. How we use this discretion is what makes us CP. Its a harder road as we can all testify, but definitely an interesting one.

Today's Euro FX chart had lots of good trades and lots of chop too. When the EMAs are horizontal, it's chop. How do you trade this? Wait for the market to break out of the chop range. The price is a late entry but chop is often a coiled spring which will take the market a good distance as it has caught a lot of people who have to scramble to cover their positions.


  1. Tom,

    could you give some ideas, on how to identify chop, and how to change thinking or how to behave when markets get choppy


  2. Hello Tom,

    What do you use as trigger, when the chop zone is left?

  3. Absolutely Beautiful Tom! You know how much I like it when you trade 6E...have a great weekend and thanks for your help!!

  4. Tom,

    I really appreciate your blog and it helped me a lot so far.
    I am a little confused about some things I read in the blog.
    In the post: I wear my trades inside out, you said you trade through with inside out setups,
    in the post: I love food not chops, you said if the EMAs are horizontal you trade the channel, in the post: A new suit, you said days like this have to be traded outside in.
    I understand, that every day has certain nuances and the setups have to fit this,
    but it whould be really nice, if you could clarify this a bit.

    Thanks for your great work!

  5. It seems like volume delta and especially delta divergence trading is less effective on the 6E. Does that fit with your obvservations?

  6. Jefe is working on everyone to trade the 6E ;)

  7. CHOP, I'll try and post Sunday about this, if not then on Monday.

    Anon 21:42, It's not about a single indicator, It's about the picture as a whole. Delta Divergence BY ITSELF is not enough. I traded the 6E all day yesterday and had a great day using what you read in the blog. I'll use a 6E chart in the CHOP post that's coming.

  8. Hi Tom,

    I know win percentage is very important to your trading philosophy. For the strategy performance data you posted, could you tell us the total number of trades and win percentage?

    Many thanks for your great blog.

  9. I have read through the blog a couple of times, but am still a little confused on the feed needed to work the volume bars properly. I do not trade now but would like to SIM to figure out if I could do this profitably. Do you need a feed to SIM trade? I was thinking of getting IB and either Market Delta or Sierra charts for the SIM. Would anyone have thoughts if this would work? Also there was mention of an chat room or mentor group, Driven and Tickvix a couple of names looking at this. Was this formed and are there people using this? Thanks for any answers, great blog