Friday, 16 April 2010

Why this Stuff Works

In looking at a methodology, I need to understand the "why". There are so many ways of trading, time frames, "indicators", "Calculations" and so on, that a good understanding of the "why" makes it much easier to be disciplined and focused. It is fundamental for me to have confidence in my methodology because sometimes I go through a draw down period that is hard to sit through. Knowing the "why" makes it possible to trade through those periods.

What I do has three very simple components. Many of you have successfully duplicated what I do through the necessary work. I don't answer detailed questions about all the setups and things as I believe that unless you work them out by reverse engineering the trades shown in the blog, you will never "own" the methodology and have the confidence in it that is necessary to become CP.

The three legs to my stool are Support and Resistance, Order Flow and Money Management.

Support and Resistance can be a very subjective thing. Some work sometimes and some don't. Having a lot of them is only confusing and makes me lose confidence in them. For this reason, I only use the EMAs and the Market Profile for Support and Resistance.

When I am at such a Support and Resistance, I examine the Order Flow - it's direction and strength. Will it hold or break?

Finally, my money management strategy. I put a multi-contract position on. I have no idea how far the trade will go, so I begin taking profits at logical scale out points. If I see evidence that the order flow has run out of steam, I exit the trade in full.

This has proven to be the way that suits me as it provides a high win rate and the possibility to profit from larger moves.

Early post today and no chart because Mrs. EL and I are off to Amsterdam on a horticultural expedition................... to visit the Keukenhof Tulip Festival. The computers will be churning all weekend under Kiki's supervision ready for Monday's live real money test start, I hope.


  1. Are there still tulip bulbs which sell for thousands?
    Enjoy the festival!


  2. Just came across your blog recently, and I'm really enjoying the back reading. Thanks for sharing. P.S. Good luck with FloBot.

  3. EL
    Thanks for everithing....
    One question, What time are you using to setup the MP for Euro(6E)? What time is your first TPO?


  4. Looking forward to Monday! I may have to go check out the tulips here in Wash. State...

  5. Tom,

    Why do you think that the EMA's can be support or resistance? I understand that it works for you, but do you have an opinion as to why? Because of the range bars, it makes sense that a 33 EMA can be the center of value, but it doesn't make sense to me that it can be support or resistance.

  6. Just found your blog. Great stuff and can't wait to hear more about your automated system. I specialize in trading the ES e-mini and would love to see your system in action.

  7. Doug, I'm also trying to find the best way to split the 6E profiles.

    When I asked Tom, he answered that he looks for breakouts from balance. I think that is where his advanced MP knowledge kicks in.

    I have to say that at the moment I split them sessionwise, means: Asian, European and the US (New York). This is the best I found so far to locate interesting levels.

    It would be great, if Tom could elaborate a bit on this topic. Maybe also about MP in general and what maybe specific shapes tell him etc.

  8. Miss Flobot,

    May I ask out of the 18 setups that Tom
    and Kiki have, how many do they have you programed to look for at this point?



  9. Aloha EL...
    Hope you had a nice visit to see the tulips, and were not troubled by the volcanic ash travel delays. Looking forward to seeing how the live test start this coming week!


  10. Hi
    what do you thnink why works very good break of EMA33 pattern ??

  11. RoachApproach, Tulips were wonderfully colorful. Little cheaper now than during the Tulipcraze, the first futures bubble.
    AaronP, don't know but they sure are good S&R
    timikrates, see tomorrow's blog
    Rocky, FloBot in it's latest version is more short term than my discretionary trading.
    pgeesey, we drove under the English Channel
    Anon 10:56, 33EMA is good S&R