Thursday, 20 May 2010

Holy Cow Batman

Chaos reigns! These markets are giving great opportunities but traders need to evaluate their risk management plans. As recently as 40 years ago, the French were known to put their francs into gold coins called Napoleons (big rooster on the back if I remember rightly) and bury them in their back yards. I'm thinking whether it's time to buy a shovel.

I have always said that I let the market decide when to exit a trade, both in profit taking and loss taking mode. I also said that I run a drop dead stop that I rarely use as I exit on market context.

As volatility increases, I evaluate whether to take profits more quickly or more slowly, depending on what is happening. It makes life more complicated because if there is a quick fast move of, say, 15 ES handles like there was this morning, it would be a shame to just take 2 points out of it. On the other hand, when the market is chopping around, even in a volatile fashion, taking 2 points out of all the up and down chops can give a nice green end of day.

Monitoring order flow and relative volume can give a lot of information. Do you look at the volume at set times throughout the day (say every 2 hours) to check whether it was a high, low or regular volume day? If not, you are missing a valuable piece of information. Generally, very high or very low volume can create volatility. Low volume volatility is not pleasant to trade and I pack my bags when I see that. On the other hand, high volume volatility is a real pleasure to trade, but adjustments need to be made to meet your risk management rules. Sometimes, adjusting size does it in conjunction with moving your drop dead stop out of the way.

The large range days can be a challenge for context although if there are single prints around they can give you stakes in the ground on the Profile to help. This mornings 15 point drop in the ES was helped by a single print zipper which clued me in to the possibility of the pot hole with just air below. Envisioning the possibilities is a key part of my daily strategy.

Tying this all up to the title of this post, it looks like the 360 million strong Euro zone and China, along with the unsettled U.S. environment, will pull and push markets around vigorously and we should try and take advantage of it while it's here. The usual summer doldrums may have a few tsunamis thrown in.


  1. Hi EL,

    On today's chart, are the signals shown the trades you took? Or are those just the set-ups shown by your software, and then you evaluate them (using context) to determine which ones you actually take?

    Thanks for your great blog.

  2. Do you also use Market Delta for monitoring relative volume?
    Could you show a chart where you have this?

    Thank you.

  3. So say your measuring hourly volume and you notice that its higher than average, would you use this information to play for bigger targets with bigger stops and maybe look to make more inside out trades?

    Also are you using the marketdelta standard+MP package?


  4. Anon 18:35, the big numbers are the trades and the rest are signal markers to alert me.
    Braulio, I just use my brokers quote board with total volume for the day visible. Not scientific.
    Anon 20:04, no hard and fast rule, just adds to the picture.

  5. Hi EL,

    May I know why you did not take the signal "SELL S1" at 15:26?


  6. Hello Boss,

    I do not see trade number 5. I hope it is still not open :oP

    Did you watch the movie Floored?
    Did Kiki watch it?
    Did you smoke cigars like everyone else
    on the floor?


  7. Tom,

    Are the additional lines (Dark Blue, Lime Grn, & Magenta) on your chart more emas?

    many thanks for all you've shared.


  8. Hi,Tom,
    In your last post, you mentioned that "I had a mental image of Sumo wrestling, countering the moves of the market with my own."
    Is this the only way help you keeping a flexible viewpoint of the market when you trade. Do you have a regular procedure to keep a peaceful and balanced mindset?
    Also, in some recent posts, I noticed that you show some understanding of the East Philosophy. Did it have some influence on your methodology?
    I appreciate.


  9. Hi Tom.

    An off topic request. I have been working my way through the blog for a second time, collating the ideas presented, highlighting what appears important and adding notes. I was wondering if it would be possible to post for download the blog following on from the 23rd of Feb. Alternatively if there's a reader of the blog who knows how to do would they please post instructions and i will of course do it myself. I'm finding the "All our posts" format extremely convenient for the purpose.


  10. Rino, I used to love Davidoff cigars. Still love them I guess but don't smoke any more. Ah, such is life.
    Sean, just looking at stuff.
    Jack, it's a continual struggle to maintain concentration.