Thursday, 21 October 2010

Choosing a market to trade

Firstly, thank you everyone for all the comments and e-mails regarding Nick. I really do appreciate each and every one.

Tomorrow, we are heading to Chicago for the MarketDelta seminar. We have a nice group, and I am confident that the participants will look at the market in a different way after the seminar.

There are hundreds of futures markets in exchanges all over the world. They all seem to get business, some more than others.

As traders, we somehow choose a market to trade. How do we make that decision? Which market do we trade? Is it an emotional decision? Is it a decision that is made because the trader believes he "knows" something about that particular market? Does "knowing" a market make it more profitable for a trader to trade it?

Lots of questions.

For me "knowing" a market is the least important criteria. The "knowing" does not have a trend. It cannot be easily timed. I want to look at the volatility in the market during the times that I would be trading it. I also want to see the volume during those times. I want to see that the bid v ask spread is tight and that the size of the bid and ask is enough to accommodate my orders without slippage. This is very specific technical information.

The next thing I want to look at is how it trades. Is it smooth or is it always choppy?

Once I have decided that a specific market passes these tests, I need to watch it trade and learn it's "fingerprint". I then have to find the matching range bar value that has the least overlapping bars and shows the vertical movement of the market in its smallest range bar value. This is so I can see changes in activity as soon as possible for both entries and exits.

The next issue is whether the current type of activity will be lasting. Can I trade this market for years, so I don't have to go through the same process again? Is it seasonal?

None of these criteria take into account whether I "like" the underlying of the future I am proposing to trade.

The market I want to trade is the one that I can use to make the most money.


  1. Hi EL
    thanks for post
    what do you think will work your methods of trading after 3-5 years in ES market ???

  2. Hi EL,

    I have not read your blog for a couple of days and was not able to respond to the good news of your son! Best congratulations from my side, too!!


  3. Anon 19:18, I trade order flow. It has to work forever because that's the basis of every market.

  4. Very interesting issue, can you elaborate more (maybe with some examples and pics like what is "smooth" and "choppy" to you, and the process of finding the right range bar). Thx!