Monday, 11 April 2011

I Make the Most profitable Trades When.....

....the markets are out of balance.

There are just two scenarios for trading profitably: catching the breakout as it is happening or reacting to the breakout after the event, either by joining it or fading it.

I guess this is why people find trading difficult. Trying to "predict", I think, is a fool's errand. I might as well just toss a coin.

Different markets have different fingerprints and therefore resolving the above is better done in a way specific to the particular market. That is not to say I use a different methodology but that I apply my techniques to fit the market or the phase that the market is in at the time of the trade.

A market that is in balance has not much opportunity. A market out of balance is where the money is for me.

Typically, I wake up in the morning on London time and look at, say, the ES's overnight action in relation to the RTH close. If the market has come a distance from that close, I then look to identify if order flow is still taking it away from that close or not. I look for support and resistance areas near to where the ES is then. As soon as I am at one of those areas then I am looking for what the order flow is doing, that way I can either join the move or fade it.

I have a natural inclination to fade it, as that's what we did on the floor but I fight it and try to make a proper identification of what's happening. If I can't, and that is sometimes the case as the market is thinner at that time of day, I'll fade the move with a half size at that support or resistance so I can quickly tell when I am wrong. If I'm wrong, I can turn my position around and if I'm right then I make my profit on a smaller size.

The ES today started with a loss and then I got in synch. The Profile was a help, especially after range extension down when I only looked for a short.

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