Friday, 5 August 2011

1989/ 1990 All Over Again?

There was the Gold and Silver run beginning in 1979. I was down on the LIFFE floor trading the German Bund when the Berlin Wall came down in 1989. Then there was the boom leading up to Y2k. We had a stint of huge volatility in 2008 when the Lehman inspired financial crisis exploded. We now have a transformational change going on that is partly a resolution of the past and partly a transformation of what the future will be - basically the BRICs emergence. Seems these periods of "unusual" activity are getting closer together.

These forces could continue for some time, but then we will return to lower volatility at some point. In the mean time, I'm grabbing opportunity with both hands. Who knows how long it will last.

For me, the greatest opportunity is with the most volatile markets. These are the most difficult to trade, as when volatility increases more than usual it takes more of a move against me for me to know I'm wrong. Also, I am underestimating my targets - there is usually more in a move than I think. Happily I am very short term and am used to re-entry, but re-entry needs to be part of a TP to do consistently profitably.However, there needs to be an adjustment of vision and expectations to accommodate this changed volatility.

If you are in Euroland or are looking for a market to trade in the Euro timezone then the Dow euroStoxx50 is worth looking at. It is as almost as liquid as the ES and trades well. Most brokers offer this market. Here's today's activity. I switched from the DAX for the day as the DAX was a bit too twitchy today.

The chart shows how filtering market action for order flow avoids losing trades. I didn't take trades when my Order Flow indicator didn't allow me to. Also, the Pressure Change Alert did its alerting job and prepared me for Longs. Of Course I needed the Order Flow indicator to allow those trades. Finding ways of qualifying the pullbacks in the direction of the trend using ways of reading the order flow, whether its volume breakdown or footprint delta or something else is a worthwhile activity as it makes a huge difference to the day's P and L. It's a matter of finding ways of making an indicator out of your rules that are derived from observation and back testing. It does take a huge amount of work but it's worth it as you can see.

As I said, I don't need indicators but use them in two ways: to catch my attention when I am looking at several markets at a time and secondly, to program into my FloBot as part of her algo for auto and hybrid trading. For a trader with less screen time the right indicators can make the difference between getting to CP quickly or taking years.


  1. Hi EL, When you say you look for a win rate of 70% in students/trading plan stage before moving on, what is the sample size? 20 days, 20 trades, 100 days, 100 trades, less, more....?



  2. Is your order flow indicator based on cumulative delta (bid/ask)? Or more pure volume based? Or something completely different? Very interesting trend filter.

  3. EL, the comments on your charts are very helpful to see how you were thinking at critical times. Great stuff!


  4. Nick, generally I want to see a month of consistency at each stage. That's a lot of trades for a day trader and is statistically significant.
    Anon 20:53, Not CVD. I'll be posting next week about them.