Thursday, 4 August 2011

Anatomy of a Breakdown

This morning's DAX started the day quite bullish. The Value Area for yesterday was very deep, which means that the market could motor up and down between the VAH and VAL without much support or resistance in between.

My first trade was LONG. Buying kicked in and there was a nice pop. We hit Overbought and I waited for the next long. It didn't setup.

Then the Order Flow turned. It may not have been easily visible, but my Order Flow Indicator showed it very clearly. I ignored any Long pictures due to this context.

The Pressure Change Alert Dots in YELLOW started showing some selling pressure. I only act on the second one, as the first one is just a warning. The market broke nicely and gave some great trades. The ES mirrored these moves but the DAX was much more profitable.

I don't need indicators to see these changes, but had to create them for Flo and I thought I'd show them as an example of what can be created to help you see what "they" are doing more clearly. You can put alerts on them too.

The technology that we have available today is a fantastic tool to use to get to CP. Yes, there are some great seat of the pants traders around. A few are born but most of them are created after years and years of struggling. The learning curve can be reduced to months now with what we have available to us. The Goldmans and HFTs of this world are making fortunes every day using the technology. Private traders can use it too, perhaps not in the same way but in a way to achieve CP relatively quickly. 

Working out a way of capturing the information and then making it into an indicator is easier than trading discretionary. If you have ideas to create an indicator that speaks to you, it's worth putting the effort into it. Each indicator should be providing additional information, not the same info in a different guise. The next step, of course, is to use those indicators in a trading entry strategy after back testing it.

I've been getting lots of emails from people wanting more information and help with algos. I'll be posting about this next week.


  1. I can find all the indicators on your website except the "Order Flow" indicator at the bottom of your chart. Is it on your website? If not, can you post it or share the logic so we can create our own indicator like yours?


  2. Hi,

    This is a very helpful chart. Can you provide the code to the Order Flow indicator and Pressure Change Dots? Thanks

  3. Anon 20:53, these are new indicators that I developed for Flo. Not available anywhere. I'll be writing about them in the blog next week.