Friday, 20 April 2012

Climbing the Wall of FavFibs

There is a technique I use when the strength of the order flow shows that there are more pullbacks. I trade from FavFib to FavFib. There are both inside out and outside in trades, but the outside in need to be qualified as a true turning point. I'm using my Ninjatrader charts today. They have come a long way since I was one of the original beta testers when Ray wrote just a front end to trade with through IB.

The FavFib provides a good first target. I exit some or all of my position there. If the order flow looks like it will push through, I try and find a higher FavFib to use as a secondary target. Again, exit strategies depends on the context.

The chart below is the DAX. The opening couple of hours usually provides the best opportunities as the market is out of balance if the overnight has had movement. There are a few extra indicators on the chart today as a reply to some emails from traders who want to see more info. The indicator under the CCIs is the Awesome Oscillator - a simple 5 minus 35 EMA histogram. The one below is a double smoothed Stochastic to catch the cycles. On the bottom is the volume delta but it disappears every time the chart indicators are touched. pity.The bars are Renkos with wicks, called Better Renko in NT speak. These are all available on the web. I am also running a proprietary swing analysis tool whose zig-zags you can see in yellow.


  1. Hi Tom. What's the significance of the red and blue bars v's grey bars? Also, being a market delta user i seem to be slightly obsessed with utilising the bid/ask data within the bar but feel i might be wasting my energy. Do you think there's any edge to be gained from using that data? do you use it or not really? Joe

  2. Joe, for me, the footprints of the orderflow is more evident in the momentum and what happens at critical points. Lots of buying at the bid and selling at the ask. Context rules. So the answer nowadays is "not really".

  3. Hi Tom,
    I have learned a great deal by following your blog, thank you for sharing these insights. I do wonder why you have changed everything about your charts and even the charting package numerous times over the last 12 months? The only profitable day trader I have personally met (who was willing to show me his account statements and his trading style) has not changed anything about his chart in 5 years, possibly longer. I know the markets have changed in increased volatility and less overall volume but the way you change your charts weekly makes me believe you can't possibly be CP every day with this day trading method. I have also been told over and over by some friends that do HFT and work in proprietary trading firms that your method can't possibly work. I have tried to apply your method and incorporated the Market Profile for context and I am still losing every day (in sim). I fully understand your pullback entry logic but perhaps not the logic you use that gives you the overall market context. Any insight on that would be greatly appreciated.

  4. TylerPM, Nothing basic has changed. One chart, identify the trend and trade the pullback. CCIs and EMAs identify the trends and pullbacks. Very simple. We use about 5 or 6 different charting packages here on different PCs. The charts I post can be from any one of them except my trading computer that has only my connection to the VPS on it - no browsing allowed. I have readers who use lots of different charting packages and try and mix up what I post for that reason.

    I'm green most days and so are lots of the people who both learned from the blog and from me directly - tha's what they email me. If you don't think identifying the trend and trading the pullbacks works then it's something that you shouldn't spend time on as without the confidence in your methodology, you won't get to CP. If you do want to continue then you will need to satisfy yourself that what I am doing will work for you. A starting point is to go back to the first post and work through all the psots and charts. That's what the other successful readers have done. Yes, the markets have changed. The volatility is more sporadic but the basis of how to trade them is the same. Identify the trend of one chart and trade the pullbacks in the direction of the trend. The key is to make the maths work and for me that means a high win rate.

    Hve a look at the charts again. Have a look at the entries and how consistent they are.

    Everything is in the blog. There is no secret sauce. It's a matter of confidence and testing. The proof that the methodology works is in the testing. Just take a chart and mark it up. Then all you need to do is learn how to recognise the trades in real time.