Wednesday, 20 August 2014

Evolution and Transition: My New Normal

Market Profile with Footprint Volume Imbalance = Order Flow

-          I have updated what I have on my discretionary charts to take advantage of the latest technology to trade the markets in transition. I recently showed the order flow bars - Volume Imbalance Footprint from MarketDelta. I have taken things further using Volume Profile and the new ideas that Pete Steidlmayer is using in recent updates to Market Profile. Pete has moved on to using volume and order flow in a quite complex series of database interrogations that create a number of charts and spreadsheets he uses to trade intraday and short swings. I have taken that and created a single chart and a legacy Market Profile chart that is more visual and intuitive.

T   Today's pic shows the further development of looking at order flow. I am using MArketDelta for all my discretionary trading as it provides all the information I need in one platform with the best support when I need to chart something new. As you know, I have been using the CCI to see the footprints of order flow for years and years. Now I can see the order flow directly. Win rate is even higher. I am not quite at Pete Steidlmayer's 85% win rate with these new charts but I am confident that with practice I'll achieve that.I made these changes after considerable testing. Leaving a tried and true setup was not easy but when you read the introduction to the book I am writing you will see why.

The Markets Today

The markets have been going through a great transition during the last few years. The transition is still underway. The reason for the transition is:
·         The Pits have all but disappeared which means there are no locals or specialists. This has eliminated the major source of supply to the markets. In the “was”, when a large order came in the locals or specialists took the other side of the trade. They then managed their position to spread it back into the market. This no longer happens and paper now trades with paper creating more volatility if the order is large
·         At the same time, the paper has increased in size. We now have many large hedge fund type customers trading so at the same time as the locals disappeared, the customer size increased dramatically
·         Also, technology is playing a greater part in market activity. The technology provides a cheap and instant access to the markets allowing traders to make more and shorter term trades at a lower cost of entry
All this has resulted in a much more order flow driven market place. While markets were always driven by order flow, the present markets have no intermediaries that dampen or shock absorb the instant activity which therefore results in more relative volatility.
The outcome of this is a much more supply driven market. So we have to trace order flow and supply in order to be Consistently Profitable (CP) in our trading. This means that we need to use technology to capture the information now instantly available and present it to ourselves in a way that enables us to make objective assessments of what is happening and there allowing us to infer what will happen. This means that we need to create a market framework within which to operate so we can see:
·         where there is inventory
·         when accumulation  is taking place
·         when distribution is taking place
·         when accumulation is likely to occur
·         when distribution is likely to occur

Once we have a mechanism for “seeing” this information we can trade CP. The goal of the ebook is to show how I have created this framework and how I identify the conditions I need to make profitable trades.


Here's the MarketDelta chart I now use. It looks a bit busy because of the Volume Imbalance numbers but I only look at that AFTER the trade is on to see how I need to manage it. Pete's mantra is to get the trade on when it fits the plan and then manage it. He's really right as otherwise I get a worse trade location.Trades have a "WHEN" and a "WHERE". This chart plus the Market  Profile chart gives me that. The book will show all. This part of the chart had 7 short trades worth 200 euros each per contract. The decision making was pretty objective, There are two modes: the first hour or so and then the rest of the session.


  1. Hello EL,

    theres something i did not get on this stock index future trading via order flow...isnt it that the dax future is reacting to the dax30 index which is generated through 30 stocks (practically due to the weighting through the biggest 10 stocks), wouldnt it be more approbriate to monitor the order flow of those 10 stocks to get on the track of what is really moving this market?


    Was this before Market Delta?

    1. No Peter. Firstly, the futures leads. Secondly its easy to watch one chart rather than 30. The S&P 500 is comrised of 500 stocks. Not possible to watch 500 components to trade the future. I trade the order flow of the futures. I'll post some Euro and Crude oil futures trades soon. Just trading the order flow.

    2. Hello EL,

      thanks for taking the time...much appriciated...seems there are not much people making a living trading going public on the web the way you did

      Just one last question: it seems that the CCI is still in use as proxy for the order flow when programming the bots, right?



    3. The FloBots are a whole different thing. We need to be able to objectively measure and test in order to have statistics we can rely on for probabilities. Using the CCIs and other indicators is needed to do this. A FloBot may earn 150% a year while a discretionary trader can earn much more than that a month.

  2. Ive been watching the presentations Peter Steidlmayer made at the CME in 2012 and from what i understood, he is basically saying, that today, on the one side, liquidity providing has become highly fluid and on the other side, market participant come into the market more on market orders, with the effect, that price action has become more erratic because it seems that bigger orders from both sides out of nowhere are hitting into the market more often these this the "transition" you are reffering to? from the state of a market with a well filled orderbook absorbing outside orders more easily to a state of a marketplace, where there are only few resting orders in the book far and in between and market orders hitting into the market with prices spiking up and down...

    Excuse my lengthy comment. .(-;

  3. You mention recent updates from Pete Steidlmayer and also his win rate. Is there a website or blog you follow for this?


    1. There are a couple of videos around. Google his name and you'll find them.