Order Flow Can be Very Clear

 Order Flow Can be Very Clear if you read it like a book. The chart below has arrows pointing to three different oversold areas where I would look for a reversal, yet only one, the third,  did reverse and it clearly gave me the setup to go long there.

 The first one was a possible candidate - it had multiple imbalances, bar closed at max delta and there was an exhaustion print - often good for a setup in the right context, maybe could be taken for an 8 point stop. Second one - rejection of low wick, VA in wick and quite oversold - not enough. The third one was the entry at the close of the third green candle - first candle had exhaustion print with close at max delta, second candle had even more bullish metrics but it was after the VA gap of the third candle that it was a trade. It also was the third push down into oversold.

Waiting for the short to set up

 I just love those Dire Straights! and the technology that really makes us electronic locals.

Whether you trade daytime or nighttime, RTH or ETH, there are great trades out there. Its a matter of choosing a bar type and periodicity that shows the action you want to see and allows for the stops to be the size you want.

Remember, we are trading probabilities. If your back testing shows that your setup is 63% profitable you still do not know when those 37 losing trades out of 100 will occur. The only things you can control is your entries and exits and the amount of RISK you take on each trade. If the math works then you can get to CP,

The Numbers Cannot Lie

 It was a very slow Independence week but none the less there were profits to be made. NinjaTrader has a nice Trade Performance table you can create to see how you really traded. It showed my win rate as around 58% which really surprised me. I thought I was over 80%. I did a little digging and saw that some of the losing trades had been for just 1 tick and were the result of scratching trades but numbers are numbers.

I scratch quite a few trades. I guess this is an inheritance of the time that I spent on the floor when we all scratched a lot of trades. Many of the trades I scratched would have been winners but I scratched them probably because I had been in the trade "too long". Instant gratification is still a big deal and although I am much more patient these days as I get older, I am also more risk averse and believe that a trade can die of old age.

 Anyway, looking at you stats every week or month will help find those areas where you need to focus to change to either get to CP or to earn more.

 

Quick Update

Meeting the challenge of Continuous Profitability in these markets requires a lot of discipline, perhaps even more than before if that is possible.

CP can be achieved by trading one single trade or setup or picture as I like to call it. Added to that all that is needed is the discipline to follow that trding plan and the patience to wait for it to set up.

 I have found that the reopening in ETH has lots of opportunities in the NQ. Add in trading through one of the trader funding companies to take away the fear of loss and CP can be achieved relatively quickly.

 

  

A Plan..... a Plan.....

 The last couple of years have created great opportunities for futures traders. The limiting factor for us has always been the amount of capital we have available to trade and the fear of loss of that capital if we trade lots of contracts.

Top Step Traders started a new industry - the commercialization of funding futures traders. Initially it seemed that the industry was purely designed to profit from futures traders buying the right to prove they were consistently profitable and then failing and paying to try again. That seems to have changed. 

After Top Step we had LeeLoo Trading and more commercialization. The next iteration of trader funding companies was Apex Trader Funding. Apex came to the scene after Darrel Martin, the owner of Apex Investing, became dissatisfied with the rules of LeeLoo Trading who he was using for himself.

The by-product of Apex entering the trader funding business was the crushing of the fees charged for a trader buying the right to prove he was consistently profitable. A plethora of other companies entered the business. I understand that using any of these companies has some risk to the trader. We rely on them wanting and being able to pay our profit share after we have qualifies for an account that promises to give us a share of the profits. For this reason, choosing which trader funding company to go with requires some investigation and due diligence. But even after that we do have some risk of not getting our profit share at some time in the futures even when the funding company has the best of intentions. This is a business risk for us.

Having said that, being able to trade size and only risking a relatively small amount to buy the eval account is a winning deal for us.

So, make a plan. The chart below is one such plan. It uses order flow for entries and has back tested to take profit at 30 ticks in NQ with a stop loss of 45 ticks. The plan calls for stopping trading at a profit of $300 per contract per day and a stop loss of $1,000 per day. These numbers were the result of back testing the plan so the draw down rules of the funding company were not likely to be breached.  Remember, every time you put on a trade you are taking on risk.

The other part of the plan was to open 20 separate accounts with the trader funding company but to only trade about one third of them on any one day so that in the event of catastrophe you are still in the game. As you can see from the chart and pic below There was a profit of about $300 on each of 7 accounts. This is the goal of the plan for each day. As you can also see, there were just 2 trades that happened to be between 88pm and 8.30pm Chicago time and the day was done. With the growth of stock index trading to the Asian time zone it is possible to trade any time zone and still keep a day job until you are ready to go full time. 

As you know, waiting for the right setup can sometimes take a while. Using one of the automation tools such as Shark Indicators Bloodhound and Blackbird can ensure that when that setup occurs you do not miss it. This is what I do.

Order Flow, It Gets Even Better!

 A lifetime ago there was an Abba song we almost sang on the floor: Money, Money, Money, While the Abba girls were looking for a "wealthy man", we, on the floor, were making money, money, money and on our way to being wealthy men if we knew how to exploit the fantastic edge we had on the floor.

The point of saying this is that evolution of the technology we have had since the markets went electronic has resulted in an even playing field for all of us electronic locals. No, we can't compete with the big HFTs but we don't need to. We have our own edge. Our edge is that we can use the latest technology to trade with the agility that trading smaller size allows.

Finally, we can throw away all the indicators we used for entries and exits and rely solely on order flow within the context and market structure we can see using the tools that reveal the playing field we are engaged in. The context I need is to know what sort of day we are in: 

• trending strongly or rotational
• where support and resistance is
• where large players may have business to do
• where the Mean is that I continually revert to and break away from

 Much of this information I get from my Market Profile/ Volume Profile chart. Ths information helps me to know the "where". My trading chart focuses on order flow and the Mean. This tells me the "when". When + Where = Trade

The chart above is a range chart. No great magic. I often use this periodicity as it gets rid of a lot of noise. I could just as easily use a 1 minute chart or a tick chart. The periodicity of a chart is the microscope that best reveals the order flow. Looking at each tick on a chart is helpful to me. I want to know what the order flow is doing and that is not a single tick but a "flow" of ticks. The ticks can come in fast and furious and the numbers on a footprint chart can change so fast that the eye can't absorb that information. The computer can. Each bar and a series of bars can tell me all that I need to know. The software analyses each bar and series of bars and outputs the information I want using the widgets on the main chart division and with the cumulative volume delta in the division below. The volume profile of the current day on the left side of the chart is the same information I get from the separate Market Profile/ Volume Profile chart I also use.

 

I am a discretionary trader but use the technology to help me not miss trades as well as to enable me to trigger a trade faster. That's what I call Hybrid trading. When the correct context reveals itself, I arm the algo and when all the order flow conditions I have programmed happen, Flo shoots off the order. She also places stop and target orders that I then move to places related to my money management and to support and resistance places.

Weekly, on the week-end, I run Flo in playback mode to get an idea of not only how I performed against pure algo but also to help me with stops and targets metrics. The last two days' pure algo results are below.

As I have written many times before, the harder I work the luckier I get. This trading business requires continual monitoring nd re-evaluation to keep on the bleeding edge of performance.

 

Trading the New Normal

 As these index markets continue to evolve I have found that I need to evolve my technology with them. With the higher volatility markets we have been experiencing there is a need for technology to better reveal the order flow. There is a difference between rotational times of a 24 hour period and a trending or one time frame type of time. For this reason I am using four charts to trade instead of two.

I will give an example from today's ES market. My prime context chart is, of course, still a market/volume profile chart.

 

 

MP/VP shows me where I am in the context, support & resistance, and where price is likely to go. The Bookmap chart shows me support and resistance as well as exhaustion, icebergs and spikes.

The shart below is a renko chart to get rid of noise onto which I have added multiple order flow information using NinjaTrader, Gomi and MZ Pack. This chart is excellent in both rotational and one time frame markets.

 

Once I have identified a trending market, the chart below using NinjaTrader, Gomi and MZ Pack keeps me in the trade