Where should I exit using orderflow?

 One of the many trading challenges I had and still have to an extent is to choose an exit. This has become even more important than just leaving a lot of money on the table since a lot of traders are trading through the so called prop shops where there is a trailing draw down. You can blow an account with a trailing draw down if you are making profit but are continually exit after the price pulls back from a peak profit.

One tool I use is the info I can get from the order flow on a footprint chart.

 The chart below shows a trade I took today near the beginning of the European session for NQ. The bars are renkos to get rid of some noise and to give a little more smoothness than range bars. 

If you look at the bar that the left red arrow is pointing to, you can look down and see that the bar had an extremely high volume in comparison with the previous bars. The other feature of that bar that is important is that the POC of the bar is in the wick. So we have a high volume bar with what must be a high volume POC. Now when you look at the right arrow pointing to the down bar that ended that swing, you can see that the bar touched the POC of the bar I have just described and that the POC stopped the up move. So watching my long position as it came up to that level it was clear that the POC was stopping the up move. You could play it a number of ways depending on what was important for you and your trading style: get out so the trailing drawdown is not invoked with the idea to re-enter if the POC broke, or if you held multiple lots you could scale out of some here hoping for the POC to break and trade it up to one of the bands above.

 

 

Reading the Flow - sometimes a little more noise is good.

 The key to profitable trading hasn't changed - its the order flow but sometimes a little noise is good. 

The markets continuously evolve and change their rhythms but following the order flow is how we can tame them. Sometimes we need to get rid of the noise by using range or renko bars but othertimes we need time bars or volume bars. As always, context is what makes the order flow readable. The chart below gives me information per bar from the markers generated from the footprint bars as well as for groups of bars as seen in the volume profiles. The NQs need more bar type changes due to the speed and slowing they undergo in each 24 hour period. All I am tryingto do is read the market and when I can't, I make bar changes.

 

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.