Two Trades and Done for the Day in an Hour

Its quite frustrating for traders who can sit down and perfectly mark up a chart with all the profitable entries and exits "in accordance with their trading plan". Yet when they are trading live at the right edge of their chart they cannot find those same entries. 

Why is it so!

 I wrote that with an exclamation mark, not a question mark as I believe I know why this is so. I have been working on this post for a while as an answer to questions I have been asked as the electronic trading evolution marched on.

The short answer to is three fold including:

1. Order flow was not really tracked
2. Context was ignored or not complete 
3. There was not a detailed clear trading plan

Let me clearly say that it is order flw that makes markets move directionally and if you want to be able to consistently track and anticipate the moves then reading order flow is a must. This is what I have been doing for years. Earlier on, before the technology advanced, I had to use indicators as a proxy for the footprints of order flow. No longer. 

My chart today is designed and configured to show me more information about order flow than I had standing in the pit. This is pretty radical as it means that competent order flow reading traders are now the true electronic locals of futures trading. We all can be.

I have been trading since the 1960s and have watched the markets evolve over all those years. I went down to the floor in 1985 as a local trading my own money and really learned how the markets work.

The basics of what moves price has never changed and never will.

If the buyers are more aggressive the price goes up and if the sellers are more aggressive the price goes down. Price keeps on moving until the aggression stops, meets equal opposite aggression or reverses. We do have passive aggression and these are called icebergs.

Now all that sounds real easy to trade. The issue is that you have to be able to see the order flow and see it in a context that allows you to understand what is happening and what is likely to happen for the next x minutes or points.

I started off trading using the seat of my pants - guessing. Once I saw that wasn't going to work I moved to bar charts. From there, I discovered Tim Slater and CompuTrac. This was the start of my road of technical analysis. Then I met Pete Steidlmayer and Market Profile. Market Profile was the beginning of my understanding of context. Order flow without context can be ambiguous. Is a move likely to continue and how far! Then be had Footprint charts from Trevor Harnett of MarketDelta (later improved by various traders, especially Gomi, and ported into platforms such as NinjaTrader). The next development came from Peter Davies of Jigsaw Trading was a very different DOM which then brought us to today: Heatmaps and Iceberg order detection. Then there is MZpack. Probably the most feature rich order flow add-in to NinjaTrader that exists today and which makes available the possible implimentation of all the latest technologies for reading order flow.

Today, I have a more complete view of order flow than I used to have standing in a pit on the floor. So can you. Its a matter of putting together a suite of tools that provides a complex view of order flow within a complete picture of the complex.

 In my next post I will take this much further and provide details of what is needed to be able to trade and follow order flow with the tools I use. In the movie Trading Places, I'm now with the character that believes anyone can be taught to trade. We have the tools: all we need is the right detailed trading plan and the discipline to stick to it.

What to Look for in Order Flow

This exprssion, "order flow" can mean different things to different people. For me, I look for the strength and the direction of the aggressive traders in the context where those trades occur in order to determine whether that order flow will resultin continuation or reversal. The context that I am looking at includes, but is not limited to, support and resistance and Market/Volume Profile information. Looking at a footprint chart and seeing what has traded at the bid and ask is meaningless unless you see both the context and understand what that order flow in that context is telling you. This is what I am teaching to students now. This is, I believe, what traders need to know in order to be consistently profitable in today's and tomorrow's markets.

Two Trades in the First Hour or so

 

 

 

The chart above is a basic order flow chart. The bars are MZpack add-ons and the arrows are from Gomi. The dots on the bars show order flow info I have configured it to show. The green stripes are from Sharkindicators' Bloodhound and highlight areas where I can look for long trend trades. This is all discretionary rule based trading. By "rule based" I mean that there is a detailed trading plan that contains the pictures I want to trade. BTW, I had seen MZpack a while ago but came back to it after a student recently chose it for himself. It's functionality now is very comprehensive and I would recommend it to everyone wanting to trade with order flow.