First Trade of ETH ES Today: a Classic

 The great thing about charts is that patterns keep on repeating themselves. If you discover a high probability picture to trade and just keep trading it you could make a good living off just one setup. Today's trade below is just one of these types of pictures I love. Mike Valtos loves this trade too but for slightly different reasons: https://www.youtube.com/watch?v=kDa3_a4Bezk&t=134s

I took the trade marked "Z". The green and red horizontal lines are my FavFib which you can find elsewhere in this blog. Those lines were put on the chart BEFORE the ETH session started. Apart from the fact that the FavFib was there, the trade was qualified due to its internal order flow characteristics. You can see a similar looking bar at "A" but that bar has different charterisics as you can see from comparing bar markers above and below each bar.

With good risk management, that one trade might make you Done for the Day.

"It's like déjà vu all over again"

"It's like déjà vu all over again", so said Yogi Berra and he was right.

A lot has changed or rather evolved since 1979 when I joined CompuTrac, the then leading futures trading group led by Timothy Slater. The number of futures traders in the world was minute compared to the millions we have today. My co-members were men like George Lane, Marc Chaikin, Walt Bressert and many of the other names you see today on names of of indicators in most trading platforms. CompuTrac’d Prof. Jim Schmit programmed what was the first day trading charting program. We used to run forests of Apple II computers to churn out our charts.

Today, I am told, we have a million users of Ninjatrader and some 10 million using Tradingview with millions more using a countless number of other charting and trading platforms. It seems that the big explosion cam with the so called “prop firms”, a great misnomer as far as I am concerned because they are anything but prop. It all started with Top Step (another misnomer as the top step in a pit was where the brokers stood so they could hand signal orders with their booths - locals were deep in the pit looking up at the brokers). Then Leeloo entered the game. I thought all the prop firms were quite predatory as they are even more now. But on the other hand, you can de risk yourself and get to CP sooner using these companies as long as they pay as promised.

Its interesting that the explosion in these “prop firms” was triggered by the heavy handed behavior of Leeloo. Darrel Martin was a Leeloo customer who had his profits capped after he made $300,000 trading Leeloo evals. He got mad and started Apex Trader Funding and began under cutting the eval prices the others were charging and the rest is history.

Trading “prop firm” eval accounts needs different techniques to trading your own money. Your focus needs to balance the prop firm metrics of draw down, renewal date and consistency within the other constraints (rules) that are also placed on you. Once you pass and have a sim paying account you need to fit a different set of constraints.

My take on how to trade once you have paying sim accounts is to get as many of them as you can and restrict your trades to very high win rate setups that only go for relatively small profits per trade. Trade the accounts in groups so that one catastrophe only impacts no more than, say, 25% of your accounts. There surely will be “catastrophes” whether due to technology or black swans or negligence so a plan is important.

Orderflow in context is what shows exactly what is happening in the market

 I'm seeing a lot of posts on X and videos on YouTube with people "trading order flow" but most seem to be trading indicators that show winning trades some of the time. While I am in favour of indicators that help clarify context, using indicators as the trigger for the trade is trading indicators and is not order flow trading.

The chart below has lots of great information that is more than enough to reveal great trades. Using software to monitor the market gives me preserve energy and not need to to stay in 100% focus all the time. I can take it a step further and have the software trigger the entry and then manage the trade manually. Some algo entered trades will be scratched immediately as I see something that the algo was not prepared for but that's OK. I would rather that than miss a great trade.

 

One Trade and Done for the Day

 Imagine finding one setup that happens at least once every day with a profit of at least 2R and that is profitable over 90% of the time and when it losses it costs 1R.

Then add a trade copier to the chart so you can control both the accounts that the trade goes into as well as the size of each entry taking into account the volatility and the R size you are using.

The end result of this is you can sit in front of your workstation for less than 30 minutes a day and with just one trade you are DFD.

The markets we are experiencing give as more opportunities than I can handle so making this type of change makes a lot of sense. The methodology I am using is that I ave currently at least three setups that meet the criteria I describe in te opening paragraph above. Which one I will use depends on the volatility of the three markets I am currently following at the window I want to trade.

Chart below shows one such trade that appeared at about 7.30pm EST. Both order flow and distance from the mean gave the perfect setup that I have severely back tested for the NQ. I use the MNQ for charting as it has significantly more volume than the NQ. I use my trade copier to switch the 2 lot MNQ order into significantly larger size in NQ. A 6 lot NQ provided a trade profit of almost $1k into each account. DFD.

 

 

Consistent Profitability with Just one Order Flow Trade

 There are myriads of ways traders get to CP. One of these ways could be by finding just one good setup that repeats itself many times a day in the periodicity you prefer to trade.

The chart below is the MNQ 39 Range using Orderflows footprint software. It has a long list of hard wired order flow conditions, each of whican be both alerted and signaled with colored triangles and other objects. You can see some bars have a very large triangle either below or above that bar. The large triangles show Delta Breakouts, one of my favourite metrics. Delta Breakouts are exactly what it says on the box:: there is a price breakout with a large delta.

Now imagine adding some other order flow conditions to a bar that has a delta breakout, say multiple delta imbalances and say a volume metric. You now can trigger a bar with these metrics. The next job is to look how far the bar(s) after your trigger moves and where to put a stop loss - testing. You now have your one setup to learn to trade in your goal to get to CP.

 

Surviving & Prospering in These Volatile Markets

 I think we are in the 17th year of this blog. WOW, how time flies when you are having fun. About 25 years since I came off the floor.

 What has changed a lot is the technology and the numbers. Volumes have exploded. New markets have appeared. Volatility has exploded. I remember trading the SP future - the original one in the very early 1980s. It was worth $250 a point and my target for a trade was half a point. Initially no intra day data and I had my broker on speed dial to make a trade if I was off the floor. Then Jim Schmidt, the original coder for Computrac introduced software to chart (not trade) intra day data through a 300 baud dial up connection. Broker still on speed dial.

The big change came in early 1990s when the German DTB funded electronic only trading through dedicated terminals. I traded Eurex on one of those.

Now we have almost instantaneous connectivity to the markets almost 24/6 and click a mouse to make a trade based on analysis either done by a computer or done in our heads based upon a visualization we have created of the live market on a screen.

Trading has become a lot simpler, not easier.

 To become CP, traders set up a workstation showing fairly detailed order flow information. They can then take a blank piece of paper, select a market, and look for one very repeating pattern with a setup, a trigger and an exit. They then buy a straight to funded account with a so called prop shop (one that actually pays) and if they have done everything right they can earn a living. But still a lot of traders can't get CP :-(

 

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.

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

 

I just love trading in the deep pool with the Algos.

I just love trading in the deep pool with the Algos. They provide the flow and rhythm that helps me make the profitable trades. I do have losers and scratches too but usually its due to a lack of focus or bad read on my part. The information is there for all of us to see.

The pic below is another way of looking at the markets. This a NinjaTrader chart using MZPack's BigTrades add-in. I have found that it really suits me more than Bookmap or Jigsaw. The arrows come from another add-in I have programmed to give me additional order flow metrics. I have tried this chart on more granular settings down to just a few ticks but a 10 tick ES chart is too granular and I lose the context. I find that 30 seconds or 60 seconds provides the best order flow information for me on the ES. For less liquid markets such as NQ, CL and GC, 60 second charts tell me what I need to know. MP is still here for context and bias. Today's high opening and the subsequent selloff to unchanged was a joy.

I just love trading against the algos now. Great liquidity and they do the heavy lifting. Not hard to find where the scalp-able peaks and troughs are. Technology is still evolving and making the markets more even.

Money for Nothing?

 I'm a big fan of Dire Straights and Peter Gabriel so today's title was easy to find. One of my fondest memories is watching Peter Gabriel as guest of Eric Clapton at the Albert Hall in London more than 25 years ago.

The answer to the question in the title is "NO". Making consistent profits trading is definitely not money for nothing. It requires a lot of work and the harder I work the luckier I get 😃

Chart below is a piece of ES just after the RTH open. Huge volatility, even more than lately. Price rocketed upwards and then collapsed. The only way I found to trade these volatile periods is Outside In trades - the old way we all traded as locals and fade the "paper". Its a matter of reading the order flow and fading the paper for a mean reversion. I have my finger on the button and click as I see the reversal beginning. Its easier to know which direction the next trade will be in but catching it when price is still flying out from the mean gives a better trade location and less risk. The medicine for being a bit early is doubling down. But I use context to determine where to trade. I keep my size much smaller in these volatile markets as my stops are very, very far away. Stops are only in case of broadband disconnection. Correct trade management cannot be done from an ATM.

Watch as the aggressive buyers come in after a sell off

 I thought I'd share an example of what the correct tools can show you. This is using MZPack's BigTrades module. The 5 minute NQ chart using NinjaTrader 8 below shows the sellers hitting the bids all the way until the last sellers get trapped short. Aggressive buyers then come in and push prices back up. I'm not suggesting everyone trade from a 5 minute chart - you need to find the periodicity that suits your style and risk tolerance (the bigger the bars the further from price the stops must be) - each periodicity is able to show the order flow.

The Tools Have It!

 I'm really enjoying this extra volatility we have. Lots of opportunity. It's a matter of picking the right market and the right periodicity. There are times when the NQ is too volatile but the ES is good. Traders I know are even switching to the YM to slow the speed. For me, the right bar size seems to be the criteria I look for as the bar size determines my stop loss and risk.

The chart below is the 1 minute ES. I liked it very much this week. I switch between the 1 minute and the 30 second bars. The chart below is a footprint chart with lots of additional information highlighted by colouring and arrows. There are a bunch of different providers of these tools and its a matter of hunting around to find the ones that provide the information you want in the form that you can see it easily in the heat of battle. I use three or four different Ninja add-ins  to get the information I need for my trading plans. I think that finally I have as much or even more order flow visibility than I had in the pit. The main difference is that there are now no order filling brokers that identify the possible origin of the "paper" we are trading against. But perhaps that's a good thing because we can identify both size and probable icebergs as it happens.

There are great tools out there now. Using them is more than well worth the cost if you also learn how to use them. Not hard now. Again, context is very important as is evolving as both markets and tools evolve. Just looking at the chart below shows me the trades jumping out. 😁 I hope you can see them too.

 

Ultimate Context

 As you will know if you have been reading this blog since 2009, I have been using Market Profile now for over 35 years. I was fortunate enough to learn it from Pete Steidlmayer not long after he released it at the CBOT. There has been, in recent years, a tendency to abandon Market Profile in favour of Volume Profile. I believe that this is a mistake. Market Profile provides different information to Volume Profile so perhaps the answer is to use both. The attached pic shows fin-alg's add-n to NinjaTrader and is able to display MP with VP underlayed.

The additional information of MP is a result of the TPOs. For example, today we had a perfect example of what some call a neutral day where there was range extension on BOTH sides of the initial balance in the RTH profile of NQ. Old time users remember the trade where, if the fit of the MP is correct, that when the second range extension on the second side happens and there is still time in the RTH session, you wait for the order flow to show the range extension finishing and then make a trade for price to go back to at least the POC. 

This easy to see on the MP chart as below - much harder on a VP chart without a bar chart set up to show it.  I will never trade without a Market Profile chart.

 

As you can see, the second range extension was down and it found support at the high of the previous days profile. Once the buying started it was simply a matter of going long with it and exiting in stages at the different resistance spots.