Charts
sample 1
http://screencast.com/t/ZjY1ZWE2Y
Sunday, April 25, 2010
Wednesday, January 27, 2010
an edge
Christopher Columbus showed that the world was not flat and he didn't sail over the edge.
Well, I do have an edge. How do I know? Firstly, my trades are consistently profitable and secondly, what I do works in all liquid markets where I can get the information I need to see the order flow.
Today I am posting some extra charts of non index futures markets, the Euro FX and the Bund. By coincidence, at the present time both these markets work for me with 5 tick range bars.
Why should I care if I'm doing fine with the markets I am trading? Well, I was chatting with Kiki about trading from Australia or from Tokyo (she has a huge interest in everything Japanese). I did trade from Oz for a few months in 2003, when the Hang Seng future was the main tradable market. Now, there is the Euro FX, Kospi, Nifty and others. Kiki wants to travel and trade. So an edge is an edge is an edge.
Let me note here that if volatility changes substantially, the methodology will not change but I may change from the 5 ticks range and my stop loss and first scale out would then change too. I know the next question is: how do you know that you have the change? The short answer is: when you see the increased volatility has arrived. The longer answer is for another day.
gb
Well, I do have an edge. How do I know? Firstly, my trades are consistently profitable and secondly, what I do works in all liquid markets where I can get the information I need to see the order flow.
Today I am posting some extra charts of non index futures markets, the Euro FX and the Bund. By coincidence, at the present time both these markets work for me with 5 tick range bars.
Why should I care if I'm doing fine with the markets I am trading? Well, I was chatting with Kiki about trading from Australia or from Tokyo (she has a huge interest in everything Japanese). I did trade from Oz for a few months in 2003, when the Hang Seng future was the main tradable market. Now, there is the Euro FX, Kospi, Nifty and others. Kiki wants to travel and trade. So an edge is an edge is an edge.
Let me note here that if volatility changes substantially, the methodology will not change but I may change from the 5 ticks range and my stop loss and first scale out would then change too. I know the next question is: how do you know that you have the change? The short answer is: when you see the increased volatility has arrived. The longer answer is for another day.
gb
Measureing order flow AND trading it
Whether "THEY" are buying or selling is critical to market direction, for the next bar or for the next sequence. Data feeds now contain the information required to harness this information.
I use two main tools for this. The first one looks at each bar by bar and calculates whether trades take place at the bid price or the ask, and how much. Sellers hitting the bid in size has a greater impact on price than a passive seller offering at the ask, even in size. If there is such a passive seller, then the market usually front runs the order by hitting the bids.
The second tool looks at the cumulative effect of the first tool and also smooths it with an average.
These are the last two indicators on my charts. Looking what is happening as the order flow is revealed provides a great edge over the other electronic traders. Of course understanding what you are seeing is critical, if you are to make use of this information.
There is a very simple technique of using the shorter of my moving averages, which I perceive as the center of value at that moment, and trading crosses or bounces from it when confirmed by order flow. You can make a good living off this one setup alone.
The chart below shows some of these trades. Note, the time on this chart is GMT = NY Time + 4 now
I use two main tools for this. The first one looks at each bar by bar and calculates whether trades take place at the bid price or the ask, and how much. Sellers hitting the bid in size has a greater impact on price than a passive seller offering at the ask, even in size. If there is such a passive seller, then the market usually front runs the order by hitting the bids.
The second tool looks at the cumulative effect of the first tool and also smooths it with an average.
These are the last two indicators on my charts. Looking what is happening as the order flow is revealed provides a great edge over the other electronic traders. Of course understanding what you are seeing is critical, if you are to make use of this information.
There is a very simple technique of using the shorter of my moving averages, which I perceive as the center of value at that moment, and trading crosses or bounces from it when confirmed by order flow. You can make a good living off this one setup alone.
The chart below shows some of these trades. Note, the time on this chart is GMT = NY Time + 4 now
The pre-marker preparation is hugely important. I need to know where the levels are that I may need to do something about – put on a trade, take a profit or scale in or out. I use Market Profile for my levels as MP is a diagram of the volume for the day.
I first split the Profile into its distributions. My software displays the volume Points of Control (POC) as well as the Value Area Highs (VAH) and Value Area Lows (VAL). I also use the extremes where relevant. You can see that the POC of 27 Oct stopped the market on 29 Oct so knowing that it was there was important.
Next, I try and visualize the type of day that may unfold. For example, for today, 30 Oct, I envisioned a normal day with possible high of around 2845 and a low around 2790. I also Noted that there are single prints beginning at 2791 and that if selling order flow is revealed, it is likely that the market runs down to 2760.
I am writing this part of the blog before trading begins on 30 Oct. I will continue after the market has revealed itself.
WOW!! This really went according to plan. Again, as an early bird trading from Europe - about 9.30 GMT, 4.30 am on the U.S. east coast, I went short near the VAH of 29 Oct. as the selling showed itself. Looking at the charts below:
There was basically a failure at the VAH, then a lot of what looks like chop in the MP chart until the market got down to around 2800 at the VAL. Looking at the range bar chart on the left, you can see the benefit of using range bars as the chop is not there, just the steady down move. I have divided the MP chart into the two distributions we have had so far today. My vision from before the market opened was ful filled and exceeded
. As soon as price hit the single prints of the 29th, it went right down the zipper in a relentless but orderly trade. I took profits as usual but ran out of bullets at 2760. I was not too happy as I watch the market continue downwards. Order flow on both my indicators were clear so I tried to correct my mistake and went short again as 2742 was broken with double prints. The market finally started going sideways and I covered the whole piece at 2724. Fantastic day. In retrospect, I should have held onto the last 1/3 until the 2730 ish area where some buying came in. K. was in the trade but got out wayyyy too early at 2790 but I was very proud to see she used another technique to re-enter on confirmed pull backs which she did at 2780, and 2738 taking 10 ticks out on each trade. I'll talk about this style of trading more in another post.
Without that envisioning it was a much harder day as K. discovered. Seeing this vision takes a bit of time and experience. But there are ways to correct yourself as K. did.
the harder I work, the luckier I get
The European time zone for me, is the best time zone as it straddles the most active markets.
Lots of moves now begin in the European morning before the U.S. wakes up. Many U.S. traders now have alarms so that if key support and resistance areas are breached, they wake up to trade. Why? Well the markets are continually changing. Now a days, for the stock indices, if you miss THE move of the day then you have missed the only good move of the day.
In the European morning, I trade the Eurex's Dow Euro 50 future because of its liquidity - more than 1 million contracts a day. The eMini S&P is getting more liquid at that time of day but nowhere near the Eurex contract until closer to the RTH open.
Liquidity is important for me as it gives a better read of Order Flow.
Another reason to get up early is there are days when you know the odds are that we will get a two way rotational day and if you start early you can be earning with relatively little risk for 14 hours instead of just 6 and a half.
Lots of moves now begin in the European morning before the U.S. wakes up. Many U.S. traders now have alarms so that if key support and resistance areas are breached, they wake up to trade. Why? Well the markets are continually changing. Now a days, for the stock indices, if you miss THE move of the day then you have missed the only good move of the day.
In the European morning, I trade the Eurex's Dow Euro 50 future because of its liquidity - more than 1 million contracts a day. The eMini S&P is getting more liquid at that time of day but nowhere near the Eurex contract until closer to the RTH open.
Liquidity is important for me as it gives a better read of Order Flow.
Another reason to get up early is there are days when you know the odds are that we will get a two way rotational day and if you start early you can be earning with relatively little risk for 14 hours instead of just 6 and a half.
Finish the story about "!'m 38 bid and ask for 100, What do you want to do?" I didn't finish the story because I was only interested in my own punchline about managing the trade. However, looks like I was wrong. The rest of the story was quite relevant. I sold 10 lots. Most locals like to go short rather than go long as you make your profit quicker. I covered my 10 at 35. The Big Local bought at 35 along with me (or was it really me buying along with him) as a BUY order came in from a broker who we knew filled for one of the funds. He sold his back at 39. We BOTH made money taking opposite positions. TRADE MANAGEMENT
Managing trade
This post is about Money Management.
One day when I was down on the floor in the Bund pit there was a big local (big = he traded large size) who was bored and stood in my face and said: " I'm 38 bid and ask for 100. What do you want to do?" He was saying he would buy or sell 100 contracts at 38 and he didn't care which. He knew that all he needed to do was to get the trade on and then manage it. This reminded me of what I had learned from Pete Steidlemayer (inventor of the Market Profile). Pete told me: "Just get the trade on and then manage it". All experienced traders know that trade management is the most important part of trading.
But what is Managing the Trade or Money Management? Basically, it's how you exit the trade. Not just a stop loss but the plan of how you exit at a profit and at a loss. See the word "plan" in bold? I know my exit plan before I put the trade on. Its programmed into my trade platform. But I amend my plan as I go along to fit the Order Flow but always staying within the mathematical parameters I have calculated to make sure that my edge makes me a profit over time.
As I said earlier, I scale out of trades. This way, I am fairly sure of a profit on at least part of my trade. I can also adjust the targets on the second and third parts so that if the trade runs, I can maximize the profits.
Another way to trade is to trade larger size and exit the whole position at the same time. This way, you are getting a profit on the whole position.
Which method my daughter finally chooses will depend on the maths of her trade as well as her comfort zone.
One day when I was down on the floor in the Bund pit there was a big local (big = he traded large size) who was bored and stood in my face and said: " I'm 38 bid and ask for 100. What do you want to do?" He was saying he would buy or sell 100 contracts at 38 and he didn't care which. He knew that all he needed to do was to get the trade on and then manage it. This reminded me of what I had learned from Pete Steidlemayer (inventor of the Market Profile). Pete told me: "Just get the trade on and then manage it". All experienced traders know that trade management is the most important part of trading.
But what is Managing the Trade or Money Management? Basically, it's how you exit the trade. Not just a stop loss but the plan of how you exit at a profit and at a loss. See the word "plan" in bold? I know my exit plan before I put the trade on. Its programmed into my trade platform. But I amend my plan as I go along to fit the Order Flow but always staying within the mathematical parameters I have calculated to make sure that my edge makes me a profit over time.
As I said earlier, I scale out of trades. This way, I am fairly sure of a profit on at least part of my trade. I can also adjust the targets on the second and third parts so that if the trade runs, I can maximize the profits.
Another way to trade is to trade larger size and exit the whole position at the same time. This way, you are getting a profit on the whole position.
Which method my daughter finally chooses will depend on the maths of her trade as well as her comfort zone.
Ready to trade
Marking up my charts with support and resistance. I take these from the Market Profile of the previous day as well as areas that I identified from high and low volume. Again, these are broad principals, not rules. Art, not science. You will get the feel of how to do this after a while.
Next, using colour coding, I take the value area highs and lows and draw horizontal lines on my chart. I also mark any virgin points of control with horizontal lines. The same with the single prints. I look at the whole 24 hours that the market trades.
This way, when the price trades to one of my horizontal lines, I can lean against support and resistance if and when my order flow information is compatible. Further, these are the areas that I will look to scale out.
I am now ready to trade.
I’ve been trading electronically for 15 years and now have the same edge, or more, that I had when I was on the floor.
Putting it All Together
My trading method is fairly straight forward:
- I usually only trade against one of the support or resistance lines I have drawn on my chart.
- When price is near one of these lines I look at my chart to see if there is a setup.
- If “Yes”, I look for it to trigger and I fine tune the entry.
- That’s it. From here, it’s managing the trade.
Next, using colour coding, I take the value area highs and lows and draw horizontal lines on my chart. I also mark any virgin points of control with horizontal lines. The same with the single prints. I look at the whole 24 hours that the market trades.
This way, when the price trades to one of my horizontal lines, I can lean against support and resistance if and when my order flow information is compatible. Further, these are the areas that I will look to scale out.
I am now ready to trade.
I’ve been trading electronically for 15 years and now have the same edge, or more, that I had when I was on the floor.
Putting it All Together
My trading method is fairly straight forward:
- I usually only trade against one of the support or resistance lines I have drawn on my chart.
- When price is near one of these lines I look at my chart to see if there is a setup.
- If “Yes”, I look for it to trigger and I fine tune the entry.
- That’s it. From here, it’s managing the trade.
Work or hobby
IF YOU ACHIEVE ONLY ONE THING LET IT BE THIS: Treat your trading as a business and not a hobby. (100% focus, during every second that you are sitting in front of your trading platform. The goal is to preserve capital AND make money.
NEXT:
• Decide your working hours, then be there EVERY working day during that time.
• Focus. When you are working, focus on trading. No telephone chats, no TV, no distractions. There is nothing else during those working hours but trading. If you have to do something else, stop working. In the pit, there was nothing else, just the market.
• Have your trading plan in front of you and stick to it. Keep a log of your trades with the reasons for your actions. At the end of your work session, review your log. If you see regular non compliance then you know you have a problem and you need to take immediate corrective action. Is your plan wrong or incomplete or are you lacking focus and discipline?
• Set up your tools – computers and software, internet connections, broker accounts. Make sure that everything is redundant – if anything fails, you need to have a standby so you can at the very least, close all positions instantly in the event of catastrophic infrastructure failure. Smart phones are a good cheap standby.
NEXT:
• Decide your working hours, then be there EVERY working day during that time.
• Focus. When you are working, focus on trading. No telephone chats, no TV, no distractions. There is nothing else during those working hours but trading. If you have to do something else, stop working. In the pit, there was nothing else, just the market.
• Have your trading plan in front of you and stick to it. Keep a log of your trades with the reasons for your actions. At the end of your work session, review your log. If you see regular non compliance then you know you have a problem and you need to take immediate corrective action. Is your plan wrong or incomplete or are you lacking focus and discipline?
• Set up your tools – computers and software, internet connections, broker accounts. Make sure that everything is redundant – if anything fails, you need to have a standby so you can at the very least, close all positions instantly in the event of catastrophic infrastructure failure. Smart phones are a good cheap standby.
what you need to “see” the market – Charts.
I use two charts to trade from for each market that I trade.
I also use a Market Profile chart – standard chart with letters representing each TPO but VOLUME determining the POC for support and resistance.
Range Bars: I use range bars as a tool to remove a lot of the noise from the market. These range bars are sized to suit the fingerprint of each market so I can concentrate on Order Flow.
The bars on my chart are candlesticks, so I can easily see what happened during the bar. Dojis and hammers are easily seen, quite important for me.
I also use a Market Profile chart – standard chart with letters representing each TPO but VOLUME determining the POC for support and resistance.
Range Bars: I use range bars as a tool to remove a lot of the noise from the market. These range bars are sized to suit the fingerprint of each market so I can concentrate on Order Flow.
The bars on my chart are candlesticks, so I can easily see what happened during the bar. Dojis and hammers are easily seen, quite important for me.
Information you need without being in a trading pit
I needed to know the following (in no particular order)
• Amount of volume and whether it was buying or selling – Order flow
• Whether there was any momentum in a particular direction and the short term trend
• Whether we were trading rhythmically and where in the cycle we were
• Where were the areas that buyers and sellers would appear
• What the market structure looked like on previous days and how today’s market structure develops
the most ignored aspects of trading is CONTEXT. Without context you cannot correctly understand what information you are getting. One of the first components making up this information is Market Profile (“MP”).
worked out what required information I can get from MP and now MPs’ only purpose is being just one of a number of combined components I use
use MP to visualise the structure I am trading in. I use the previous days’ MPs as well as the current day as it is developing. I look at “value” in the MP sense = acceptance of price
Another way of looking at value is with moving averages. Correctly used, moving averages give you a lot of information about both trend and value
use more traditional indicators such as stochastic, RSI, etc. to give me the cyclical and momentum information, but again, I use them in a different way and construct them differently. A very important point that needs making here is that locals trade in the present. By this, I mean that as a local you are trading what you see now. There is no prediction – you may develop a short term bias from what you see but NO PREDICTIONS. Whatever you think is going to happen, one large order can come in and make the opposite happen, and the trigger a whole lot of other opposite orders.
• Amount of volume and whether it was buying or selling – Order flow
• Whether there was any momentum in a particular direction and the short term trend
• Whether we were trading rhythmically and where in the cycle we were
• Where were the areas that buyers and sellers would appear
• What the market structure looked like on previous days and how today’s market structure develops
the most ignored aspects of trading is CONTEXT. Without context you cannot correctly understand what information you are getting. One of the first components making up this information is Market Profile (“MP”).
worked out what required information I can get from MP and now MPs’ only purpose is being just one of a number of combined components I use
use MP to visualise the structure I am trading in. I use the previous days’ MPs as well as the current day as it is developing. I look at “value” in the MP sense = acceptance of price
Another way of looking at value is with moving averages. Correctly used, moving averages give you a lot of information about both trend and value
use more traditional indicators such as stochastic, RSI, etc. to give me the cyclical and momentum information, but again, I use them in a different way and construct them differently. A very important point that needs making here is that locals trade in the present. By this, I mean that as a local you are trading what you see now. There is no prediction – you may develop a short term bias from what you see but NO PREDICTIONS. Whatever you think is going to happen, one large order can come in and make the opposite happen, and the trigger a whole lot of other opposite orders.
Trading plan
What happened the previous day- where we had traded, what the action was and where it was
overnight trading - what had happened in other similar markets in other parts of the world
any significant news was out that day
began trading with this info and then watched carefully everything that happened in the pit
into modern electronic trading jargon
• What sort of day was the previous day – trend, normal, range bound, what was the trend AND where was the support and resistance
• What happened in the news overnight that might affect the trend or the support and resistance. I now read all my news on line and look at the calendars to see what announcements are due during the day.
• What numbers – numbers are what locals call the government statistics that are announced - these may change the trend or day type during the day and when could they appear
• What was the order flow?
Order flow is exactly what it says on the box: the flow of orders from external parties into the pit. Relevant information is the balance – more buying or more selling, size and volume, commercial or retail (we knew which brokers represented which type of customer
overnight trading - what had happened in other similar markets in other parts of the world
any significant news was out that day
began trading with this info and then watched carefully everything that happened in the pit
into modern electronic trading jargon
• What sort of day was the previous day – trend, normal, range bound, what was the trend AND where was the support and resistance
• What happened in the news overnight that might affect the trend or the support and resistance. I now read all my news on line and look at the calendars to see what announcements are due during the day.
• What numbers – numbers are what locals call the government statistics that are announced - these may change the trend or day type during the day and when could they appear
• What was the order flow?
Order flow is exactly what it says on the box: the flow of orders from external parties into the pit. Relevant information is the balance – more buying or more selling, size and volume, commercial or retail (we knew which brokers represented which type of customer
Trading times
Trading from Europe. It's the best time zone if you want to trade during the daylight hours. Europe straddles the US/European/Asian hours. What I tend to do is to take the juiciest parts out of each time zone which tends to be the opening of each time zone market plus the close of the U.S. market
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