Monday, 20 April 2015

Why Does a Support or Resistance Break?

Most traders look at some form of support and resistance. Lets ignore the fact that some so-called support and resistance is neither support nor resistance and talk about why a real support or resistance does not hold.

With the evolution of electronic trading, more information is available. In earlier times, the retail trader was at a great disadvantage to the institutions and the so-called smart money. Now, we can all be smart money albeit that we may trade smaller size than the banks and hedge funds, not to mention the HFTs. Technology has become cheaper and accessible to us all.

So the answer to the question that I posted in the heading to this post and which was asked by a blog reader in an email:
I had a challenge figuring out these longs today in ES, because market was trading right into resistance, and the risk / reward that i was measuring didn't favor the longs at those points.

I'm wondering how I misread the situation.  (Please see attached)

The answer is very clear both to the topic post and to the email: Its what is happening with the order flow that breaks support and resistance and also what tells me when the support or resistance is likely to hold. One of the tools I use is the volume imbalance between the BID and ASK deltas. I use a number of other order flow tools.


Tuesday, 7 April 2015

Zipper Follow Up

The T-Bond trade from yesterday turned out to be much better than expected. I say "expected" although I can never tell how a trade will evolve. All I can do is enter based on my trading picture that has probabilities highly on my side. The rub is then to try and manage the trade to get the most out of it. Not easy to hold a trade for so long when most trades don't go that distance. It's only possible if you trade multiple contracts and take enough profit as the trade progresses that allows the "luxury" of holding a runner(s) that you are prepared to exit at Break Even if the trade reverses before you can exit this last scale. I must confess that I was not still short at the bottom. The point just below the zipper was the logical exit point for me but there was a re-entry picture to go short again into the gap using that context plus the order flow chart.

This management style is not for everyone. A style where you are all in and all out can be just as valid with the right back tested management rules. The math has to work.


Monday, 6 April 2015

Zipper!

Just returned from 8 days in Dubai. Its an amazing place. The skyscrapers there dwarf what you see in New York or anywhere else. Everything old becomes new again. Hard to find a building older than 10 years or even 5. 90% of the people there are expatriates working tax free.

Today's chart is the 30 Year T-Bond. I've traded Bonds since 1982 when I met the father of financial futures, Richard Sandor. He was working for Drexel Lambert. Another broker that I had met brought Richard to my office in London to get my business. Needless to say, he did. Richard is a very remarkable man.

Anyway, the chart shows a nice zipper. Most zippers get run sooner rather than later. But to ve sure, my order flow chart will tell me when. In this case I'm happy to sell the VAL of the distribution above the zipper and sit till either "ching ching" or price is accepted inside value. Or, my order flow chart tells me that I need to exit.


Tuesday, 31 March 2015

Where and When

Peggy Lee had a song, "Where or When". For me, trading is "where" and "when". The two pics below each give at least three or four great trades with a couple of hours: the ES and the ZB, both great markets. The MP provides the "where". I mark up my Profile before the RTH market opens and I know in advance where I will do biz. I then use order flow to provide the"when" component of the equation.




 Two completely different markets but similar patterns and similar opportunities. Market Profile is probably the greatest tool devised. It is perfect of telling me the "where". I can use it for the "when" out of the box but by using order flow charts, Volume Imbalance charts as marketDelta calls them, I can get an even higher win rate and more profit.

I'm in Dubai again this week enjoying the sun. Australia is still a little too far for a week's break but hopefully the planes are getting faster.

Tuesday, 17 March 2015

Its Still All About the Context

Understanding what "they" are doing is not so hard when you read the order flow in the context. That's what the book is all about.

Progress on the book is good although I had some time off for a minor medical procedure. Life is like that, I've learned. Anyway, Part 1 is pretty well nailed and am waiting to finish the current training I'm giving so I can lock down Part 2. Part 1 is dependent on Part 2 so that's where I am.

The pic below show the split DAX Profile from yesterday - split before the market opened today. The support and resistance worked perfectly and gave me what I needed to read the oirder flow in context.

Wednesday, 4 March 2015

Lots of Trades are this Clear!`

I'm in the process of doing a training that I'm recording to use in the new book. We're at the point of creating a trading plan. My trading plan consists of a number of trading pictures, each of which has its own "rules". I've written "rules" in quotes as these rules are not mechanical rules but rules that allow us to recognise specific trade opportunities. Each picture has certain order flow and context requirements and we learn to recognise and react to these opportunities instantly. No umming and ahhing required. Its a picture that is easily recognizable.

The pic below is this mornings DAX. As you can see, the distance between the VAH and the POC was worth about 750 euros per contract. We have 4 trades in that space taking out much more than 750 euros per contract. And we haven't even gone down to the VAL....yet.

Trading orderflow in this Market Profile context allows us to make very high win rate trades with low risk. This context allows us to see the potential profit and risk per trade very clearly before we enter. In this way it is easy to see whether a trade should be taken. A properly constructed trading plan is a critical part of the process to CP.