Wednesday, 19 November 2014

See How Context Rules

Today's pic is a great example of the importance of context.

Looking at the Market Profile, one can see that the Profile is inside the previous day's VA and has not finished doing it's thing there. On the other hand, indicators show trend is UP. Signals switch between short and long.

When the market opened, I took the first short trade as that was the only information I had. I soon covered the short at a tick profit as I saw that the market was not going to go far due to the context.

Once thie context resolves I can take a trade. Trading off individual or groupd of indicators gives a much lower win rate and profitability than can be achieved by looking at the context first and then the order flow within that context. Being clear whether the trade is with or counter the trend is also criticsl.

Saturday, 15 November 2014

Trading Order Flow. No Optimization!

I've finished automating my trading. There's automating and there's automating. I do have fully automated flobots. Their goal is to earn 150% on the set aside capital. However, a competent discretionary trader is able to earn up to 80% a month.

How is this huge 80% calculated and proven? And make no mistake, 80% is huge.

Lets say a trader has $25,000 in a trading account that is totally risk capital. He's traded in SIM and has become CP.

Let's look at the math(s).

He trades a 5 lot and averages $1,000 a day nett. $1,000 a day is about $20,000 a month or 80%.

Now lets look at how this $1,000 a day can be achieved.

The chart below is my trading setup. It is a single bar chart and a Market profile chart. There are buttons along the top left that arm the trades I can put on. I can go Long and Short and I can also reverse a position. You can see arrows appear when a trade is detected. The logic for the trade is pure order flow and is coded into the chart. It doesn't look at all the context. Can't be programmed, at least by anyone I have found. The Market Profile or the new dynamic Market Profile is critical. Its like an F1 driver, when he sees he is on the straight he can put the pedal to the metal but needs to brake when he sees the corner ahead. BTW, an exciting finish to this years F1 in Abu Dhabi next week-end. My favourite car brand will be the winning constructor but which driver?

Problem is, if I just run the algo 24/7 the most I can make is probably about $37,000 on my $25,000 capital and I will have a drawdown. And I certainly can't live off $37,000.

So I need to approach my executions in a different way. Here it is. Let me be clear. The indicators are context only. No optimization. Just order flow from the volume analysis.

The difference between the two chart si the extra button Saying Long5. The buttons on the top left of the chart are just buttons that don't do anything, yet. When I single click on one or more, it "arms" the strategy that then waits for the logic conditions to be fulfilled. I only arm a button when the context is right. When the trade is triggered, the algo shoots an order to the broker faster than the eye or hand can see it. The platform is also colocated near the broker so that the distance of my workstation in France from the broker does not matter. I'm trading alongside some of the HFTs and use them. The issue with any setup is that one large opposite order can make the trade a loser. By trading with the size I'm reducing the chance of this happening which means my win rate is even higher.

All this is in the book. Coming soon. Busy Xmas writing and videoing for me.

Wednesday, 5 November 2014

Order Flow Automated

The integration of the latest order flow technology into my trading has been completed. EVERY trade is judged on seeing exactly what "they" are doing. As you can see from the arrows on the chart below, I have been able to automate this information.

There are buttons on the top line that arm the algo so that when the conditions are met, the order is triggered. I can arm and disarm the algo with one click when I see a trade setting up. It only goes off if in fact the trade does setup. I can also just leave the algo on and let it do what it does but I make more money manually switching the algo on and off because I can trade much bigger size. I guess I just like the control of being a discretionary trader. Also, context is king and the algo cannot possible see ALL the context.

The algo sits on a VPS collocated within 2ms of the broker engine. There is no way anyone can be as fast as the algo VPS combination in getting an order filled.

I am finding that the HFTs are my friends and help me get to my profit target. My profit targets are close. For example. on the ES, T1 is just one handle or $50 per contract. Multiply this by size - even 10 contracts - and its not hard to see a decent green day.

I've finally got the book into its final outline and will try and finish the videos over Xmas, skiing permitting.

Wednesday, 22 October 2014


After a lot of work I have finally integrated order flow bars (called volume imbalance in MarketDelta) and the Steidlmayer dynamic Market Profile into my trading pictures.

The dynamic Market Profile is very much the same as the splitting into distributions that I have been doing for years. Adding the order flow bars is as close to perfection as I can get I think. I use my original EL pictures and filter them with the order flow bars. I've been trading a lot of ES over the last 10 days to validate what I'm doing and it has gone rather well. Identifying key turning points and the order flow is very clear. The added activity of the HFTs was an added bonus as their presence and direction was pretty easy to see during those few days last week when things were crazy with volatility.

The chart below of the FESX shows a clear read of the order flow. The red arrow shows the trend resuming.

I'm hoping to get the ebook finished over the Xmas period and it will be going into the full details of what I have been doing.

Monday, 6 October 2014

The Book: Update

The Book has been going and going. Sometimes I think it's like that play by Becket, "Waiting for Godot" that I saw years ago.

These markets are in a transitional change and I'm not just dealing with Market Profile which is relative easy but showing the new dynamic MP that Pete Steidlmayer is still developing and then wrapping the Order Flow bars around it all.

Things evolved and need to re-write and more importantly, re-video, a lot of material. I've had to discard a lot.

We have several main influences of change including:
1. The Algos - both HFT and also a lot of retail and semi-professional algos
2. The disappearance of the Locals as exchanges went electronic. Customer order size means that instead of trading with a local, customers are trading with customer counter-parties
3. Extended hours trading has become more important as Asia grows
4. More severe and constant legal insider trading and market manipulation by the FED and ECB

I'm just a tiny pimple in the scheme of things, trading my short term time frame, reading what "they" are doing and trying to join their action. The Book will show how I track that  action using the tools I've mentioned in the second paragraph above. It took a while to get the degree of certainty that I now have and I won't release anything unless it really adds value to what people are already doing. Trading needs to be more certain. I read the order flow like a Google map except that I have no idea of the destination, just the "now" of what is happening. Reading the now lets me understand how the next bar or two will react to the now. After that it's all trade management.

So the Book is under way again in it's final form. Mostly embeded videos so you will be able to see what happening. After all, Order Flow is a moving thing.

Wednesday, 1 October 2014

To The Moon Alice!

Today's trade reminds me of that oft used phrase by the Great One in the Honeymooners. All I had to do was see the LONG and be able to hold it, or at least some of it. The BUY was clear in both context on the MP and the order flow.

Monday, 22 September 2014

Better to Be Lucky than Smart?

There's that sayin g. It's sometimes true as it was today. I got long in the DAX. I was a bit bored I think and realy should have waited until after Draghi's speech, but I didn't. Then I got lucky and there was a sweep: a big order, relatively, came in and took al the offers. The VI bars were green on the offer and zero lots on the bid. The market then distributed. Chart below is not the chart I traded from - I was using my scalping chart of 50v. Same methods just very sensitive chart. The dynamic profile popped from the POC so the move was building. I guess that's what triggered the large order. I was luckier than smart but I guess you have to put yourself into the position to be able to be lucky.