Sunday, 22 November 2015

Getting to CP just by tweaking your stops and targets.

I want to revisit an oft mentioned topic that I wrote about back in the early days of this blog such as this post.

A critical part of a trading plan is the trade management. There are three legs to the stool of trade management that are important:
  1. the stop
  2. the target
  3. the win rate
The math has to work!

I have often said that a high win rate is important to me. That's a psychological dependency. So my trading style takes that into account.

For example, if I have, say, a 75% win rate then I can have a stop to target ratio of 1: 0.34 and be above break even. If I have a win rate of 34% then I can have a stop to target ratio of 1:2 and still be just above break even.

The math of this is critical for being CP. The style of trading doesn't matter but it needs to be created around these numbers.

So the starting point to your methodology is finding your trading pictures that will make you CP. As, say, a 34% win rate trader you can create a stat of average winners much more than twice your losses then you can make a good living.

If you are not CP then maybe its possible to get to CP by tweaking just this trade management portions of your trading plan. You may have the right entry strategy but are managing your exits incorrectly. But it requires discipline.

Tuesday, 6 October 2015

FDXM is Coming!

There will be a new listing om Eurex on 28 October, next. The miniDAX. It will be 1/5th the size of the existing DAX futures contract - 5 Euros a point: 2.50 a tick.

Those of you who have been around a while will remember when the ES was born out of the pit traded SP. And look what happened there. The DAX is an exceptional contract and I expect the new mini contract to become very popular due to its volatility.

Thursday, 17 September 2015

How Sweet It Is!

My thoughts are often on the fun things I've experienced in the past. One of them was watching The Great One, Jackie Gleeson, with my Dad. I've posted about Jackie often in the past. "How Sweet It Is" was one of his sayings. When I'm disciplined in my trading which seems to be more often as I get older, how sweet it is.

Order flow in context. That's all there is to it. Today's first 75 minutes or so as a 1 lot trader. This could be any market: DAX, ES, CL, GC, 6E, ZB to name a few.

This 75 minutes in the DAX brought $600 plus on a 1 lot with no losers.

Monday, 14 September 2015

The Power of Context Order Flow Trading

Today's charts and trades show the first 90 minutes or so of the DAX using Context-Trader and its buttons.

The DAX started the day with a gap up and a sell off. It then found support at below the VAL but within the overlapping Profile's buying tail.

The 90 minutes ended with over $1,000 profit on a 1 lot initial entry using my DoubleDown trade management rules.

Order flow was very clear although some of the level 1 resistance points did not hold. This brought in the DoubleDown rules and resulted in no losing sequences again today so far. This is day 4 for me without a losing sequence.

I'm trying to show that you don't have to trade large size to make reasonable money once you have a good trading plan. Starting with a 1 lot size with DoublingDown is the way to start. Once you are CP on the minimum size, scaling SLOWLY up becomes a lot easier. The trap to avoid is to increase either too quickly or to a size where the outcome of any one trade matters.

Friday, 4 September 2015

Order Flow Misunderstood + Consistency

Going through the websites of trading software vendors and trading education, I see that the words "order flow" have become a buzz word to sell. Sadly, most of what I've seen has little to do with what order flow really is.

Maybe I am being charitable, but perhaps the reason for this misinformation is that very few of these vendors or so called educators have actually traded order flow. The purest form of order flow was the live face to face trading that took place in the pits. In the pits, we were the market and what we did was the order flow.

Now, with electronic markets, traders are one step removed from order flow. We are all pushing orders into a bucket where they are electronically matched. Without that pit experience, this new type of order flow is much more difficult to understand. Looking at just what is traded on the bid and what is traded on the ask is not the answer as it misses the basis of what needs to be seen: the flow.

Markets continue in a specific direction until they don't. This up and down flow takes place on every time frame. A successful trader picks one of these time frames and trades the ebb and flow of the orders. That's how we make money consistently. Understanding how this ebb and flow happens and being able to see and track it is fundamental to being CP. There are three trade locations that are important to understand and to watch the flow move between them:

  • Over bought
  • Over sold
  • Mean
That's what we traded on the floor and that's what I trade today. Context-Trader and it's buttons allow me to be as quick and disciplined as I was on the floor. A trader needs to use every edge available to compete and the competition with the algos and HFTs is getting stronger.

I'm posting this morning's DAX trade on a 1 lot basis as I was doing a training session and wanted to demonstrate the consistency between today and the previous P&L post, both in money and in win rate and other stats. The credit goes to the methodology and the software tools I'm using. I'm posting not out of boastfulness but to encourage everyone to trade the real order flow not some mythical invention of people who have never traded it. 

Thursday, 3 September 2015

Context-Trader, Doubling Down and CP

In a post yesterday, I was asked about Context-Trader and doubling down.

Context-Trader is an add-in I had programmed that takes the different components of the context I use and puts that into buttons that you see in the chart. I can use many different combinations of those buttons, much like someone playing a piano, to meet the conditions I have in my trading plan for a trade. I can activate these buttons well BEFORE the trade is due to be triggered. That is to say, I see the context setting up and I arm the buttons to monitor that context so that when ALL the conditions are met, a trade is triggered. My trading charts are 1 MP chart and 1 bar chart with indicators that help define the context. When the context for one of my trading plan's trading pictures is setting up, I arm the appropriate buttons that will trigger the trade INSTANTLY at the moment that all my conditions have been met.

This is a manual discretionary process although by using the buttons I prevent myself from being able to take most non trading plan trades.

The platform runs on a VPS so the latency is only about 1ms. So I'm sitting on my mountain in France and I'm not impacted by the distance I am from the exchange. I also have something that reinforces my discipline and helps me keep to my trading plan. All of these things help keep me consistent.

I believe that this way of trading is a quantum change in discretionary trading. The win rate can be consistently as close to 100% as it was when I was a floor trader. While win rate is only part of what I need for CP, I know that it is very difficult to put on a trade unless you have one. Once I have a high win rate, all I have to do is manage the math and make sure my losers lose less than I make - trade management.

That's how we come to doubling down.

Expecting to consistently have a perfect trade location is a fool's errand. If a trade goes against me then I have two choices: stop myself out or find the correct spot to double down and improve my average entry price. The first choice means I lose money on a trade that could still be a good trade. The second choice allows me to stay in the trade and exit at either break even or at a profit.

Not all trades are suitable for doubling down. However, most of my trading pictures are trades that are suitable for doubling down.

I would not day trade without being able to double down. That's how important it is to my trade management.

The chart below has two real money trades that I did specially to show the power and confidence of doubling down. Both were exited at break even.

We now have the right technology that can get many many more traders to CP. Whether its MarketDelta, or NinjaTrader - I use all three with programmed buttons - a discretionary trader can become CP much more easily using it. The learning curve has flattened.

Wednesday, 2 September 2015

DAX Trades this Morning

I was asked by a prospective student to show what trading can be done in a two and a half hour period trading just one lot so I thought I'd make it public. I started trading the DAX on the open and traded for two and a half hours with a coffee break part way through. The chart shows all the actual trades executed using real money and I've also added pictures showing the trades in my log and my P&L. The charts are and the log is from NinjaTrader. The trades were executed using my Context-Trader add-in and a scalping trading plan that I created.

The result was a profit of 812.50 euros (about $US900) less commission. If you look at the trades you'll see a number of double downs followed by scratches. This resulted in no losing sequences although a leg of the double down had a loss that was offset by the profit on the second leg.

This is fairly typical of this very short term trading plan. It can be done with increased size. I'll be trading the DAX afternoon U.S. RTH session for another 2 hours with my usual size.