Friday, 12 September 2014

Pink Floyd

A great group from the past whose great hit was "Another Brick in the Wall" 

Well, today's pic is just another brick in the wall of trading. As you all know by now, my day starts with "envisioning". Envisioning is based upon the past charts and the overnight activity. I then start with an idea of what is happening - this idea will be revised and adjusted as the market unfolds. The pic below gives a view of the usual first trade of the day. It's my favourite trade as I usually execute it very well. Trading markets that have an "overnight close" has an advantage as they usually open out of balance and that move into balance is a great opportunity. The Russell is a similar market. Although it trades overnight, the volume is then is very thin and the future is used to hedge in the RTH. Opportunity.

Monday, 8 September 2014

Dynamic Market Profile

Markets are still in transition. The customers trade bigger size. The pits and locals are gone. Markets are trading almost 24 x 7.

I split legacy Market Profile into its distributions to find the information I need. But now I also use dynamic market profile. Pete Steidlmeyer has been doing a lot of work to resolve the trading issues he was having with the legacy Market Profile that he invented. His solution is dynamic market profiles and volume analysis through using TPOs that breakout as a way of organizing the markets. The bonus in this methodology is that the trader can specify the periodicity of the bars that the TPOs are based on. The default is still the 30 minutes but any number can be used. I'm currently using 6 minutes. Information about the dynamic market profile can be found here.

I have adopted the dynamic market profiles as it splits into distributions what were the legacy Market Profiles. Using these dynamic profiles and order flow analysis of the volume delta and other volume information available I now have the same or better order flow information that I had on the floor and I have that for more than one market at a time.

Wednesday, 3 September 2014

Regular Stops are Dangerous to my Wealth

Using anything but a drop dead stop would cost me a lot of money. A tight stop assumes that I know where the market is going in the future rather than working on the basis of the mathematics and probabilities. Discretionary trading is the finding of moments when the trader can see what is happening with order flow and can therefore deduce what happens next. Deduction is not prediction! If I see that the buyer is in control then I KNOW that the price must move up as supply at existing prices is removed. Its as simple as that. The next challenge is to see when the buyer stops buying. Exhaustion. When he stops buying there are two possibilities: selling comes in and the price goes down or sideways chop as no one does much. Putting am arbitrary stop loss that gets taken out by the normal oscillations of the market is not the way to deal with this information.

My trading is far from perfect but I make money when I stick to my plan which is based on my testing. I lose when I do something impulsive.

Trade management is critical to CP. It's the maths.

Tuesday, 2 September 2014

Trading the Order Flow Today

The DAX is a great market for demonstrating order flow. Its fast and furious but has all the elements an order flow trader needs. These principals apply to all liquid markets and all time frames.

Today the DAX opened at one of my support and resistance numers. The buyers were immediately in control. Order flow bars (Volume Imbalance) lit up green. The yellow boxes were the POCs of each bar. It was easy to see the sellers coming in and distributing. The spreadsheet in the lowest pane on the chart provides good info.

Friday, 29 August 2014

Nice Trade Today

Today's chart has the CCIs back on it. A student I am currently training wanted to leave the CCIs on his chart as training wheels while he learned the new stuff. It has turned out to be a real benefit on days like yesterday when the market trended strongly by finding confirmations of lots of re-entry points so the CCIs are staying.

Today I came in with Asia firm and so looked for a long entry point. Looking at the MP and this chart it was easy to see the 9476 area where I went long. I then watched the order flow bars (Volume Imbalance) to determine whether I should stay in the trade. Offers were lifted so I did.

I scaled out at the previous VAH and the VWAP standard deviation very automatically with a resting order and watched whether more buying would come in. It did so I held the balance until consolidation started and the lights went red.

The chart has the CVD and the Volume Breakdown as the CVD bars are too thin to see well. The yellow boxes on the VI bars is the POC of each bar. The spreadsheet on the bottom of the chart shows the actual volume of each POC.

Wednesday, 27 August 2014

Sell Til Your Hands Bleed

On the Floor,we traded using hand signals. Of course, from that, a whole lot of sayings evolved. One of those when you were really selling a lot of size people talked about "selling til your hands bleed."

Today's pic shows my bar chart in it's latest incarnation. I keep finding some subtle new things in MarketDelta which makes the order flow clearer. The spreadsheet at the bottom is one such things. Coincidentally, a reader asked about this yesterday in a Comment and I'd added it a few days before.

The pic shows the topping of the market with the order flow and the FavFib. The Market Profile chart did not help as we had made a new high but I didn't need it as the chart was so clear.

Saturday, 23 August 2014

The Evolution Continues - Market Profile + Volume

I'm still fine tuning my chart. The original Market Profile is unchanged - splitting the Profile into distributions is what is important. The bar chart is being tweaked as I find settings in MarketDelta that give me more information. The new concepts of Pete Steidlmayer have proven to be quite revolutionary when translated into the functionality available in MarketDelta. My new normal allows me to track order flow intimately just like we did in the pits - perhaps even more closely.

The chart below uses a volume breakout bar with the order flow bars: Volume Imbalance. A new bar is created when
The range of the bar is determined once the volume level specified is achieved. Then when price breaks out of this range a new bar is formed.

The whole chart is very volume related and very visual. The way I think when I trade has returned to the way that I thought when I was on the floor - which way is the order flow and how strong is it? My win rate is pretty high and as I get more screen time with this chart I'm confident that my average profit size will grow - this was my goal in making the change to my charts. The "was" works pretty well but the new normal will more than double my average profit per trade, trades like buying the low area on the bar chart and selling it at the expected target at the magenta line when order flow lost it's power.