Saturday, 11 March 2017

Trading Order Flow - the Series Part 3

Its pretty obvious that the criteria we are searching for as a trader is when to enter and when to exit. Obvious! But what traders don't seem to deduce from that fact is that the "when", to have a high probability of success, depends on the "where".

What does the "where" mean? It means finding trade locations where it is most likely that a trade can be entered and that it goes in the direction we propose that it goes.

OK, where are those places? For me, those places are where there was volume before that caused the behavior that I want to rely on. That means I am looking at extremes, VAHs, VALs, POCs, LVNs, HVNs. I also take into account where VALUE is moving.

The process is simple. Before tarting to trade I look at the previous day and the left hand side of the bar chart and mark the places where I COULD trade. When price gets to one of those places I look at the current context and order flow and put on a trade if I judge that the trade is viable . For it to be viable, I need to be able to see when the trade is wrong quite quickly and there has to be enough room in front of the trade to make a big enough of a profit. What those numbers are depends on style - whether you are a scalper who needs a high win rate or a trader who needs the ratio between their risk and reward potential to be a high enough R number.

The pic of the charts in the previous post gives me all that information.

Wednesday, 28 December 2016

Trading Order Flow - the Series Part 2

This is the same pic I posted recently. Lets look at what I have on the chart.

The large chart gives a larger view of what's going on. It doesn't really matter what the periodicity is - it can be 1 minute, 9 tick range, 99 contract volume - anything really because we are going to trade order flow. The periodicity is to break the bars into volume measurable significance and to allow the indicators to fill in some of the contect.

We then have Market Profile or Volume Profile. This an importand part of the context. Finally, I have a chart that mirrors the main chart's last few bars but with the inside the bars information exposed.

Lets talk about context. Exactly what is it? I started talking about context in this blog from the beginning years and years ago. Since then I have seen it mentioned all over the web but without it being explained.

Context has a number of components which include;
  • what is the trend
  • where is the mean
  • how over bought or over sold are we
  • where is value
  • where are the edges of value
  • where is the centre of value
  • how is volume moving
Having this information, I can now make informed decisions about trades to take and exit in accordance with my trading plan.

More to come in subsequent posts.

Friday, 16 December 2016

A Workman and His Tools

There's really only one constant in trading and that's Order Flow.

With the advent of personal computers in about 1979, markets began a series of changes. My Apple II was great in 1980 using CompuTrac software to provide daily technical analysis. This then went to Intraday analysis using the same but evolved CompuTrac software.

The tools became more sophisticated as PCs got better. The next big thing was 1993 when the internet opened up to private individuals. This coincided with Microsoft Windows appearing. This brought a host of software tools to help traders.

PC, software and the internet all improved and then markets went electronic. I left the floor in about 1991 and traded off a DTB terminal for a while until software appeared that made trading from home possible. This is when algos started making their appearance in a bigger way.

Today there are people that are estimating that algos are somewhere between 80% and 90% of the market.

Without updating the tools, traders don't have a chance against the algos. We need to use tools to both disclose order flow, analyze it and then semi-automate the execution. I'll write more about this in subsequent posts.

Saturday, 3 December 2016

Everything Old is New Again

As we come to the end of 2016 I thought I'd summarize where I am now with day trading.

When you look at the chart below, you will see the same ols same old plus a whole lot of new stuff to help with both the decision making and the execution.

Nothing has changed about the basis of trades: its either outside in: fade the moves, or, inside out: trade the pullback in the trend.

What has changed since I started this blog in 2009? Well, all the futures pits are gone. No more locals. We're now all electronic locals.There's no middle man or buffer for our trades. Except for the algos. And that's a big "except". The "except" is now somewhere between 70% and 90% of the volume (depending on who you ask).

And why does that matter? It matters because the rhythm of the markets have changed and the way in which orders appear has changed. We have words such as "HFT", "submarine" and "iceberg" that have taken on a whole new meaning.

However, happily, the technology has advanced in leaps and bounds. Seeing order flow has never been easier. And order flow is what we need to see in order to trade successfully.

The workspace below is what I trade off. I've upgraded to 27 inch 4k monitors to give me more room and granularity.  NinjaTrader 8 is out. The charts are my same range bars but with a ton of order flow information. I'll tell you more about how I use the information in subsequent posts.

Tuesday, 1 November 2016

From Sea to Shining Sea

This was a very typical trade to look for every day. The fact that it happened on the RTH open only made it easier as the market was going to look for balance and was even more likely to hit the VAL.

There are now many tools for looking at the orderflow. Some are better than others. While I use a proprietary add-in to NinjaTrader 8 and to that I have shown earlier in this blog, there are others such as the commercial Gomi which you can see here. While non of the commercially available tools have all that I want (hence using something tailor made) many of them do provide the basics to show what is happening in the orderflow.

Thursday, 28 July 2016

You Can See the Orderflow

The key to market direction as I have said many times is ORDERFLOW. "Orderflow" has become a much over used word in the many years since I started this blog in 2009.

The issue is that most wanna be traders have no idea of what orderflow is. I guess I have a big advantage of being a an ex local pit trader as that was at the sharpest edge of orderflow.

Any picture, setup or trading idea can be completely invalidated if the orderflow changes: if enough orders come into the other direction to your trade. Before the latest technology of which NinjaTrader 8 is a great example, we nhad to look at the footsteps of orderflow: indicators. This was not perfect. Indicators have now become part of the context.

Today's chart shows how easy it is to see orderflow. However, the orderflow needs to be seen in context to understand the probabilities of what will happen next. Pete Steidlmayer's teachings have even more relevance now that we can see orderflow clearly.

Saturday, 25 June 2016

Winning-v-Losing Trade with Same Setup

The difference between a winning trade and a losing trade with the same setup is the order flow.

This is key. I don't think I can emphasize this more. If you are not tracking order flow then you are trading with a blindfold.

Order flow should be in the direction of your trade at key levels where you trigger the trade. Whatever you use to trigger a trade, requiring the order flow to be strongly in the direction of the trade greatly increases the probability of the price moving in the direction of your trade.

The first pic shows the same indicators I have used since this blog began in 2009. What the arrows show is the order flow meeting requirements I have had programmed. The order flow helps not only identify the trades at key support and resistance areas but also show continuity of order flow. In this pic, price hit my FavFib and order flow confirmed that the sellers hit the market hard.

Pic 2 shows even more information about the volume imbalance within each bar. This more detailed information does not always need to be seen unless I am scalping. I do look at the detailed bar at the key levels. In this case, you can see the sellers inside the bar hitting the bid.

NinjaTrader 8 is still in beta and still has a number of issues. Hopefully all these will be resolved soon. However, the ability of NinjaTrader 8 to load ad use bid and ask data and micro second time stamping is a quantum step forward for order flow traders.