More Outside In

The chart below shows Flo trading in Bloodhound using the LURenkos.Flo is fading the moves as she identifies areas where the market is likely to turn. If she's wrong, she doubles down using very specific rules. She also has a third double up her sleeve in case the initial trade was very early which it can be. Lots of people say that this is exactly the wrong thing to do and lots of people never get to CP. The math does not lie.

I've got a couple of guys (why do so few women trade?) starting algo training and we will be working a lot on Outside In trades to get them to CP as hybrid traders. Why Outside In? Firstly, because of the way that markets are trading now and secondly because Outside In trades are easier to hold. Learning the skill to know when a trend trade should be cut is more difficult than cutting an Outside In trade. If going short at 31 was a good trade (met trading plan) then adding to the short at 33 is even better waiting for the price to at least revert to the mean. The drop dead stop that has been backtested is the cut. This is a very high win trade.

What we'll be doing is having FloBots entering trades that have been backtested to be over 70% winners. Creating these algos means that a trader can be relaxed until the alarm goes off and know that the trade they are entering has an edge. Managing that trade manually gives them a lot of flexibility in managing the trade to suit their trading style within a very specific trading plan that they have created.

Everyone who is taking Monday off should enjoy the long week-end.

Outside In or Inside Out Trades

I've been looking back over my trades of the last few months and noticed an interesting phenomenon. I'm doing more Outside In trades than Inside Out. Why? Seems that the way that the markets are moving gives a better edge fading the moves than trading the pullbacks.

I think we are seeing the effects of the lower volumes as traders are staying away from the markets. I noticed a post in the Zero Hedge blog talking about how the viewership (is that a word) of the financial channels are dropping dramatically. I think that's partly because of less interest in the markets but also because people are finding better and more easily accessible information on the Web.

The reason that the Outside In trades are working "better" must be because moves are exaggerated and it's a matter of doing what I did on the floor: coming in and providing supply.  The pic below is an example. I start with 25% of my position and double and triple down as the trade goes against me. This trade management is important to maximize the profitability and reduce the stress of this trade.

Hybrid versus Discretionary versus Fully Auto

Hybrid trading has a different trading profile over both Discretionary and Fully Auto.

The way I set up my Hybrid Flobot is to create the trading logic I want to use to enter a trade and test it to it's highest win rate with a minimum profit target. For the ES, this could mean that I create a Flo setup that gives me, say, a 73% win rate with a 2 tick target. As a hybrid trader I then need to manage my trades to a better profit using my skills as well as trade management such as double downs. It means that I can trade more than one market at a time without the risk of missing an entry. Also, if I am competent at trade management (as distinct from trade entry which I don't have to be good at as Flo takes care of that), I will achieve greater profitability and smaller drawdown.

A fully algo trader has the benefit of being able to trade many, many markets at the same time and benefiting from Portfolio Diversification although this has the price of greater drawdowns than both the Hybrid and Discretionary and thus capital invested. He also has the benefit of not having to sit in front of his workstation as long as he has mitigated the technology risks.

The competent Discretionary trader has the highest win rate and the lowest drawdown but requires being glued to the screen throughout his trading session. He can achieve higher profitability by trading greater size. Of course the discretionary trader can use algos to test trading theories and fine tune how he trades.

Making a choice of how to trade is a personal choice based on all thes and other criteria. Using the technology lowers the skill required to trade and no matter which you choose to be, the use of algos in any way shortens the learning curve.

I Love the Smell of DAX in the Morning

I'm getting quite a few questions bout how I'm going with Bloodhound. This is a Flobot that I use in the European mornings on the DAX. As you can see, its all outside in trades which work well on the DAX as it overshoots a lot. You can see the ENTRY and EXIT signals generated by Flo in the Hound as well as how those signals are executed using my autotrader in Ninjatrader. Same Flobot works on a number of markets and periodicities. I've got a few new guys doing the Flo Algo Training and I'll be sharing this and other logic with them. I'm also using my MultiCharts for longer term trades and for strategies I haven't ported over to Bloodhound yet.

If you want to see more on Bloodhound, use the link on this page.

Pick Your Jib

I love sailing. I've had two boats of about 37 feet long. One crossed the Atlantic from Spain to the U.S. My happiest days were the days I bought them and the days I sold them and all the days in between.

One of the things you learn as a sailor is to pick the right jib ffor the wind. Just like that, I pick which "sail" Flo should use to trade a particular market on a particular day. There are three types of algos that I can choose from:

• Trend day
• Normal day
• Sideways tighter range day

Picking the right algo improves my profitability. But I have to make sure that if I pick the wrong algo for the day - and this happens - that I'm still OK. So I test which algo works best on which type of day.

Today was clearly one that would start as a Trend day down. I picked my "jib" for trend and off she went.

This is what Flo did during the time I let her run. There is no law saying I have to leave Flo to trade 24x7. Picking a time of day to auto or hybrid trade is just as important as picking a time to trade as a discretionary trader.

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Algos or What

I became a trader very early in life as I was very entrepreneurial from an early age. My Dad always had his own business and that was my example.

In my quest for even more freedom, I have thought for a very long time that it would be neat if I didn't even have to turn up and the cheques kept on coming.  However, life isn't like that unless you inherit your money so a degree of perspiration is always required. However, thos of you have been longtime readers of the blog know that one of my favourite quotes is: "Genius is 10% inspiration and 90% perspiration" (Thomas Edison).

Nevertheless, I believe that I should be the one to choose when to expend my 90% and when to expend my 10%. I've more than put in my 90% so now I'm enjoying using that 10%.

I've been working like a fiend with Bloodhound. Bloodhound has allowed Flo to progress well beyond my meager programming abilities and to be released from reliance on anyone. Here's one I did earlier.

The algo uses the LogikUniversalRenko bars that get rid of noise. There is a downside to these as there is a 3 bar slippage at the turning points but I take this into account when I show Flo what to do - all with no programming, just picking logic blocks. All my algos have the same premise of following the orderflow. No prediction. As the Chinese philosopher Lao Tzu said: " Those who have knowledge don't predict. Those who predict don't have knowledge".

As you can see from the pic, Bloodhound allows hybrid trading from the same chart.