Finally, Making Money With Market Profile (TM)

Finally, Making Money With Market Profile TM.

That's the title of the Book. As readers of this blog and students know, context can substantially improve profitability. Yes, you can be CP without context, or at least without structured context (there is always some form of context in our minds) but using MP greatly improves my performance. Its a bit frustrating I can't effectively wrap that context into an algo.

However, for both discretionary and hybrid traders, context can be a like a magnifying glass on profits if properly used.

A good example is today's Bund. The Bund was my main market when I was on the LIFFE floor as a local. While the German unification was under way, Bund trading was like money falling from the sky. You didn't even have to bend over to pick it up. You also didn't really have to be a good trader to make money, But if you were good then ,,,,,,,,,,

Anyway, enough of wishful thinking of the good old days. Splitting the Profile correctly is the key to getting the proper information from it. Then, using the EL pictures at those key points makes for a happy trader.

Algo Expectations

Trading fully automated is quite different from both discretionary trading and hybrid trading. In this case, I am referring to the amount of profit per contract per month.

While as a discretionary trader I might make, say, $2,000 per contract per month, That would be say an Average Trade of $100.

As a Hybrid trader I may be able to replicate that same performance and maybe even better it.

However, as a fully automated trader, I would be happy to have an Average Trade of $25 per contract per month.

The advantage of the fully automated trading is the way that I can leverage my skills. As a discretionary trader, I am trading one market. My profits are limited by the amount of risk per contract I am willing to take and the number of hours I am willing or able to spend fully focused in front of my workstation.

As a hybrid trader I can be a bit more leveraged and trade two markets at the same time.

But as a fully automated trader I can leverage myself and trade as many markets and contracts as I have capital for.

I had 5 markets that I was trading fully automatically today. Gold was the best performer and the ES was the least best. The other markets were the Euro (6E), Light Crude and DAX. By having that diversification I achieve a smooth upwards equity curve. Funnily enough, none of the markets lost money today.

Nowadays, I trade a mixture of discretionary, hybrid and fully auto. I run longer term positions using option strategies.

There are two schools of thought: put all your eggs in one basket and really watch the basket, and diversify. The choice is partly dependent on available capital.

Followup to Yesterday's Trade

I just wanted to show what happened to yesterday's ES trade in the previous post. There were two possible entries a little after the open. Putting on a trade and then managing it to completion is the skill that a trader needs. Its probably the "managing" part that is most important. As Pete Steidlmayer said to me, "just put the trade on and manage it", I kick myself if I overthink and miss a trade.

You can see one of my yesterday's entry trades in the bar chart below (first entry was a 50% size and I added to 150%). There was nowhere before the close that the chart said to exit the trade. The LURenkos took out all the noise and we were left seeing the clear order flow. Higher highs and higher lows. It ended up being a trend day with a close within the top 10% which means that there is a very high probability that I couls exit at a higher price after the close in the next 24 hours. As at the time of writing this post, there was an additional 3 handles profit available between the close and the high after the close.

The Book

The Market Profile book is back on. I had stopped everything when my Mother became ill but I've started writing again because I haven't found anyone teaching MP in a way that it can be used to make money consistently. The book will only be available on Kindle and kindle apps that run on the PC and Mac. I use both my iPad and my Android Samsung Note 2 to read Kindle books. The book will include a detailed explanation of the methodology with lots of examples.

As you guys know, I use the Profile for context and my bar charts for timing. Timing has always been the issue for me with MP and took me years and years to figure out. Matching timing to context creates a high win rate. Using context provides meaningful targets.

Today's ES trade is a good example. The RTH open gave the first buy as it bounced off the VA support. It coincided with an overbought bigCCI. If I had missed that, I had a second entry as price was accepted within the previous VA. That coincided with a pullback-thrust in the CCIs.

Both entries had measured MP targets and way points.

Keep It Simple

Lots of traders make it too complicated. Simple is easier to do and it works.

Identify the context with Market Profile then identify the trend and then just trade the pullbacks. The MP is the roadmap. It shows me where I should trade and the potentiality of the trade. My bar chart times the trade at the places where I know a trade is "valid" according to my trading plan. I just do this over and over again. Look back over the many hundreds of charts on this blog. The expression "I'm a simple man with a simple plan that I do over and over again" sums this up.

 

Done for the Day!

Today's futures trading didn't take long. I watched my trade setup and then just pulled the trigger, took my profit and headed downstairs to have another Nespresso. Mrs EL tried their new Vanilio flavour and is well and truly hooked.

We make trading much harder than it needs to be. It's not about how long we spend in front of our workstations but how much money we make. Every time I open a trade, I take on risk. I don't want risk. I want profits.

Markets move when they are out of balance. That happens at specific times of day and also after surprise news. That's when I want to trade. I want that quick gratification - I want to be paid for taking on that risk and I want to be exposed to that risk for as short a time as possible. I can do that as a Hybrid trader or as a discretionary trader. I can us this tactic in fully auto trading as well by identifying the window(s) in my trading day when my Flobot makes money. Both Bloodhound and MultiCharts allow mw to restrict my trading to specific times of day after I have backtested the when. Adding context is more difficult for auto trading but I find that by choosing the "when" correctly, I also hot the right context as my trading pictures do the rest.

Like today.

I chose the periodicity of the bar chart to specifically identify the timing for the VA entry trade.