The Order Flow Becomes Clear with the right Tools

Not much to say about today's pic. It says it all. We now have all the tools we need to see what "they" are doing. The old saying: "None so blind as they that will not see" comes to mind.

If you see selling and it doesn't go down or if you see buying and it doesn't go up, the context gives you the setting, then you can see what we saw on the floor. It was us locals that took the other side of those trades and I think its still us from off floor.

More on Order Flow and Market Profile

Yesterday, a longtime student wrote:

Hi Tom, long time student here with a question. Do you think the new dynamic profiles that your using offers better support/resistance levels than just taking the legacy profile and breaking it up into it's distributions. Also, are you using the stock settings for the volume profile and volume imbalance in market delta or are you tweaking the settings ? For example the Automatic setting for the volume imbalance is 140% but some people use 200-300%. Looking forward to the new book. Hope all is well.

Regards,

 John

Great questions.

First, lets talk about Market Profile. I use BOTH the dynamic new mMarket Profile that Pete Steidlmayer has developed as a successor to the legacy Market Profile as well as  the legacy Market Profile itself. Why? Because they give me more granular information about support and resistance and where the price is going. I use various timeframes in the dynamic profile to fit the market I am trading. You can see the confirmation of support on the pic below. I then went to my Order Flow chart and saw buying coming in at support and bought the market. Not rocket science.

Dynamic Market Profile takes splitting the Profile a step further. Dynamic Profiles are currently only available in Pete Steidlmayer's software and MarketDelta. I must disclose I am not a fan of Pete's software as it is very klunky and you need to jump around from screen to screen a lot to get information and that's only for a single symbol. MD on the other hand allows me to see everything all at once.

Now lets get to the second part of John's question. How much volume imbalance is volume imbalance. I must say that the default 140% is just not enough for me. I like to see at least 200% imbalance. I describe the techniques I use to decide what to use in the book.

The key in setting all this up is to "see" the order flow and the decision points in a trade.

Reading the Order Flow Gives Clear Direction

Reading the order flow has never been as clear from off floor as it is now. We have the tools to make it all clear or as least as clear as it was on the floor, if not more. Reading order flow is like learning a language - just about anyone can learn a language.

The picture below is made up of three parts:

1. Dynamic new Market Profile
2. Legacy Market profile
3. Order Flow bar chart (Volume Imbalance)

I have automated the highest probability entries but do take other entries manually when they fit with the context and my trading plan.

A key part of a trading plan is to know what to do when a trade goes against you, as it will. There are usually just a few choices, all based on back testing:

• Exit at a loss based on money or specific market activity
• Wait until the trade turns either profitable or break even
• Double down and wait until the market puts you into profit or break even

See How Context Rules

Today's pic is a great example of the importance of context.

Looking at the Market Profile, one can see that the Profile is inside the previous day's VA and has not finished doing it's thing there. On the other hand, indicators show trend is UP. Signals switch between short and long.

When the market opened, I took the first short trade as that was the only information I had. I soon covered the short at a tick profit as I saw that the market was not going to go far due to the context.

 

Once thie context resolves I can take a trade. Trading off individual or groupd of indicators gives a much lower win rate and profitability than can be achieved by looking at the context first and then the order flow within that context. Being clear whether the trade is with or counter the trend is also criticsl.

Trading Order Flow. No Optimization!

I've finished automating my trading. There's automating and there's automating. I do have fully automated flobots. Their goal is to earn 150% on the set aside capital. However, a competent discretionary trader is able to earn up to 80% a month.

How is this huge 80% calculated and proven? And make no mistake, 80% is huge.

Lets say a trader has $25,000 in a trading account that is totally risk capital. He's traded in SIM and has become CP.

Let's look at the math(s).

He trades a 5 lot and averages $1,000 a day nett. $1,000 a day is about $20,000 a month or 80%.

Now lets look at how this $1,000 a day can be achieved.

The chart below is my trading setup. It is a single bar chart and a Market profile chart. There are buttons along the top left that arm the trades I can put on. I can go Long and Short and I can also reverse a position. You can see arrows appear when a trade is detected. The logic for the trade is pure order flow and is coded into the chart. It doesn't look at all the context. Can't be programmed, at least by anyone I have found. The Market Profile or the new dynamic Market Profile is critical. Its like an F1 driver, when he sees he is on the straight he can put the pedal to the metal but needs to brake when he sees the corner ahead. BTW, an exciting finish to this years F1 in Abu Dhabi next week-end. My favourite car brand will be the winning constructor but which driver?

 

Problem is, if I just run the algo 24/7 the most I can make is probably about $37,000 on my $25,000 capital and I will have a drawdown. And I certainly can't live off $37,000.

So I need to approach my executions in a different way. Here it is. Let me be clear. The indicators are context only. No optimization. Just order flow from the volume analysis.

 

The difference between the two chart si the extra button Saying Long5. The buttons on the top left of the chart are just buttons that don't do anything, yet. When I single click on one or more, it "arms" the strategy that then waits for the logic conditions to be fulfilled. I only arm a button when the context is right. When the trade is triggered, the algo shoots an order to the broker faster than the eye or hand can see it. The platform is also colocated near the broker so that the distance of my workstation in France from the broker does not matter. I'm trading alongside some of the HFTs and use them. The issue with any setup is that one large opposite order can make the trade a loser. By trading with the size I'm reducing the chance of this happening which means my win rate is even higher.

All this is in the book. Coming soon. Busy Xmas writing and videoing for me.

Order Flow Automated

The integration of the latest order flow technology into my trading has been completed. EVERY trade is judged on seeing exactly what "they" are doing. As you can see from the arrows on the chart below, I have been able to automate this information.

There are buttons on the top line that arm the algo so that when the conditions are met, the order is triggered. I can arm and disarm the algo with one click when I see a trade setting up. It only goes off if in fact the trade does setup. I can also just leave the algo on and let it do what it does but I make more money manually switching the algo on and off because I can trade much bigger size. I guess I just like the control of being a discretionary trader. Also, context is king and the algo cannot possible see ALL the context.

The algo sits on a VPS collocated within 2ms of the broker engine. There is no way anyone can be as fast as the algo VPS combination in getting an order filled.

I am finding that the HFTs are my friends and help me get to my profit target. My profit targets are close. For example. on the ES, T1 is just one handle or $50 per contract. Multiply this by size - even 10 contracts - and its not hard to see a decent green day.

I've finally got the book into its final outline and will try and finish the videos over Xmas, skiing permitting.

Perfection?

After a lot of work I have finally integrated order flow bars (called volume imbalance in MarketDelta) and the Steidlmayer dynamic Market Profile into my trading pictures.

The dynamic Market Profile is very much the same as the splitting into distributions that I have been doing for years. Adding the order flow bars is as close to perfection as I can get I think. I use my original EL pictures and filter them with the order flow bars. I've been trading a lot of ES over the last 10 days to validate what I'm doing and it has gone rather well. Identifying key turning points and the order flow is very clear. The added activity of the HFTs was an added bonus as their presence and direction was pretty easy to see during those few days last week when things were crazy with volatility.

The chart below of the FESX shows a clear read of the order flow. The red arrow shows the trend resuming.

I'm hoping to get the ebook finished over the Xmas period and it will be going into the full details of what I have been doing.

The Book: Update

The Book has been going and going. Sometimes I think it's like that play by Becket, "Waiting for Godot" that I saw years ago.

These markets are in a transitional change and I'm not just dealing with Market Profile which is relative easy but showing the new dynamic MP that Pete Steidlmayer is still developing and then wrapping the Order Flow bars around it all.

Things evolved and need to re-write and more importantly, re-video, a lot of material. I've had to discard a lot.

We have several main influences of change including:
1. The Algos - both HFT and also a lot of retail and semi-professional algos
2. The disappearance of the Locals as exchanges went electronic. Customer order size means that instead of trading with a local, customers are trading with customer counter-parties
3. Extended hours trading has become more important as Asia grows
4. More severe and constant legal insider trading and market manipulation by the FED and ECB

I'm just a tiny pimple in the scheme of things, trading my short term time frame, reading what "they" are doing and trying to join their action. The Book will show how I track that  action using the tools I've mentioned in the second paragraph above. It took a while to get the degree of certainty that I now have and I won't release anything unless it really adds value to what people are already doing. Trading needs to be more certain. I read the order flow like a Google map except that I have no idea of the destination, just the "now" of what is happening. Reading the now lets me understand how the next bar or two will react to the now. After that it's all trade management.

So the Book is under way again in it's final form. Mostly embeded videos so you will be able to see what happening. After all, Order Flow is a moving thing.

To The Moon Alice!

Today's trade reminds me of that oft used phrase by the Great One in the Honeymooners. All I had to do was see the LONG and be able to hold it, or at least some of it. The BUY was clear in both context on the MP and the order flow.

Better to Be Lucky than Smart?

There's that sayin g. It's sometimes true as it was today. I got long in the DAX. I was a bit bored I think and realy should have waited until after Draghi's speech, but I didn't. Then I got lucky and there was a sweep: a big order, relatively, came in and took al the offers. The VI bars were green on the offer and zero lots on the bid. The market then distributed. Chart below is not the chart I traded from - I was using my scalping chart of 50v. Same methods just very sensitive chart. The dynamic profile popped from the POC so the move was building. I guess that's what triggered the large order. I was luckier than smart but I guess you have to put yourself into the position to be able to be lucky.

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.

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.

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.

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.

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.

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.

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.

Evolution and Transition: My New Normal

Market Profile with Footprint Volume Imbalance = Order Flow

-          I have updated what I have on my discretionary charts to take advantage of the latest technology to trade the markets in transition. I recently showed the order flow bars - Volume Imbalance Footprint from MarketDelta. I have taken things further using Volume Profile and the new ideas that Pete Steidlmayer is using in recent updates to Market Profile. Pete has moved on to using volume and order flow in a quite complex series of database interrogations that create a number of charts and spreadsheets he uses to trade intraday and short swings. I have taken that and created a single chart and a legacy Market Profile chart that is more visual and intuitive.

T   Today's pic shows the further development of looking at order flow. I am using MArketDelta for all my discretionary trading as it provides all the information I need in one platform with the best support when I need to chart something new. As you know, I have been using the CCI to see the footprints of order flow for years and years. Now I can see the order flow directly. Win rate is even higher. I am not quite at Pete Steidlmayer's 85% win rate with these new charts but I am confident that with practice I'll achieve that.I made these changes after considerable testing. Leaving a tried and true setup was not easy but when you read the introduction to the book I am writing you will see why.

The Markets Today

The markets have been going through a great transition during the last few years. The transition is still underway. The reason for the transition is:

·         The Pits have all but disappeared which means there are no locals or specialists. This has eliminated the major source of supply to the markets. In the “was”, when a large order came in the locals or specialists took the other side of the trade. They then managed their position to spread it back into the market. This no longer happens and paper now trades with paper creating more volatility if the order is large

·         At the same time, the paper has increased in size. We now have many large hedge fund type customers trading so at the same time as the locals disappeared, the customer size increased dramatically

·         Also, technology is playing a greater part in market activity. The technology provides a cheap and instant access to the markets allowing traders to make more and shorter term trades at a lower cost of entry

All this has resulted in a much more order flow driven market place. While markets were always driven by order flow, the present markets have no intermediaries that dampen or shock absorb the instant activity which therefore results in more relative volatility.

The outcome of this is a much more supply driven market. So we have to trace order flow and supply in order to be Consistently Profitable (CP) in our trading. This means that we need to use technology to capture the information now instantly available and present it to ourselves in a way that enables us to make objective assessments of what is happening and there allowing us to infer what will happen. This means that we need to create a market framework within which to operate so we can see:

·         where there is inventory

·         when accumulation  is taking place

·         when distribution is taking place

·         when accumulation is likely to occur

·         when distribution is likely to occur

Once we have a mechanism for “seeing” this information we can trade CP. The goal of the ebook is to show how I have created this framework and how I identify the conditions I need to make profitable trades.

-----ooo-----

Here's the MarketDelta chart I now use. It looks a bit busy because of the Volume Imbalance numbers but I only look at that AFTER the trade is on to see how I need to manage it. Pete's mantra is to get the trade on when it fits the plan and then manage it. He's really right as otherwise I get a worse trade location.Trades have a "WHEN" and a "WHERE". This chart plus the Market  Profile chart gives me that. The book will show all. This part of the chart had 7 short trades worth 200 euros each per contract. The decision making was pretty objective, There are two modes: the first hour or so and then the rest of the session.

MP for Context, Bar Chart for Timing

Today's DAX trades worked according to Hoyle. These are the type of very high win rate trades that are needed for CP. I was done for the day for discretionary trading within about an hour or so.

DAX opened with a drive up. Job of the electronic local, like the floor local,  is to fade these moves by offering liquidity. We get paid well for this service. The bar chart provided the tining in the zones identified by the Profile. Market then retreated back to the 33EMA where accumulation began which told me to turn the position around. The subsequent pop got me out at a nice profit.

The book is going better now so hopefully I'll have it out before the new year.

It's All About the Context, Still !!

Thee key to discretionary trading is context. A pattern "works" sometimes and sometimes it doesn't. The distinguishing feature is the context.

I woke up with the ES in Asia up about 4 or 5 handles. Firmish. So I was looking to buy the DAX around the open if I had something to lean on. DAX opened a bit too low I thought  so I was there at the bid on the open and filled.

My target was the nearest resistance as the DAX would then catch up with the ES. Q.E.D.

This stuff is not complicated. I keep it simple. It just needs the hours to create the belief.

I'm done for the day as a discretionary trader. Flo is taking over the heavy lifting. We have a full house here in France for the August summer and we'll be off to the mountains for some tobogganing once the sun burns off the clouds.

Morning Trading Sequence

I started my day looking at the asian session of the ES. I looked at the pre-market DAX quotes. The result was envisioning the market opening lower and bouncing and testing previous day's VAH.

I placed three orders before the open near the VAL of yesterday in the BUY ZONE. Only one got filled so I was only 33% long.

From there, for the next two hours or so, I followed the rhythm of the market as it unfolded, buying with the trends and exiting as the rubber band stretched.

Trade location is critical to a high win rate. I want to trade where I have the highest probability of success. In today's range, that was at the VAH, POC and VAL of yesterday's Profile. We'll probably move out of this range later in the day but I have my other trading zones selected as price overlaps previous Profiles. The trick is splitting the Profiles into the correct distributions to reveal the support and resistance areas.

Its the Market Profile that Counts

A trade is comprised of the WHERE and the WHEN. Context is king. I can put on a perfect picture but if I ignore the context - Market Profile - then the perfection means nothing. This context is the difference in performance between a discretionary trade and an automated algo trade.

The chart below is a perfect example. The developing value area (DVA) is straddling the overlapping Value Area Low (VAL). Will it go into the previous VA or will price develop value lower? The bar chart tells that story as it reveals itself.

Looking at the bar chart, the picture is clear. Price is in a down trend and rallies must be sold. Short term scalping traders will cover and reshort. Slightly longer term traders will stay short and add to shorts until support is reached or until the market tells them they are wrong.

Each trader has a so called "style" which determines the rhythm of their trading and the types of trades they carry out.

The Market Yells Loud and Clear

Its impossible to know where the trend will lead. All I can do is identify the trend, take a position and ride the order flow to where it goes.

Seeing what is happening is important. Our tools let us see that most of the time if we use them. As I have said many times in this blog, the question is: "what are "they" doing?". putting the context of the MarketProfile together with out bar charts lets us see that.

I've had a number of questions about the OFT bars. They are very useful and give precise volume information. However, the VolumeDelta bars in MultiCharts can be coloured to give almost as much information. It's just not quite as obvious.

I have annotated the DAX charts below for a great trade today.

The pics below show the same trade on the ES and FESX. I didn't trade these.

Another Text Book Trade

Today's DAX trade was a real text book trade. These are the types of trades I'm explaining in the MP book.

As you can see, there was a nice ZIPPER of single prints that I was eyeing before the market opened. There was a bullish tone in Asia so I envisioned the ZIPPER being run up.

The OFT bars and the CCIs provided the timing on the trade. I entered LONG and put a EXIT at the resistance with an alarm. The target was hit while I was doing something else. I flipped to the chart and watched to see if the resistance would break - the resistance being the tail of the overlapping Profile.

We had fireworks last night in our village to celebrate the Fete Nacionale or Bastille Day as we in the english speaking world know it. Happy Bastille Day to all my French neighbours.

Anatomy of a Trade

I drew my FavFib lines onto the chart before the open of this mornings DAX trading. I also checked out how things fitted on my MarketProfile chart. The BUY on the MP chart had not much support but but the SELL had good resistance.

My plan was to take both trades. My backup on the BUY was to double down at the strong VAL support below the FavFib if the market went through the FavFib area.

As it turned out, the BUY was elected first and held. \price then moved up to the SELL where I took profit and reversed to SHORT. Not all the trades work out as envisaged but it's nice when they do. As I pointed out many times in this blog and in my training classes, envisaging is important as otherwise the market catches you by surprise. Envisaging looks at the possibilities and how they fit into my trading plan.

The Market Profile book will go through the whole process of constructing trades in this way.

OFT Example

The chart below shows one way of using the OFT bars.

Price opens in ES RTH with the bigCCI showing a downtrend. Price bounces against resistance of previous POC and the Tail at the bottom of the last MP distribution.

SOLD!

Its then a matter of managing the trade. The OFT bars just show the selling at a critical point. They are not a red light/green light indicator. The context, as usual, is very important in understanding what is happening. I'm spending a lot of time on context in the MP book. That's what is taking a lot of time. I've made an improvement to the OFT bars with a candle display as it gives more information quicker. The way that the Order Flow is coloured is different to each market as the volume of, say, the ES is significantly different to the CL. Again, I'm showing how this is done in the book. As you can see, the selling visible in the OFT bars gives a greater degree of confidence in the sale against MP resistance. Also, seeing the downtrend in the CCI immediately tels you what to look for as the market unfolds.

OFT Transition from Short to Long

The pic below is a good example of the OFT bars showing the transition from short to long. The red arrow shows the bar that is where a long can be taken against support as the predominantly red prices turn to green right where there is "support" from the Bollinger Band. The CCIs also show the possible transition.What the picture does not show is that there was support on the Market Profile too. Putting the two together is a very powerful methodology.

The Market Profile book I am writing will contain many embedded videos so that this technique can be properly shown. I will start with all the Market Profile techniques and then show all the OFT techniques and then I will put the two together so that the reader can create a trading plan to take advantage of  the higher win rate and larger average trades that can be accomplished using this idea.

I need to go back and redo a lot of what I have written and videoed but I am putting more effort into this project now. Once the material has been created I have a guy that will put the material into a format that can be read on many electronic devices.

Order Flow Trade Bars

A few times in my trading life something came along that was a game changer for me - something that increased my profitability by a significant amount. Another one has come along. I don't want to sound too optimistic but I do want to share when good things are discovered.

I'm not a great inventor but I am good at finding great uses for something someone else has invented. I am good at seeing the possibilities. Market Profile is a great example. The latest one is what I call Order Flow Trade Bars or called Volume Imbalance by the folks over at MarketDelta. In the last few years I had been looking for something that gave me more than the old Footprint or Volume Breakdown charts could deliver. I wanted what I had on the floor as a Local. I wanted to see what was trading at the bid price and what was trading at the offer price just as I did in the pit, and I needed that visually so I could react quickly to unambiguous information.

Was it "SOLD" or "TAKE 'EM".

The Order Flow Trade bars give me that information in real time. I can see when there is significant activity that should impact price direction. These bars are just simple OHLC bars with the notation of the number of contracts traded at the BID and the number traded at the ASK and with colorization to show significant Order Flow Trades.

My usual EL trading pictures have not changed at all. It's just that I now have an added filter for both entries and exits. I can get in one bar earlier and bail if Order Flow does not confirm thereby getting a better trade location with very low risk.

A trade is made up of the trading picture and the context. The WHEN and the WHERE.  The picture below shows the Order Flow Trade bars (OFT). The RED shows significant trading at the BID and the GREEN  shows significant trading at the ASK. This is MultiCharts and the OFT bars were coded by my programmer. When NinjaTrader 8 is released I will also have a NinjaTrader version. NT7 doesn't have the technology to produce OFT bars historically.

The Order Flow information has added significance at support and resistance areas and after pullbacks. I will be showing a lot more of these OFT bars in future posts.

Also, this information will be included in my Market Profile book which will need a significant amount of extra information added as the power of the Market Profile together with OFT is quite incredible.

Sell - Really!

The stock market in the U.S. opened and all the stock indices were FOR SALE. You had to be quick. I wasn't but Flo was on the case as you can see. Nothing fancy. Just identifying the trend and trading the pullback. These are the trades that show the benefit of algos even just for catching entries.

Blink and You Miss It!

Today was a great example of the benefit of Flobots. Flo went short just after the open on the pullback in the downtrend. I was having an espresso when the trade triggered. I could have been looking at my Crude charts or been doing something else and still missed the trade. Flo didn't and doesn't.

I have alarms that I can use to announce a trade so I can hybrid trade it if I choose or I can ignore the alarm and Flo manages the trade. As you can also see, Flo had plenty of re-entries. Looking at my MP chart, I saw an obvious target of a VAL a little above the actual low that the move made.

Just Take the Surest Trades

Lots of traders sit in front of their workstations grinding it out, averaging, say, $4 a trade. Others look for better trades looking to have an average trade of $200 or more.

Both ways work. It's just that one is a lot more labour intensive. My Dad taught me from a young age to use brain not brawn. It took a lot of years to understand how that relates to trading. If the average winning trade is too small then a large loser will wipe out too many winners. Trading is a matter of math and the math has to work.

Using Flo, I have a good handle on the math. My backtesting, while no guarantee, gives me a strong reference of what I can expect going forward. If a picture has an 80% probability and the trade location is correct then my expectation of an average profit larger than $200 can lead to the correct trade profile to be CP.

The trade below is one such picture. The trade is an Outside In trade with the exit at the EMA, a mean reversion trade.

My Flobot trades are a reflection of what I do as a discretionary trader, taking the "best" trades.

Adapting to the Markets

I've lengthened my bigCCI to 144 on most periodicites to better define the trend. It started with the indicies as we entered this almost one time frame environment. The idea spread to other markets. I'm trading Crude, Gold, Currencies as well as various stock indices.

The thing worth mentioning is that a portion of my trades last up to 48 hours or so. There are a lot of opportunities holding "overnight". The markets are almost 24 x 7 so why shouldn't there be opportunity at all hours. The chart below is one such trade. I've been selling the Euro/$ since just above 1.39. I have missed some of the gaps down but by holding my trades longer this has been minimized.  The NinjaTrader chart shows the Bloodhound logic choosing the "right" sling (pullback/thrust) for a very good entry. I've got a stochastic on the chart to show that cyclicality is not enough. An entry picture conforms to what I need to see when I'm trading as a discretionary trader. All those conditions must be in my entry logic for a signal or auto entry.

I'm still short some on this trade, eventually looking for 1.335 as my next major target but I'll be in and out a number of times before then.

Anyone Short?

This is my basic ES algo again using NinjaTrader and Bloodhound. As you can see, there were only LONG trades on this whole move up. The FloBot identified the trend and provided signals for entries on pullbacks. This can be traded manually, hybrid or fully auto. The mode that should be used depends on both a traders psychology and finances.

The issue is the EXITS. Finding these entries was not difficult. Avoiding short trades was also not difficult. Working out when to exit was harder. As a discretionary trader, I am VERY short term. I want to enter on the pullbacks and exit as soon as I'm far enough from the EMAs. As a FloBot trader, I need to increase the size of my average trade and so use dynamic exit criteria to keep me in the trend. This is where it starts to get more complicated.

FloBot Auto and Hybrid

This is the ES over the last few days. I programmed Flo using Bloodhound. This is the basic Inside Out trade buying the thrust after the pullbacks in the trend. Not too difficult as you can see.

The Flo logic can be made to be more sophisticated by adding more dynamic exits and even some additional trend filters. The creation of an algo is an iterative process for me. I start with the basics and then build additional logic as I sculp the algo to trade the way I think in my discretionary trading. Bloodhound is particularly useful for this approach as I can immediately see the impact of logic changes on the fly as I "sculpt" and make changes.

Bloodhound also has some nice buttons so I can hybrid change and add/move stops and targets.

Pictures!

I see trades in pictures. Yes, I've backtested my pictures. A trader can have an arsenal of a number of pictures and trade them as they appear. Or they can have just one or two and just trade those.

Today's DAX is one such picture. I remember seeing this so many, many times. We traded it live in original trainning video. Its an Outside in trade with the MP context. I just close my eyes and do it.

Outside In!

The times are still a-changin'. The effects of the governments' activities to "repair" the impact of the events of earlier this century are still causing market participants to act like Pavlov's dogs. While we are in a somewhat artificial environment, its still the same as before - markets react to what is happening.

One aspect of the current "fingerprint" is that markets are perhaps more nervous and watching for the possibility of change even more intently than before.

For me, Outside In ( mean reversion to some) trades can be very effective.

But as for all strategies, Outside In has a trade off. While the markets are in a trading range which is most of the time, Outside In is very profitable. However, when a trend begins, the trades have to be either filtered out or managed.

These are NinjaTrader charts with Bloodhound used to create the flobots.

So how can you filter and how can you manage?

Filtering is a matter of observation and testing. I can filter out trades that would be losers when the market trends using the slope of my EMAs. If the slope is too steep then no trade. Others use the Wells Wilder's ADX but I have found this to be too lagging for my timeframes.

For managing, I double down. My purpose is to average the basis price of my entry. I may have to do this more than once. Yes, I occasionally take a loss because I know that the markets can stay irrational longer than I can stay solvent but again, that "uncle" point is a matter of testing.

Whether I trade with a flobot or as a discretionary trader, the testing I do gives me the metrics I need to be able to maximise profitability. Without that testing, I'd be guessing.