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.