Stress and Trading

I just came across a webinar delivered by a psychologist, Dr Andrew Menaker, for my friends at MarketDelta about 18 months ago.

This is probably one of the most interesting takes on trading psychology I've seen since Mark Douglas' work.

You can see it here.

If you know your enemy.....

Seeing Orderflow Change to Sell where I Expected It.

As I have said so many times - Context Rules. The pix below shows the bigger picture first: The market traded a swing down and then retraced - our typical pullback in the direction of the trend. While we used to just use the CCI to track this we can now use orderflow. The indicator is the Logik Volume Wand which creates the Volume Profile of the swing. There is also the VWAP there. The second pic is a close-up of where the trade triggers. As I said, there was a swing down and then a retracement. The retracement went to the POC of the swing and right below the VWAP - VWAP is the average value of the swing. The red arrow shows orderflow changing from buy to SELL and this is the trigger.

The context is very important as orderflow changes direction often and often without follow through. What is different here is that the context says that if the orderflow changes direction at the POC or VWAP then there is a good enough probability that there will be a big enough move in the direction of the change. The next piece is the trade management: stops and targets. This last piece of the trade is a very big part of being CP.

It Just Got a Lot Better - My New Tools.

I thought the beginning of 2016 would be a good time to share where I am now in my trading. Let me be clear, the basis has not changed. I trade inside out trades by trading the pullbacks in the trens as well as outside in trqades fading overbought and oversold conditions, all in a Market Profile context.

Lets start by talking about where Pete Steidlmayer is now. Here. Pete talks about trading the swings between accummulation and distribution. He tracks VOLUME. Now that actual live volume is available, he says that TPOs are outmoded. While I don't totally agree with that as I believe that Market Profile provides both support and resistance information as well as a big picture information of where value is moving, I do agree that we now are able to rtrack volume on a much more granular scale.

I tried using Pete's Volume Strips that he refers to in the video when they first became available, but I did not "see" the order flow clearly at all.  I then tried to use Pete's Cap32 software and had a guide with me for a week. Sadly, this did not add anything to my seeing order flow. Perhaps it was just me.

What began to provide me with more information was firstly cumulative volume delta and then MarketDelta's Volume Imbalance charts. Finally, the order flow was becoming visible.

What I have now done is to capture both the order flow and volume information to trade the same way I did before in order to more precisely see my entry and exit points. You still see the CCI to measure trend as well as Keltners and Bollingers to identify overbought and oversold. What is additional is the inside the bar trades and the Volume Profile (VP) to understand the order flow in each swing and to identify, more precisely, my entries and exits (stops and targets). These changes to my chart have provided a huge improvement, especuially in the types of markets we are trading in this modern eara where:

• there are no floor locals - everyone is an electronic local
• Algos make up for a great majority of the trades and volume that takes place every day in most markets

 So lets talk a few specifics. The VP identifies whether a pullback is a probable entry point or not. The VP also allows me to use tighter and better stops. To achieve this, I use multiple VPs on my chart as the swings develop.  The inside the bar information you see allows me to fine tune entries and to better identify exits.

The final piece is the buttons on the right I call GEL. These buttons allow me to hybrid trade and use specific rules in specific context whwre a set of pressed buttons are only valid for the particular trade I am attempting. They reset to zero after the trade is entered.

The Volume Profile is available from PureLogic. I'll provide more info on this great tool in subsequent posts. You can see the Volume Profile on any bars you select and shows, for that selection, VA, VAL VAH, POC, VWAP and Standard Deviations plus a lot more.You can buy it here.

Algos for Hybrid Trading

For me, the optimum way to trade is hybrid trading: a mixture of algo and manual.

What this means is that I have an algo that I can turn on and off, and more. The more is that I have buttons for the different components of all my trading pictures and trade management and I can select which parts of which picture I want to use in a particular context.

I do not believe that its possible to achieve the same profitability with an algo as a proficient discretionary trader. However, with a hybrid algo I can achieve a larger daily consistent profit for less risk than discretionary trading of just one market.

It is not possible for me to program all of the context into an algo and that is why hybrid trading - turning on and configuring the algo for each trade - works best for me. You can see more about this in previous posts and pictures.

Technology Wins! Algos Take First prize.

I saw an interesting article in this morning's Sydney Morning Herald here. My day starts with reading this newspaper, not only because its the newspaper I grew up reading but also because the international dateline is very near Sydney and the day starts there so by the time I wake up in Europe, the news has been well researched and written and I get a good summary of the day before.

What this article talks about is something that I started believing in 1979 or even before, that technical analysis is the only way to get a true idea of what is happening to a particular instrument in the market and that fundamental analysis is flawed due to latency and hidden information.

There can be no better technical analysis than orderflow and price action in context.Using algos to hybrid trade takes this approach to its logical conclusion. Not using algos to action and see the orderflow puts the trader at a significant disadvantage and at the other side of CP traders' trades.