Nov 022010
 

It’s been one month since I started this series and what an amazing month it has been.  I started the series because I knew I was about to transform my trading in a very profound way and I wanted to journal the process.  I have discussed the psychological issues that were holding me back.  Then I discussed the indicators & multiple time frames that were distorting my vision of the markets.  I talked about using market profile & volume profiling to determine the best areas to do business, and I talked about order flow to confirm entries.

So let’s put it all together:  Before the market opens I go over the market & volume profiles.  I mark off any price levels where I expect price to either be accepted or rejected.  I also come up with some hypotheses for what the market may do.  I started doing that for my swing trading over a year ago and it’s been very helpful.  The market doesn’t have to actually do any of my hypotheses but just the act of me thinking them through helps me to be prepared.  For example I may have a bearish bias, but I force myself to come up with some bullish hypotheses.  Then if the market is bullish I can relate to it and see it, instead of just saying “Ah that move up is bullshit!”

When the market opens I wait for price to come to one of my areas and then I determine whether I think the level will be accepted or rejected.  I mainly look for levels where price will be rejected.  I look at a variety of data to determine this.  Currently it’s the DOM but I also look at (or have looked at) a one minute chart and a volume ladder.  I use these tools to enter and manage my trade.

If the context is right (the “where” and “which way”) then the entry isn’t as crucial.  But I like to get a good entry so that I can use a tight stop.  A tight stop will allow me to increase my size.   Once the trade is on, this is the real challenge of trading – trade management.  Most traders focus on the entries, but I believe trade management is the ultimate edge.  I feel that someone could flip a coin for when and which direction to enter and I could almost be profitable.  If it went against me I’d close the trade.  If it went in my direction I’d trail a stop.  I haven’t actually tried that, but that’s how I feel.  That is what I’m doing when I manage my trades, I just use context to give me better odds than a coin flip.

While waiting for price to come to my area, I’m watching the DOM looking for scalping opportunities.  As Al Brooks says in Reading Price Charts Bar by Bar, every trade starts as a scalp.  If there is not much context for it then it’ll remain a scalp.  I find 4 ticks to be a good target.  If you catch some traders on the wrong side then it’s not difficult for the market to move one point as those traders stop out.  If the trade has some context then I’ll let some of the position run.  And if the trade has a swing trade context, then I’ll look to hold a few overnight.

The key to this is to have very small losses and to slowly increase size.  My ultimate goal is to trade 100 contracts on ES.  That may seem like an unrealistic goal but I figure if I could trade 50 and my account size was big enough for the risk to be acceptable, then I could trade 100.  And if I could trade 25 and my account size could handle the risk, then I could trade 50.  And so on.  It all starts with 1 contract.  Just getting a few points every day without excessive risk.  And slowly increasing size:  1,2,4,…100.  I’ve traded 8 contracts without stops so I should be able to trade 8 with stops right?

The past few days I’ve been scalping Dax, Crude & Euro but I found they only divert my attention away from my main markets which are the Euro Bund & ES.  So I prefer to really concentrate & focus 100% on the single market I’m trading.  Once I get that mastered I’ll think about trading a second market, if I even need to.

This post has ended up being a template for a trading plan, specifically my trading plan.  I wish I had had a blog series like this 3 years ago when I started trading.  I would have saved myself a lot of time, stress, and money.  So I’m paying it forward by making this series available to you.  I hope you have found it useful and that it will be of help to you in your own journey.

Going forward, I’m not sure where I’m going with the blog.  I’m avoiding making any predictions about what the market may do.  I do like to come up with hypotheses but they’re just that.  Brainstorming of ideas so that I can be prepared for whatever comes.  So I’d like to focus the blog more on the rest of my journey.  I plan to share some trades, maybe even real time, like I used to do.  And I’d like to talk about psychology as well.

In order to make all this more interactive, I have a few ideas:  I’d like to organize a webinar to discuss everything I’ve written about in this series.  I’ve received a lot of feedback already, with many of you telling me how much my journey resembles your own.  I bet it’d make for a very interesting discussion.  I’ve never organized a webinar before so maybe we can start with some informal chats.  I’m usually off to bed when the markets close so we’ll have to work something out.

I’m also thinking a forum would make it more interactive.  I don’t have the time or knowledge to run a forum so I’m currently looking for help with this.  If you’re interested in helping, please let me know.

Thanks for reading and I wish you the best of luck for your own journey.

Continued in A look back on my journey – Part 10 – Epilogue – A look at success & the new journey begins

  10 Responses to “A look back on my journey – Part 9 – Conclusion”

  1. Thanks for sharing your journey. I’ve enjoyed the read and am amazed at how many points we have in common.

  2. It was nice to read your journey.

    Some ideas if you are thinking about a forum…
    …a section where people share their interpretation of each trading day/week (after the fact). That would bring different technique, methods and theories on the table and let everybody see the price action with different eyes and learn from others.
    …a section where people can share two ore more hypotesis for the coming day/week.
    Just my 2 cents.
    Good luck
    UC

  3. Great blog, Michael. I think it is a good idea to use the blog as your interactive journal, so discussing trades may be helpful for you and your readers. It also seems to me that ft71 has a good influence on your journey. Btw, are you trading through velocityfutures?

    Cheers,
    Markus

  4. I opened a small account with Velocity so that I could play with X_Trader. So far I like Velocity.

  5. Great series.
    Looking forward to more : blog and/or forum.

  6. On Velocity, do you have to make some trades with them. Because I was enquiring with them in terms of having a demo or real account. They said if they see no activity in the real account then they will delete the platform. Not sure if I misunderstood them as the response was via email. BUt just wondered if you knew.

    Thanks

  7. Velocity has a deal where you can get x-trader without a monthly chrage (fees are bundled into higher commissions). If you do this, you must make at least 1 real trade per month. I don’t know of any other restrictions. I rarely trade on sim now. When I do I usually just use the ninjatrader dom. The velocity x-trader sim servers have a slight lag.

    Btw you can get a 1 week demo from them just by asking. If you don’t need x-trader then I highly recommend ninjatrader as it’s free for simulator. You only have to pay for it when you want to start trading live.

  8. Nicely done, enjoyed the journal. About 3 years.. yup. Amazing it takes that long to realize what so many where saying all along.

    A stubborn mind is a terrible thing, in trading. 🙂

    S.

  9. I’m a few years behind you on this journey, I’m a closet FT71 follower. Thank you for sharing your journey, I’m yet to learn to convey my thoughts so well in words, you do a great job! My next task is to catch up with the rest of your blog to current times, looking forward to it.

    Cheers

  10. Hi,

    Great blog and I also found it interesting. I have been trading for about 10 years in many different guises, Technical Analysis, Fundamental Analysis, Spread betting, Futures trading and some time ago I did come across Order Flow trading. Through the research did I managed to glean the following about the DOM.

    Firstly you have the volume profile which gives a sort of histogram image where once trading settles down you can see the trading range become established, I think this assists you by allowing you to clearly identify where the highs and lows of the current trading day are. If you have also calculated previous days high/low this can help you verify that the ‘Live’ market has also identified these areas.

    Then obviously you have the Bid/Offer sides, but be careful these show only resting limit orders (limit orders not yet matched). These can easily be yanked out of the market by the trader before they get matched. So you may for instance see a confluence of large buy limit orders as the market approaches the daily high. These could be spoof orders trying to entice buyers to continue buying, before being yanked out of the market and then re entered on the ask side to trade the market down. Some versions of the DOM I have seen give a bit more information about resting orders versus matched orders and also give information about the orders that have just been yanked.

    But the key point here is that at major points in the market like the previous days high or low you may get large institutional traders playing games, one of the signs of this is that say you are trading long and a) You are approaching a major point in the market b) There are some large buy limit orders on the bid side (Resting orders) and c) price is not moving very much, then you should treat this with some suspician since these orders could get yanked out of the market before being matched. They call this spoofing.

    However as I understand it many large traders try to hide their orders and they do have the intention to enter the market but here you will see a large confluence of resting buy limit orders, that then get matched and the price ticks up. The difference is subtle and therefore it can be dangerous in my opinion to play at these levels.

    A better way might be to enter at quieter areas of the market, where you may not even get involved in the large institutional interplay.

    I do agree that the DOM is a valuable asset for scalping especially a fully functional DOM that gives you a) Volume profile b) Split Volume profile c) Matched orders as opposed to resting orders d) a view of orders that have been yanked from the market. I think the DOM can also help greatly is calculating / confirming a) Fair value in a live market (intra-day trading range) b) Whether the trade you just entered is a good trade based on supporting information (like if you entered long and you see a build up of buy limit orders below you and you are not particularly at the high/low of the days trading range) c) Sellers are exciting the ask and jumping on the bid side (not just hitting the stops, this is just a vacuum from them deciding its too risky to stay in the market long right now).

    You appear to hear a lot of people using the term Order Flow far too generally, what many of them mean is the view you get from the DOM and the tape. However in my opinion depending on exactly how you intend to trade using market (Scalping, Swing Trading, Trading reversals etc) I think you need to see the big picture across

    a) The likely trading range for the day (intra-day, Normal charts, DOM Volume profile)

    b) Definition of key areas where trading activity will rise (Major highs/Lows)

    c) The change of Delta at the point where the move will take place (Cumulative Delta or footprint chart)

    d) Is the entry signal (buy/sell) supported by the build up of matched contracts on the Bid/Ask side of the DOM.

    It seems to me like many people trade what they call Order Flow only using the DOM, this is typically ‘Scalping’ activity and they are commonly looking only for 3/4 ticks. This style of trading might not help very much when you are using other types of trading strategy except of course for giving you supporting information.

    Thanks,
    John.

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