Jan 212011

Recently I wrote about the Auction Process and that has been my focus this week.  I’ve traded this week on sim with the exception of one trade that was too good to pass up.  My results have been much better than anything in the past months.  I’ll post the results this weekend once the week is finished but I wanted to write about my “break-through”.

I feel like I’m starting to understand the auction process.  This week when I made a mistake I was able to recognize it immediately.  In the past I’ve felt lost and FT71 would make a comment and I’d have a lot of trouble understanding why.  This week I was much more in sync with FT71’s tweets.  A few times I had on a trade and he’d talk about targets and my target orders were already on my DOM at exactly the same levels he tweeted.  Here is an example from yesterday:

There are still plenty of things I don’t understand especially real time but I really feel that I’ve made progress in the past week.

Here are a few changes that I made:

  • I trade 3 contracts so that I can scale out and stay in the trade for the big wins (such as Dalton’s “Destination Trade”)
  • I trade only one market and focus intensely on the auction process.  I keep asking myself FT71’s 3 questions.
  • Since my losses are small (3-6 ticks usually) and the payout is large, I’m not afraid to “try it”.  I’m accepting that the next trade could win or lose and that the next trade is just one of many.

Now this week has been on sim so the question is can I do this with real money?  It’s hard for me to stay in a trade with real money, knowing I could give back the open profits.  Here is an example of an open bund trade as I’m writing this:

It stopped short of my target and it’s pulling up to 74.  But I’m leaving it alone.  60 is well ahead of the destination so I think it will get filled.  Yesterday I let it go and left for lunch and came back to find it filled.  I realize that in the past I was so fast to grab 3-6 ticks that I was missing out on some great opportunities.  And now I’m working on capitalizing on these opportunities.

When wins are small (my expectancy hoovered around 2 ticks for a while), missing a trade is not that big of a deal.  But when wins are big, missing a trade can be the difference between a profitable day and a losing day.  So my current focus is on better understanding the auction process real time in order to eliminate mistakes.  I’m not sure if I want to go back to real money next week or stay on sim.  For me the learning process is continuing and I think it’s better to continue the learning on sim without the psychological issues of trading with real money.  If I can trade better next week then I’ll have more confidence to trade real money the week after.

I hope your trading went well this week.

  10 Responses to “Beginning to understand the auction process”

  1. Your blog is VERY inspiring, helpful, and honest.

  2. Thank you for the kind words Ashish. The blog has been very helpful to me in journaling my experience and in the feedback & collaborations with other traders.

  3. My target finally filled 2.5 hours after my entry:


  4. Great stuff, Michael !
    How do you scale out? Do you have a scalp target which is about the ticks you risk, a HVN and then a LVN target? I am really looking forwar to see your trades and stats.
    Imho it is very good that you focus now on only one instrument. I also would suggest to trade one more week on sim to enrich your emotional capital and to get more immersed into your improved approach.


  5. Hi Markus,

    The first target goes before any minor level which could be a LVN or previous turning point, I want to get at least my risk on the first target & ideally 1.5x my risk. So for me it’s about 6 ticks.

    Second target is around CHVN, HVN, VWAP, etc. No set rule here but ideally around CHVN unless it’s very far away then I put it closer.

    Third is ahead of CLVN on other side. At which point I’ll be interested in looking for a trade in the other way.

  6. Hello Michael,

    Sorry my english is not very good.
    Do you watch the time and sales window? It’s a very good tool to understand market psychology and to anticipate where the price will go.
    Like Markus, I would suggest to concentrate you on one market and use the others for correlation only (stoxx + bund the morning and stoxx + ES the afternoon (european time) for example). But I think you know that.

    Your blog is great and your work is impressive.

    kind regards,

  7. Hi Michael: I started a new thread within the forums area on VPOC shifts. I am not sure that everyone on this board checks this section of the forums on a regular basis. So I thought I would mention it here and ask everyone that is interested to give it a read and provide your comments. Cheers.


  8. Great idea. I’ve been thinking about these VPOC shifts. It seems Dalton & FT71 may have slightly different views, or I’m not understanding it fully. Will check out the thread.

  9. Hi Michael

    Thanks for sharing your experiences. You wrote about taking trades near CLVN and hoping for it to reach CHVN. Are you using a pattern for setup or just entering off what the dom or footprints are telling you


  10. Mark – I do look at footprints, a propriety indicator I’m working on, & the DOM. I want to see some weakness. There isn’t always a footprint setup so I don’t require it but I feel better if there is. Seeing weakness doesn’t mean strength can come in a second later, but I just don’t want to enter against strength. It’s all a work in progress. Today on the bund I avoided going short early by being patient. But at the same time I missed a long from the low.

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