Andy's Question - First "Would EL Take this Trade"

This was the first submitter of a chart so I thought I'd answer it today to start Kiki's idea off so you know what to expect.

Andy asked: " The first trade I took was a pull back to the top of the VAH and the MA. The risk I saw live was we 1 ticked the IB and trend was a little long in the tooth. Waiting for a second entry would have saved me a stop but I still think it was a good trade... am I wrong ... did I miss something? The second trade was perfect........

Here is the chart. It looks like Ninjatrader. I don't know which datafeed Andy uses.

 

Trade 1 was not a trade I would even consider. The only plus is that its near the 33EMA. Otherwise, the order flow had turned to selling - VB had a row of reds and the CVD had peaked and turned down. Additionally, the momentum had turned down on both the 45 and 6 CCI. The bar where Andy marked as a stop was a good entry for the short. When price was near the VAH, the idea was to evaluate what was going on there. The VAH line is only a line on a chart and is an alert to pay attention. 

I want as much as possible in my favour for getting to my first scale. Compare your first trade with the second which was indeed perfect, using the above criteria.

It all comes in time if you focus on processing what you see is happening.

Trying our virtues

How do Americans deal with criminals? Whether they be alleged robbers, murderers or suspected terrorists, we hold courtroom trials to decide their guilt or innocence. And regardless of how guilty they may appear, we give them fair trials despite the costs. This is the way it is done in America, and how we are different than many other nations.

Yet, there is a clamoring in New York City about why we should not hold the accused 9/11 mastermind, Khalid Sheikh Mohammed, accountable for his alleged crimes in civilian court. The Republicans say that he is far too dangerous to be tried in federal court, and instead should be under the jurisdiction of a military tribunal where he supposedly has fewer rights. Yet, the 20th hijacker, Zacarias Moussaoui, and the shoe bomber, Richard Reid, were both found guilty in civilian courts with no terrorism ramifications. So why is there such a fear with KSM?

There are now reports that Western Pennsylvania -- specifically Pittsburgh -- could be the location for the terror trials because hijackers crashed Flight 93 into a Somerset County field. Why is there so much fear over a trial here? To quote a former president, "Bring em on." We should be hungry for a trial for the man who is accused of orchestrating the worst act of terrorism in history. We should believe that our justice system will give him a fair trial and deserved punishment. I welcome this judgment and the impending security restrictions in my hometown that might accompany such a proceeding.

We hold ourselves to a higher standard, regardless of the inherent dangers. What has changed since we proudly wore T-shirts after 9/11 that read... These colors don't run. So why are we still living in fear? Why should we be afraid to hold a man accountable for his actions? Instead, I think the terrorists should be frightened that we are keeping to our ideals rather than stooping to their barbaric level. We are ruled by law, and that is a powerful force that should not be broken.

Would EL Take This Trade?

I asked EL if he would do a series of posts with the theme "would EL take this trade." So, if you want to send your chart with the trade marked that you want critiqued, EL will start this on Monday Feb.8th.. EL won't guarantee he'll do all the charts he receives and he reserves the right to pick and chose as he sees fit. It doesn't matter what market you trade, EL's order flow method works for every market we've tried so far. So start submitting your charts now, to Electroniclocal@gmail.com. This type of exercise is really helpful for me but hopefully everyone will benefit. They will be posted with the comments for all to see. Can't ever have too much chart time ;-P
Kiki

More Trading Opportunities or Surer Trades - Which is Best

In talking with Kiki during our tweaking the FloBot's win rate, we had a discussion of whether it was better to have more trading opportunities or whether the trader should be more confident that the trade he was putting on was a winner.

I can make it pretty sure that the trade will be profitable, but then I will have very few trades. It's like having a slider between % win rate and profit per contract per week.

Let's say that a trader needs to make $500 per day trading.

Trader A can have a trading plan that says that he will only take trades that are 90% sure to make 1 point with a stop loss of 2 points and he will trade mechanically. That means that a trade will only make $46 per contract per trade. On back testing, Trader A finds that there were on average 10 trades a week of which 9 made $46 and 1 that lost $104, a net $310 per contract per week.

$500 earnings per day is $2,500 per week. Therefore to meet his goal, Trader A would trade 9 contracts per trade. His risk per trade is 9 times $104 or $936.

Now, let's look at my methodology. I'm Trader B.

I have about a 75% win rate on inside out trades. I trade in multiples of 3 contracts. My risk per trade (per every 3 contracts) is $312. My average net per day is over $900 per 3 contracts or $4500 per week.

So Trader A's Risk/Reward is 2.67 to 1

Trader B's Risk/Reward is 14.42 to 1.

Most traders focus their energies on deciding whether to take a trade or not even when it exactly meets their trading plan's rules. Why? To try and filter out a loser. For me, trying to be surer means less profit and really more risk - the risk of going broke as the statistics of the 90% of traders who do not survive, demonstrates.

On those figures it looks like being surer that a trade will be a winner is not the way to make money. As Pete said, "Get the trade on and manage it."

Looking at trade statistics is important to me as it helps me make decisions. Using a program like MSA from Adaptrade.com lets me do a lot of "what if's" when I want to tune a setup.

How to Start with the Context

Happily, watchers of the blog are now getting more interested in Context but somehow still don't quite get it I think. Kiki had the same issue in the beginning. There was a comment yesterday about a trade from Otto:

Fist of all thanks for this great blog and all your sharing!

at 16:19:29 we had a long @ 1086.50 (if im correct...) i was thinking that we had some room to Yesterdays val @1090.50. We had already 1090.50 high.

But trade didnt get far.
Was it a valid trade? was context correct?

My answer was:

Otto, I would not have taken that trade as you were near the top of the developing VA which was resistance.

 OK, let's get a bit more specific.

I use VAH, VAL, POC, DVAH, DVAL and single prints to lean on to make trades. The EMAs are also areas I lean on. The areas that are visible before I start to trade, I mark on my Profile. The others such as the DVAL, DVAH and EMAs I watch as I trade.

There are setups that come along nearly every day that I trade. An example is the ES RTH Gap Trade. There are more. You find them by observing and by replay and by scouring charts. I'm not going to do everyone's work for them as it has no value unless you find them for yourself. Besides, if you don't want to put in the effort, it will be reflected in your results.

Its vertical price movement in context that I trade. I don't trade indicators. Indicators just give me information about vertical price movement in context. I focus on that.

Winter doldrums

Another snow shower has blanketed the region, making for a beautiful scenic scape but also keeping us indoors. I've found this winter to be the worst part of unemployment because it is much too cold to go for a walk around the block or a bike ride on the trails. Those daily exercises were good for the muscles and soothing for the soul. The bike rides, especially, gave me time to ponder what my next moves would be to find a job.

However, I've found that the winter weather has allowed me to become much more productive in searching for work. And there seems to be more jobs available now that the holidays have passed and companies are more willing to add payroll. That doesn't mean it seems more likely to find a job, but it does appear that more companies are advertising.

So the occasional glance out my office window gives me a gorgeous reprieve from the automated job applications I've been filling out for more than seven months.

Is it me or the Context

I'm writing more on this subject as I am getting mails and comments saying that it's helpful.

If you get the context right, you can get the timing wrong and still make money.

A  good example is yesterday's comment about why I didn't take the trade a few bars before the Trade 3. I said that if you had taken the trade it would not have really mattered as you would not have been stopped out.

This is true of many setups. It takes a lot of experience to make "perfect" judgments in the heat of battle when you don't have a lot of time to make that decision. So what do you do until you get enough experience? Well, you use range bars to slow the action down. In addition to revealing vertical development, range bars also get rid of the horizontal development which is what I want. In doing that, it gives me more time to make a decision. Also, it makes timing more forgiving if the Context or as Rino so eloquently puts it in a comment ( the interrelated conditions in which something exists or occurs) is right.

The big caveat for all of this - just getting the trade on and managing it. Using whatever methodology you use, that you have back-tested, to prove that it is profitable and that it's other stats not only meet your requirements, but that you are immediately aware of the possible and probable maths of your methodology.

For about 30 years I have been using a  computer to test my ideas. During that time the technology has moved ahead dramatically and the costs are lower. I take advantage of that and back test and forward walk everything I can. Sometimes I need to use the computer as well as eyeballing as I cannot program some of the context and nuances I use. But if the setup works well enough without the nuances, I know that it will work better in real time as I will manage and filter the trades within the context I am trading in.

The ES is in paralysis waiting for Godot (= the Fed).

Let the Context be With You!

I had a comment asking about Context and what I look at.

It's a huge subject but a short answer is: I look at what the market is trying to do, likely to do, where it might do it, where we are now and where we are going. I do this looking at the profile as well as range bar chart and the indicators.

I'm writing this as I'm trading.

For example, at 14:31:11, a minute after RTH trading in the ES opened, there was a sell setup. A sell setup that Kiki's FloBot would surely have taken. Order flow was red, momentum was down. But I rejected the trade because we were at the bottom of the zipper, the gap trade boys were likely buyers, the 45CCI could easily bounce. Context. This is why I have a high win rate. I'm not looking at indicators as indicators. I looking at what is happening and processing the information. There is a big difference. It's a matter of what you focus on. I truly believe that unless you focus on context, your win rate will suffer.

OK, Kiki's FloBot would have taken the trade and she would have it on - short at 1087.00 - as she would have no choice, if FloBot was turned on.(We're still in testing mode) What happens next. Kiki would look at the CONTEXT. She sees its not a good short. Exits at either 1087.25 or 1088.25. Small loss - doesn't matter- but she doesn't miss trades. So if you're  not forced to take the trade by a FloBot, enter manually manually and take the trade, you evaluate your trade at the close of every bar. You then have a long at 1088.75. Context is right. Bottom of yesterday's profile, gap boys are buyers, you are responsive to VA above, VB is green, CVD had got to be lagging so ignore, momentum up as 45CCI bounces off zero.

This is what context is all about. You then had a replay of the previous swing. This time it was easier not to sell into the hole as you saw what happened last time. This was exactly the same. Then a buy at 1089.00. It shook your tree a little but hardly any heat. But even if you were shaken out, you didn't lose much and would surely re-enter 1090.25.

Market then motored up to the POC at 1096.00ish where you ran for cover at the Keltner extreme. Market pullsback and chops around with the 45CCI staying above zero, EMAs green - trend is still up. I'm looking to buy the market, just need a setup - trade location is what I want. Market 50% retraces and setup a buy at 1092.50. I'm looking for VAH at 1097.75.

So, I trade like a footballer plays or a tennis player. I have a "court" and I know where I am. If I didn't, how would I know when I am wrong?

OK, we hit 1098.25, just past the VAH. Nice trade and context told me where I was and where I could go. All I had to do was ride the order flow.

Click to enlarge

Let it Flow

Kiki worked all weekend on her FloBot automated entry system. I call it an entry system because we have decided that we will use it an entry system, so we can catch trades in a number of markets and then manually manage them in accordance with the philosophy I have mentioned in the blog.

We are starting with the MultiCharts platform and Easylanguage as we have a production application we can deal with. We will do a MarketDelta version once MD finishes it's beta. We continue to use MD, as usual, for trading as per the chart below.

Kiki and I have been talking about the FloBot for a while now and decided to build it in modules. The modules are the different trade entry setups we use. The criteria for us is that whatever else we do, the testing of the entry must result in a win rate of at least 60% with price reaching the first scale point. When we run the testing module in MC, we are only looking at the %Wins when writing the trading script. I expect to both add and delete nuances into the script to get the win rate we want.

The interesting thing about MultiCharts is that there is a button on the chart to switch the autotrading engine off. In this way we can switch it off once an entry has been made and then go to our DOM and manage the trade from there on our usual discretionary basis. I also expect to better the %win rate in real time as we will exit trades before the testing stop loss if we see the context warrants it. 

I'm running the FlowBot with our first version and its quite exciting  Maybe Kiki will win me over with this automated entry, as it will ensure that Kiki does enter all the trades.(a problem for her) And I must admit I wouldn't mind not having to concentrate so hard for so many hours, while be able to watch more markets. What happens afterwards is another thing. I'll show a picture later this week. 


Now for Today's Trades

I started trading the ES RTH just before the bell. The first trade was a loser of 0.75 per contract where I cut it when I felt, what seems to have become, the dreaded horizontal wait. The chop continued with the 2 EMAs almost superimposed. Trade 2 had the 45CCI pull over the zero line and then fail with order flow selling. We had opened on "the zipper" of single/double prints in the Profile and I was looking for the lows of Friday to be tested so was an anxious seller at every opportunity.


Today is a perfect example of "context".  This single/double print part of the profile means that price can run up or down the zipper very easily. The first trade was a loser because I sold with nothing to lean on. I had a downward bias after seeing that the London morning trade peaked and failed at just over the 1103.00 area, just under Friday's VAL. The VB was red but the CVD had turned green and I could have been a bit less aggressive I suppose, but I would rather lose 0.75 than not be in the trade when it ran down the zipper. I had a very controlled risk. As soon as there was a HH (higher high) the selling game was over and I had to re-think what was next. This visualization of context is important. I get asked a lot of questions about indicators but not many about context. The problem for a trader trying to become successful is that you want to make everything mechanical without breaking down your mechanical rules into sub-categories of context. A zipper is a significant context for me and I trade taking that very much into account.


The HH came after Trade 5 and I have finished for the day. We are at the 99EMA and the market could fail again. If it doesn't I would look for sales against the developing VAH (DVAH) or a bit higher if it turns into a Neutral day in Profile terms. There are also still single prints of the zipper above todays RTH highs which may be tested.

Click to enlarge

The rescuer and his dog

There are only so many jobs to search for and resumes to send via e-mail. So it would seem only natural to click on a cable news network to see what is happening around the country. Of course, MSNBC was broadcasting President Obama's town hall meeting, which held my attention about as much as boiling water.

But then it happened! At 2:53 p.m., the anchors decided to move onto a riveting flood story out in California. Were rescuers rushing to save a child from a home as flood waters inched closer and closer to his doorstep? Not even close. Instead, the cable news station broadcast rescuers standing atop a tall bridge and throwing a life preserver... to a dog.

No joke. Then the anchors made comments questioning the importance of this rescue, or if the dog even knew what was happening. The one anchor mentioned that dogs have the mentality of a 2-year-old, so they were unsure how it would know to swim to the life preserver. Well, that and dogs don't have thumbs to grabs things, like the rope.

After keeping up on the story for about a half-hour later, they finally found a development in the action. A helicopter was lowering a rescuer into the raging waters to pull the dog to safety. As the rescuer made his way over to the dog, the mangy canine started biting the man. I couldn't contain myself anymore and burst out laughing.

So, the dog was saved and all the world's wrongs were righted. And the next story on MSNBC? Britain raised its terror warning threat level. Don't worry guys. MSNBC already spent the past 43 minutes terrorizing the journalism community.

I Love Food but not Chop(s)

This is adding a little to today's earlier post and answer some questions.

I had a few people ask about avoiding chop and/or trading sideways markets. For me, it really isn't a problem because I use range bars. Yesterday was a pretty dead day. Kiki was never even close to getting into trouble, but she was very bored, and found it hard to keep her focus.

For me, the only untradable "trend" is when I don't have the expectation of reaching my first scale point. If I think this is the case, I'll pass on the trade. However, if it's clear that the first scale point should be reached then I'll take the trade because by the time price gets to T1, anything can happen and there may be more in the trade.

I give myself the chance of making money by being in the trade.

Sideways markets for me are when there is a clear horizontal channel around the 33EMA with the 99EMA almost superimposed on the 33EMA. I'll trade the channel using the VB and when the CCIs get overbought.

VWAP is something I did look at but that and the 33EMA are very similar and I prefer the 33EMA. If someone has VWAP but not MP then they could use VWAP with the 1st and 2nd Standard deviations  as VAH, VAL.

The CVD is a lagging indicator and I often trade against it. The risk is higher and I need to be confident that the VB and the CCIs support the trade and that the bar pattern does too. Newbie traders should leave this type of setup alone until they have a lot more screen time, as there are lots of nuances to discover to make it a successful trade.

I Wear my Trades Inside Out

I read Kiki's post yesterday and today's post is a part answer to it about getting into a trade..

Additionally, there was a question by Chris in a comment in the day before yesterday's post about whether I still trade inside out when both the EMAs are horizontal.

YES!!!!!!!

I said that as long as there was room between the entry point and the Keltner Channel to make the first scale, I would take the trade. I also said that yesterday's market was a good example of why. The criteria I use for these types of "horizontal" trades are more VB and CCI based than other elements.

Click to enlarge

I have mentioned that one of the best pieces of trading advice I have ever received was from Pete Steidlmayer when he said to just "get the trade on and then manage it," I need to be in a trade to give myself a chance to make money. If I'm not in a trade when the market moves, a subsequent entry is a worse trade location with a much higher risk. As soon as they shake the branches I would be stopped out.

When I enter a trade, my only assumption is that I will get to my first target point. That's all. My hope is that the trade activity  after I am in my position will bring in other traders taking a position or covering that will move the market vertically until it gets so far from value that the move ends. If this happens I make a good profit with little risk.

If you look at the ES chart of 21 January you can see the horizontal EMAs with trades around them giving small profits until finally the market took off and gave you your pay day. If I had not been in the trade I would have missed out on a lot of profit and had a much more nervous short using re-entry techniques. Had I been trading outside in I would have made some smallish profits until the last trade when I would have lost probably half what I had made and then had, perhaps, analysis paralysis while I tried to change my thinking to an inside out mode.

When pink pigs fly

WAYNESBURG, Pa. - It didn't take long for Gene Stilp and Dennis Baylor to attract quite a bit of attention in front of Bill DeWeese's district office.

The two political activists arrived in Greene County this morning to call for the embattled state representative to forgo running for re-election this year. They did it with a little flare, too, by blowing up an inflatable pink pig and placing it directly in front of DeWeese's district office.

The event -- and pig -- attracted a few newspaper and television reporters, but several people continued to stream into DeWeese's office for constituency services. A sign on one side of the pig read, "DeWeese: Time To Resign." One woman -- appearing dumbfounded by the sight of an inflatable pig the size of a cow blocking her way into the office -- asked a reporter if she was permitted to walk into the office.

Some motorists paid little attention to the pig as they drove along Elm Drive. But several honked or waved to Stilp as he spoke to reporters. While discussing the Bonusgate charges against various state lawmakers, a guard driving an armored truck stopped and gave the crew a thumbs up. As Stilp reciprocated the greeting, the guard briefly blared the truck's siren and continued on his way. Stilp then went on with the discussion about how the greedy ways of Harrisburg need to be changed.

"The pig is angry," Stilp said, "because the state legislature gives him a bad name."

Stilp, of Harrisburg, started touring the state nearly five years ago following the illegal paygrab in 2005. Tugging around a 15-foot-tall inflatable pig -- too large for the small strip of grass in front of DeWeese's office -- he and others pushed state lawmakers into giving back the pay raises. The activists were able to stoke the voters' anger a year later by forcing a 20 percent turnover in the state legislature, either through elections or retirements.

The Bonusgate investigation and subsequent indictments have brought him out of the woodwork once again with his group, Taxpayers and Ratepayers United. Numerous lawmakers, including DeWeese, and some of their staffers have been charged with using public funds to campaign. Others have been charged with giving staffers large bonuses with tax money.

So moments after Stilp and Baylor set up the pig, they walked into DeWeese's office and asked to speak with the representative. He was not around, though, so Stilp instead spoke to a receptionist. She nodded her head and tapped at the computer keyboard as Stilp apologized "for the fuss outside" and asked her to pass on a message that he wants the Democrat to resign. The receptionist and a few other staffers barely paid any attention to Stilp as he made his remarks.

"The people of Greene County and the people of this state deserve better," Stilp said.

Stilp suggested a resident living inside the 50th District should gather the 300 signatures needed to run for election and challenge DeWeese. After an hour, Stilp and Baylor pulled the plug on a generator feeding air to the pig and packed the wrinkled swine into a duffel bag. The duo was heading north to greet another lucky politician in Erie, Pa.

(Photos and story by Michael Jones/Bread Line Blog)

I Told Dad Not To Have The Oysters

El isn't feeling very well today. He's answered a few posts but that's about it. So I've done a bit of other stuff for him. I've posted a momdot indicator for Ninjatrader, thanks to Tarkus11.  Mike has also supplied a NEW momdot indicator for Tradestation and Multicharts.  They are both under the Key Posts & Information section on the right hand side of the blog.  Thanks again guys!

I'm still coding away on my project.  I'm hoping it will help me in two ways.

1. I don't have the discipline yet that EL has and I find myself daydreaming and missing trades, especially on slower days.

2. When I have a losing trade(s), I find it hard to pull the trigger again for the next trade. Once I'm in the trade i'm fine. I know what I should do and it makes total sense but I still am doing those things anyway. 
Kiki

Four Dips from the Well

I usually only trade 3 trades in a continuing sequence but today there seemed a disconnect between trade 1 and trade 2 so I started counting to 3 from what was trade 2, if that makes sense. As it turned out, the trend was one way - down - as I saw from the 45 CCI and both the EMAs. The market is back to 1129.00 as I'm writing this, but if we can break around 1125.00 with some decent order flow, we can go right down a zipper to 1118.00. Sadly I'm finished for the day (note to Kiki: work faster on the Kiki FlowBot).

As you can see, it wasn't rocket science today either. Just a nice retracement move back down with a number of pullbacks letting me re-enter after what were all in, all out trades. Why were they all in, all out? I had a number of distractions and it was easier to exit each trade, to attend to the distractions. Had you been  short at trade 1 with a little size, there would have been no reason to exit your whole position, even now. Scaling out bit by bit as the ride continued would have been a good strategy if that was part of your trading plan. A close above the 33EMA with a close of the 45CCI would be a final good exit signal after the CVD had turned green.

 

Click to enarge

Brown v. Bored of Democrats

Most would think the stunning election of Scott Brown to Ted Kennedy's old senate seat in Massachusetts should bring Democrats to their knees. Instead, it seems to me that liberals have been done a great favor by ditching the super-majority albatross that has been swinging from their necks since last year.

Make no mistake, last night's victory by the GOP clearly is a harbinger for November. But it also should be a positive wake-up call to Democrats. Rather than living by the premise that liberals need 60 votes to pass any legislation in the Senate, they now merely must round up 50 senators, with Vice President Joe Biden breaking the tie. This is good news because gone are the whiny slugs like independent Sen. Joe Lieberman of Connecticut and Nebraska's raider-like Sen. Ben Nelson. Their votes -- among others -- have been neutralized because they are no longer needed.

Of course, the real problem is whether Republicans will filibuster each and every piece of legislation the Democrats propose. To Senate "leader" Harry Reid, I offer one piece of advice: Dare them to do it. I dare the Republicans to stand in the Senate chambers and read the Holy Bible or the telephone book or My Dog Spot while America endures 10 percent unemployment and 30 million people are without health care.

The last time a serious filibuster was used happened in 1964 while debating the landmark Civil Rights Act. But it wasn't the minority party that threw a fit and threatened to block the legislation. Rather it was the southern Democrats that had to be neutralized.

So while the health care debate is effectively over -- with absolutely no indication about what will happen next -- it should be noted that other legislation CAN pass with 51 votes. This notion that 60 senators are needed for ALL legislation is absurd. And proof of that is in 2003 when President Bush pushed through the Medicare Part D legislation that essentially was a multi-billion dollar boon for the prescription drug companies. The vote on that monstrosity?

Yea: 54
Nay: 44

Thank you Mike Sherman

I have posted the VB and the CVD indicators for the NinjaTrader platform, kindly supplied by Mike Sherman.  Please note these indicators won't work with historical data, only with real time live data. Also,when you change the indicators on the chart you risk losing the VB and CVD data already there,this is a limitation of NinjaTrader.  
I have posted links to these under the Key Posts and Information, chart settings and chart definitions.  I post these with the same usual caveat that they are for educational purposes only and not supported by EL.

Differences to MarketDelta Volume Indicators in Other Platforms

I just want to mention again that neither the TradeStation or MultiCharts Volume Breakdown or Cumulative Volume Delta use actual historical volume. They use upticks and down ticks. This is not quite the same as using the actual number of contracts as MarketDelta does. The reason is that neither TS or MC can extract volume at bid and volume at ask, historically.

For this reason the charts will not all be the same for these two indicators.

Is one better than the other?  Is one more "correct" than the other? If you are a purist and volume is volume then MarketDelta is "exact".  However, I  consistently used the MultiCharts version for a long time and it worked for me. Often both types show the same thing. Its only when the upticks and downticks don't approximate volume that there is a difference and often the upticks and downticks can give a better result. I think it all balances out if you are consistent.

To see the difference, compare your TS or MC charts with the MD charts that are posted.

As far as other platforms are concerned, I don't have anything. If any readers do and wish to share, I'll happily post them.

A link to the TS and MC indicators have been posted in the KEY POSTS area under Chart Settings & Chart Indicators. They are free and provided for your educational use as is the rest of the blog.

Thank you Mike

TradeStation from Mike and Multichart from EL.  The indicators for these platforms have been added under Key Posts & Information.

UC should not be an endless trough

Found an interesting column in Time Magazine arguing that unemployment compensation benefits should not be extended for eternity. Nina Easton, a Fox News contributor, thinks that the numerous extensions create a continuous cycle of unemployment.

I agree with her argument. Although I am thankful for the unemployment extension we received recently, I do not believe that we should be allowed to keep spinning the welfare wheel. At some point, the benefits have to end and we must make difficult decisions on how to proceed. Whether that be taking a lower paying job, slashing every non-critical expense or selling the house.

But I'll let you read Easton's column and decide...


A Limit to Compassion

By Nina Easton
Jan. 19, 2010

Have a heart. It's what Democrats like to think they do best. So President Obama's reaction to the economic crisis has been a predictable spending of trillions to soften the blow. But compassion can have consequences that aren't so compassionate — a nettlesome economic truth that now needs to be applied as Congress plans to extend unemployment benefits for the fifth time since the dark fog of recession settled in.

Continually easing the pain of jobless Americans, it turns out, can contribute to high jobless rates by warping incentives to look for work. "The consensus estimates show that unemployment benefits do prolong unemployment spells by quite a bit," says University of Chicago economist Bruce Meyer, who has produced academic studies on the issue dating back to the recession of the early 1980s.

Read more...

To the Moon Alice, Again

To quote the "Great One" again, "How Sweet it Is". It doesn't get much better than today! Yesterday, the coil wound tight and we hoped it would spring today. And it did, but of course not the way I thought.

Trade 1 was quite straight forward with everything in line. Had Kiki missed this one I would have been very surprised. We traded it differently. I was all out at X1 but Kiki scaled at X2 and X3. I re-entered at Trade 2 and was all out again at X3. The final exit was at the Low of the Profile of 1/15, so was anticipated when the VB went positive the the 45 CCI went oversold.

Trade 3 eventuated after the retracement to the POC of the split of the distribution of 1/15. We got long at 1132.00 at that same POC hoping for a ride "up the zipper" of single prints (mostly). We're still on the ride as I'm writing this. Getting long was at the right place with the CVD having turned up as accumulation began. VB was quite green. CCI looked right. By now, we have both scaled out twice and trying to hold on to the last 1/3 until we hit top of VA of the second distribution of the profile of 1/14 at around 1146.00. The zipper finishes at 1144.00 at the VAL of that distribution so it may end around there. Our stop loss on this last piece is quite far away at 1137.00, below the remaining single prints of this move,  although we'll tighten if the market warns us. It looks like a trend day although it could start building a distribution. Another way of trading this would have been to exit 1141.50 and look for a re-entry. Price hit the VAL of yesterday's split at 1144.00 and it was getting late so we exited. I think there is probably a little more on the upside but it's the end of our business hours. Had you been trading the DowEuro50 on Eurex you would entered the same trade an hour earlier. This trade gave you plenty of time to get on board.

I am again posting results for 3 contracts. As soon as we have a version of Kiki's Robot we will post those trades too, so you and we can compare the results.

After yesterday's boredom Kiki was happy her pockets are fuller and is currently scouring the web to buy a new kindle or one note.

 

Click to enlarge

Chart Definitions

I have posted the MarketDelta chart definitions in a link under KEY POSTS. I will add TradeStation Indicators kindly sent by Mike Lotterhos and MultiChart ones also, as soon as I find a suitable file share to upload them to.

 

  Webinar Q & A

I have started answering questions from the webinar and will post some tomorrow unless the market is more interesting.

  

Day After the Day Before

This is the first of a series of posts answering questions coming out of the webinar. You can find a link to the recording of the webinar at the right hand side of the blog.

Gathering Statistics

The program I am using to data mine my trading stats is MSA by adaptrade which you can find here. They have some good videos you can watch to see what it can do for you.

Splitting Profiles

Next, a quick "how to" on splitting the profile when there is more than 1 distribution.

 If there are 2 distributions such as the one above, separated by one or more single prints, it's quite easy. See Jan.13, there's 2 distributions separated by a single print. I split the profile there into 2 distributions.

You can see how useful it was the next day.

Now if there are 2 distributions but they are almost on top of each other so you only see 2 bumps such as the profile below, for Dec.17,

 

I first toggle the profile so all the individual TPO letters are separated,

 

I then look for the longest or very long TPO line that breaks out from the previous distribution and split the profile there and I get

When I untoggle the remainder I get 2 separate profiles each with its own POC, VAL, and VAH

There are profiles when you do this more than once, depending upon the number of distributions you can find.

Using the CCIs

I use the 2 CCIs to show me whether there is momentum and if so, in which direction. A few of you mention Woodie who used it in a way that didn't work for anyone I knew. He did, however, popularise a useful indicator and you can get some ideas from him.

I use it by looking at the short term and long term CCI, looking for trends and looking for change.

Pivots

I don't use the so-called Floor Traders Pivots - S1, S2, R1, R2. I know they work sometimes. You can use them if you don't have anything else such as MP and validate them by order flow and momentum. I don't.

 

The bread line gets longer

An old college buddy called me Friday night with some news. We've remained close over the years -- I was in his wedding party in June 2008 -- so I was hoping for the best. Instead, Dan told me that his engineering firm outside Scranton, Pa., had let him go... just days before Christmas. This wasn't a surprise to him, though, because business had dropped off as the economy continued to sour. But the questions of what he would be facing still were upsetting.

Then I received a text message this afternoon from my step brother, Tony, saying he would be joining me "in the bread line on Monday." He heard from his boss today that the office supply company for which he has worked for nine years will be letting him go after the weekend. Tony spent most of his time working there to earn enough money to pay for his business degree at a college near his home in Jacksonville, Fla.

I explained to both of them the steps to file for unemployment, and the process for registering for COBRA. They both have expressed interest in sharing their stories through this blog. But it is still unsettling for me to know how many in my generation are without work. Dan, Tony, Amanda, Greg and others are hard workers and they deserve better. It is very upsetting that this supposed world super power has turned into a joke. We want to work, America, and are waiting for a fair opportunity with sustainable wages.

The ball is in your court.

Webinar is Finished

Thank you to everyone who attended the webinar.  It was a blast.  The webinar recording will be posted on the blog hopefully by Monday the 18th.  EL will start answering questions in the blog as soon as we get the log from Trevor at MarketDelta.  Have a good weekend.

Kiki

Non-rocket but fun...

EDN published a short "Tales from the Cube" of mine.
This happened along time ago ~1990

Written Live - A trade in the life of EL & Kiki

Trading the ES today in RTH was a usual type of day. Tomorrow at the webinar (you can still register - see link in KEY POSTS in the right hand column of this blog), we will go through the process in more detail.

We bought the market just before the RTH open at yesterday's VAL support as the order flow was positive. The trade didn't last long as we reversed at 1141.00 as the market turned sellers and the VAL didn't hold.

First scale was at + 2 handles at 1139.00. Second scale at 1137.00 AFTER the price hesitated at the Keltner lower channel. Now we have just 1/3 left and have made 6 points for every 3 contracts of our position. The stop loss is now break even so we have a completely free trade. I'm writing this blog "live" as we are trading. Its quite different but it shows how relaxed trading is today.

I must say that one of the outputs of teaching Kiki and of writing this blog has been greater discipline and ............Just covered the last at 1136.75....more relaxed trading. I think it is because I am more accountable. The end result seems to be a better win rate.

Well, I out of bullets now and need to look at a re-entry or wait for a new trade. Let's wait and see how it goes.  Short again now at 1136.25.  Price has just touched 1134.50, This is a critical point in the trade. OK, I have now scaled 1/3 at 1134.25. Price has now hit 1130.00 with a hanging man candle and my stop is moved to break even (plus a tick). Second hanging man forming and I am out of the whole position at 1134.50. I don't care what happens now as this trade, part of which was a re-entry is over. On the first set, I made 9.25 per 3 contracts and on the second set 5.50 per 3 contracts, a total of 14.75 per 3 contracts. Hope my maths is right.

OK, now let's look at the money management. Did scaling make more or less money, did being prepared to re-enter make more money. Should it have been an all in, all out trade. Should I have scaled in? Market is moving lower as we speak with a possible re-entry at 1132.75 but not for me. Unless its an obvious trend day, I only re-enter the same swing once. The context of the trade was yesterday's higher value. I want to see what happens today after the first trade to see where the order flow is likely to take us. My initial thought was overlapping higher value but so far, I am wrong. I am wrong but made 14.75 points per 3 contracts.

This type of flexibility of thought is a basic requirement of day trading. That is why I use the methodology I do. I follow the flow and let the market make me money. I neither predict nor try to second guess as I would be handed my head (which happened in the past more times than many of you have had hot dinners). Writing this blog "live" has been great as it allowed me to try and pass on what was happening as it was happening. No changes have been made to what I wrote for publishing except the usually checking for grammar and spelling by my long suffering darling wife.

Click chart to enlarge

Overheard on Tottenham Court Road

My wife was doing errands on Tottenham Court Road yesterday about noon, when she overheard 2 guys talking.  One said to the other, "did you read today's Electroniclocal blog."  The older I get the smaller the world becomes. Working on the charts for the webinar.  See you tomorrow.  

There will be the usual post tonight.

401,000 scrooges

It was a long and winding road to change my 401k employee contributions from the Observer-Reporter's account to my personal investment portfolio. With no one left at the newspaper to help me figure out how to transfer the money properly, it took about six months to finally complete the process.

Then I received an update of my portfolio, only to find that I had lost more than $1,000 from the account. Was it taxes or fees or a miscalculation? None of the above.

Instead, it was the O-R's share of the 401k because I wasn't fully vested with the program. I had been with the newspaper for nearly three years, so I can only assume that I earned only 50 percent of the money (it takes four years to become fully vested). This was not a decision I made. This was a decision the Observer-Reporter made to release me and the 401k obligations. They should be ashamed for withdrawing this money, and I urge them to restore our full 401k contributions to 100 percent.

Because while I was putting my money into the market and trying to plan for that retirement years away, the Observer-Reporter was making dividends off my contributions. I hope they'll be able to buy plenty of new laptop computers and/or coffee machines with my money. Enjoy it.

Inside Out or Outside In.

All the trades on the blog are what I call "inside out" trades - initiating trades rather than responsive trades. The reason, as I have said, is that these trades are easier to define and recognise. Also, they are extremely high percentage trades for me as you have seen.

The "outside in" trades are the trades that pick the tops and bottoms of swings. When you get them right, you have an exquisite trade location. The big ask is getting them right a high percentage of the time. To make it more difficult, bottoms look different to tops. For me, tops are much easier to identify than bottoms and the rewards come much more quickly, usually.

Its usually easier to wait until the top or bottom is in place. You then have an inside out trade. Most traders who trade responsively have all sorts of ways of trying to reduce their risk in picking these tops and bottoms. They do things like scaling in, stop themselves out and re-entering, doubling up on  a loser and many others, none of which really appeals to me.

My approach is to trade specific "outside in trades", ones that have a definite setup. If the top or bottom doesn't fit then I don't trade them. My win rate on these is less than my win rate on the "inside out trades" but, the average profit per trade is higher so they are worth doing, but not without a lot of experience. Kiki is trading only the inside out trades. We'll try and automate the "outside in" ones and see what happens.

Chart below is what was called the German Bund (GB), now the Bund. It trades very large volume and is one of the three interest rate futures traded on Eurex.

Rantings of a sane man

Three items caught my attention this morning as I perused the morning newspaper. Each was more laughable than the next, and shows the sheer greed and stupidity that runs rampant through this great country of ours. After today's headline trifecta -- in sports, entertainment and politics -- let there be no more questioning why our country is so screwed up.

SPORTS: Football coach Lane Kiffin has a thoroughly unimpressive resume. Sure, he served as offensive coordinator for the USC Trojans in the early 2000s and helped develop a crop of star athletes. But after spending less than two years as the Oakland Raiders' head coach (in which he compiled a mammoth 5-15 record) he was fired by owner and true raider Al Davis. A couple years later, he landed a posh gig as head football coach at the University of Tennessee. There, he alienated the Vols from the rest of the SEC, ripped Florida coach Urban Meyer for, well, winning and racked up NCAA violation after NCAA violation. Oh, and this was before leading his team to a 7-6 record last season that included an embarrassing bowl loss. Yet, ole Lame Kiffin bolted the Vols this week for the open coaching position with the Trojans. Then Kiffin has the audacity to claim in a 40-second farewell press conference that he left the football program in better shape than when he arrived 14 months ago.

ENTERTAINMENT: It's hard to determine what cog in this comedic wheel deserves the most blame. With "The Tonight Show with Conan O'Brien" and "The Jay Leno Show" both floundering on NBC, the peacock station has decided to alienate everyone. They want to bump Conan back to 12:05 a.m. and give Leno his old time slot after the local news. So, let me get this straight: Conan O'Brien waits 17 years for Leno to retire, then is given just seven months when the job is finally his? I don't necessarily feel bad for Conan or his wallet, but there are certain ways of treating people, and this is obviously not one of them. At least he's still having fun on his show, ripping NBC with just about every joke during his nightly monologue.

POLITICS: With our wonderful state legislators in Harrisburg continuing to suck pints of blood from the taxpayers, it should only be assumed that they also have a golden parachute when they retire. In this case, House speaker Keith McCall announced that he will retire when his term expires at the end of the year. Great! One more legislator is dethroned as we continue our march to slay the bloated General Assembly. But, whoops: The 50-year-old McCall will receive a $90,000 pension from the state. I don't know of ANYWHERE (except maybe on Wall Street) that offers that kind of compensation for doing nothing. Obviously this is not shocking news, but that does not mean we don't have to be outraged. So I'll challenge our local representatives, Matt Smith, Nick Kotik, Jesse White, Tim Solobay, Pete Daley, Mark Mustio, John Maher, David Levdansky, Bill Kortz and others to introduce legislation extending pension eligibility to at least 35 years of service and/or slashing the annual payments to something more in line with Social Security checks. Will you please vote AGAINST your personal interests just once?

Thanks, and have a nice day!

That's the Point

There were a couple of interesting comments yesterday:

Quote:

tickvix said...

Tom, I have gone thru most of the blog, but I may have missed the criteria you use for entries. Do you have specific criteria you look for in delta, cumdelta, keltner, cci, mom dots, and MA when entering trades at the S/R levels? Do you look at all of the indicators or a subset to line up? Can't wait until the webinar!!!

12 January 2010 23:53

Severino said...

Hello Boss, I am glad there is only 2 days left until the webinar, because truth be told, today’s post completely threw me for a loop. How do you program context? You can program conditions, such as relationship to MA’s and if long CCI is under 0 and short CCI crossing 0 from above, etc. But how do you program order flow Or MP zones or...? Not sure how anyone would program it with TradeStation. They don't even have a way to allow VB on a range chart. (Actually in TradeStation what you use are called momentum bars). Kiki rocks, Rino
Unquote


Nowhere in the blog have I set out my exact criteria for entering a trade. What I have done is show you the tools that I have taught Kiki to use - MP, Range Bars and various "indicators" that show me the order flow and momentum within the context I am trading in. I have then shown the trades that result from my processing the information that I get from this information, exact entries. What Kiki had to do (an assisted version admittedly, because she had me as a mentor)and what blog readers are doing is to reverse engineer a systematic approach from the entries using the tools provided. This way, you are all making the methodology your own. You see what works and what doesn't work. You back test and walk forward. In essence, you do what you need to do to believe. This is a critical part of becoming consistently profitable.

Anyone doing any extreme sports for example, may first experience the sport handheld by an instructor. But once we start doing the sport we take responsibility and check everything - our environemnet, weather and equipment so that when we dive deep into the ocean, we know that we are safe and can properly access risk. We need to be supremely confident in what we do. Not arrogantly trading without a plan but confident that we know what to expect and can manage the risk for an expected outcome. So no, I haven't provided "rules".

As far as autotrading goes, yes, its a big ask. Again, the way we are going about it is to identify the entry we are trying to automate and then add the filters, layer by layer. The context is more difficult as it can be more subjective but it is an additional layer. As a first stage (and perhaps as a final stage) we will only  part automate. We may only automate entries that put us into the market and then have to look at the trade in progress to decide whether to stay with it or to exit because the context is wrong. Of course the automation will also provide the drop dead stop loss with the entry. Pete Steidlmayer always told me that you have to get a trade on and then manage it. As long as this can be done making a tick, I don't mind as it will take care of the hard part - finding the trades and pulling the trigger quickly enough. The failure rate in trading as I have said before is, I think, not a function of just not finding good setups.

People fail in this business mainly because they don't have the discipline to follow a trading plan and hesitate when a trade presents itself, hoping to avoid a loser. By even part automation, we will be able to enforce discipline and cover more markets at the same time while ensuring that the entries take place at the correct trade locations. I'll make a few more comments about this at the webinar as we are getting a lot of email questions.

Some nice Euro FX trades today. The more I think about automating entries the more I like it. Volatility in markets come and go day to day. When I was in the pit we'd stand there all day waiting. Most traders on the floor trade the same market every day. They don't move or change pits. Trading electronically, we need to leverage every advantage there is. Now, Kiki and I can watch 2 to 4 markets because there are two of us. Often, we can and have missed the first trade because we were watching something else. With the computer watching, we will be in the market. Maybe a mix of science and art will provide bigger profits.

Webinar Countdown Clock

I just received a comment that the webinar clock was wrong.  This countdown widget counts down until The first minute of January 16, 2010, not the exact time of the webinar.  The exact timing of the webinar is Saturday January 16, 2010 starting at 8am Chicago time which is 2pm London time.  If you haven't signed up yet, you can do this by following the link in the Key Posts Section on the right hand side of the blog. Thanks for the comment.

Project Alpha- Art or Science

It was an interesting day in the trading room - well every day is, but today had an extra dimension - Kiki threw down her gauntlet which I picked up, even though she was leaving the trading room for fencing class.

I am always saying how trading is an art, not a science. Well Kiki thinks that science can beat art. Amongst her many other talents, Kiki is an honours graduate in computer science. She also has quite strong opinions,in a good way. Kiki says that she believes that by programming our methodology to auto-trade a few markets simultaneously and allowing the program to only trade the most "perfect" trades, she could leverage our methodology so we made more money without the level of concentration we need now. I think this all came about because she sees the great trades that appear almost 24 hours a day in many markets. Trading long hours and looking at a number of markets at the same time is unsustainable in the long term.

On the other hand, computers don't get tired and can trade more consistently in more markets at the same time.

I said I didn't think she could pull it off. Nothing like saying that to Kiki to motivate her to excel.

So Project Alpha is born. Watch this space.

Today we traded the DowEuro50.

Click to enlarge

Former liquor store filled with new spirit

By Michael Jones
For the Tribune-Review
Jan. 7, 2010

Members of the Swissvale United Methodist Church found an unlikely place to reinvigorate the spirit of their congregation.

With the 80-year-old church on South Braddock Avenue becoming too large and expensive to house the decreasing membership, the congregation and church leaders decided to move services to a former Wine & Spirits store in the Swissvale Shopping Center.

"Most of us just love the irony," said the Rev. Dai Morgan.

Morgan said that when he arrived as pastor in 2006, many in the congregation thought the church would have to close eventually. The antiquated church required a lot of resources and money, which were estimated to run dry by late 2009.

As the congregation pondered what to do early last year, Morgan said the Pittsburgh Mennonite Church contacted it about purchasing the building. The sale was finalized in June, leaving the Swissvale congregation in limbo for the next few months.

The 50 active members spent four months sharing worship services with nearby Presbyterian and Lutheran churches, which Morgan said was an "excellent experience" for all sides. There were low points, though, he said, as the members discussed a different direction.

"We needed to envision a new image for the congregation, and that was a hard thing to do," Morgan said. "Being an old and traditional congregation, there was no way we would grow. We needed to change ourselves."

Read more...

(Above photo by Philip G. Pavely - Pittsburgh Tribune-Review)

What the Beatles and Dolly Parton have in common

 Its been "A Hard Day's Night", more than just "9 to 5", and I'm no "Working Class Hero" but it sure has been a lot of work getting the material together for the webinar. No trading for us today as I'm a guy and don't seem to be able to do two things at the same time. Kiki is ROFL. I'm trying to make sure I cover what's important.

Saturday (morning in London before the webinar) will have me going through the charts of the last couple of days to find recent examples of the things I want to demonstrate. Luckily the webinar time is just after lunch in London (but breakfast for some friends in Chicago).

Finally, in answer to a couple of questions about why I'm doing this extra work of the webinar - Kiki has heard most of this stuff over and over - I'd like to quote a Spanish philosopher from the Middle Ages:

The first step in the acquisition of wisdom is silence,

the second listening, the third memory,

the fourth practice, the fifth teaching others.
Solomon Ibn Gabriol

I guess I'm trying to fulfill the fifth requirement ;-P

Euro FX

One of the blog readers told me he used 10 ticks for his range bars in the Euro FX future and it made the market less twitchy and gave him more time to put on the trades. This inspired me to make sure I did some testing rather than just eye balling.

The result was that we will now use 9 ticks for the Euro FX range bars. I'll try and post a chart tomorrow.

Webinar Agenda

The webinar is on Saturday, January 16. Here is a link to the registration area at MarketDelta who are hosting us. You can also find it in the KEY POSTS section in the right hand column of the blog.

The agenda is below. As you can see, we have a very ambitious list of topics to cover.

AGENDA

Part One:

The road map from newbie to consistently profitable

The steps and the timetable

How to learn to trade

Milestones to reach

Self assessment of progress - know when you are ready to go to the next step

Replay - slow, normal and fast

SIM

Real money at risk

Matching size, risk and account size

Part Two:

Trading philosophy

Probabilities

Instant gratification

Context

What day trading is to us

Variations and style

Charts and setups

Bar charts and indicators

Reading order flow

Why the CCIs

Market profile

Creating setups: Inside out and outside in

Entries
Triggers

Exits

Re-entry after early exit

Pre-trading preparation

Risk/reward

Keeping records

Business trading hours

Which markets to trade?

Position sizing and your account size

Questions and answers

I may not deal with all the questions you submit if time runs out, but MarketDelta wil be logging them all and I will answer them in the blog. So be there live if you have particular questions.

I have received lots of emails and comments of success stories using the electroniclocal method and that is very pleasing. Here are links to a couple of charts below from HFT

http://i48.tinypic.com/2sb1zer.png    
http://i50.tinypic.com/2hs7o29.png

Great charts HFT. Everyone who shared their trades with me had slightly different trades and results. And that is as it should be. Each trader has to make this methodology his/her own.

Kiki and I are looking forward to meeting everyone on Saturday.