That Ah-Ha Moment

I have received a couple of emails from people asking whether they need training and mentoring or whether there is enough information in the blog to become CP.

The answer is "yes" and "no".

I could reprint over a dozen emails from people who told me that they had become CP by reading my blog. So the information is here and for some people it was enough.

For others, they need more. What? and Why?

Trading profitably requires a number of things including designing setups and triggers. Once you have that, you need to work out how and when to exit both profitable and losing trades. You also need to wrap a money management strategy around that.

After you have done that, what now comes the hardest part. Recognising and acting on the above in a timely manner. This is where my training comes in. We will cover the first parts above in just a couple of days. We then spend the next three weeks plus another 90 days training you to recognise the setups, relate them to the context and decide whether to accept or reject the setup, all in a matter of the time it takes to complete the setup bar.

Getting setups is easy. The internet is full of people offering trading systems. And a lot of them actually work. The problem is that you can't make it work for you.

The methodology I use is timeless and not tied to any particular market or volatility. It's pure order flow in context. The benefit you will get from the training is that I will teach how to learn to make it work for you. I will go through all the thought processes I go through when I am trading, how I place emphasis on different things in different contexts.

This does not mean that I am sure you will become CP because in the end it's up to you. But what I am saying is that I believe that everyone can become CP if they follow the structured method I have laid out and if they can really accept that there are and will always be losing trades and really not care.

Once you align order flow with the context, the whole trading environment changes for you. You really become part of the market and not just an on looker trying to read indicators. It's this integration and envisioning that I think will take you to CP.

Today's trade was very much out of the book. ES in RTH opened and traded down to yesterday's VAL, bounced from there and traded up to the VAH. All quite predictable. The break came after the orderflow turned at the VAH. You can see the auto reminders on the chart. The CCIs also clearly showed the change in momentum . The only mistake I made was that I tried to catch the knife at 1197.50 when there was delta divergence. I'm still kicking myself as I usually don't take those without more confirmation. In this case the confirmation was an oversold 45CCI but it wasn't until the third divergence on that indicator that the market rallied. Of course I missed that and only bought 1200.00 which really only gave me a little milk, no cream. I'm still short into dinner and want to cover at my Fib around 1192.00

PayPal Technical Issue Resolved

We had an issue, now resolved, with PayPal as it was a new PayPal account. We switched to my original verified PayPal account and everything seems to be working fine.

Please let me know if you have any other problems. I have also provided an alternative, wire transfer.

Outside In Trades & One 2 One Mentoring in the Training and today's Mind the Gap

Trader Mentoring: As part of the 90 day follow up mentoring, each participant can have between 2 and 4 hours of personal mentoring with me via Skype or telephone. The time will not all be in one go so you can use it up as you progress during the 90 days and need help with different issues that come up. I want to make sure that everyone "gets it". I'll be available, by appointment, during a 12 hour period every day overlapping most of the time zones. I have decided to offer this as there are some of you who may need it and others of you who will not attend all the sessions will want it. The recorded sessions will show the live markets as they unfold so if you are not in the room but are watching the video after the event, you will benefit in the same way as people in the room. When you add the benefit of the one to one mentoring via Skype, I think you will "get it".

Outside in Trades: As I have said  before, outside in trades (the trades that sell and buy tops and bottoms) are higher risk trades. However, when volatility drops, sometimes these are the only trades that make money as the amplitude of the swings are not enough to take the trades from the inside going out.

Typically, these low volatility, trendless times have horizontal EMAs as a feature so they can be recognised. The risk is that the market breaks out of this mode and you get stopped out. There are ways of monitoring the momentum that can alert you to the changes. The interplay between the 2 CCIs reveals a lot. If you go back to periods when the EMAs were horizontal and look at what the 2 CCIs were doing and what they did when the market regained some volatility.

The chart below shows such a period with buy and sell areas marked. Although there was no real range, the 45CCI gave you both direction and protection when the 6CCI pulled back. Quick trades but add up the points made. We will spend time on Outside in trades during the training as they come up, both in sideays markets and also picking tops and bottoms at the end of a trend.

Mind the Gap:

As the underground train (called "the tube" here in London) pulls into a station, there is often an announcement over the loudspeaker ( called a "tannoy" here) warning everyone to "Mind the Gap", the gap between the train and the platform.

Well, today we did have to "mind the gap". Using the context of the Profile with our order flow techniques made for a good payday. In fact I'm still long a piece as I write this and hope to hold it into the close unless we have some major support break.

The world and I sold the open but it wasn't long before I saw the large sells being easily absorbed by the buyers. Whether you were looking at your DOM or inside the bar with Market Delta, you could see the larger sellers hitting the bids but the buyers standing firm.

The secret was the pre-market preparation. There was what I call a "zipper" - a long line of single prints on the Profile and the market was trading right in it when the RTH session opened. The market headed towards closing the Gap between today's open and yesterday's RTH session close. It rode the zipper almost all the way down, but the stubborn buying that was quite visible held and the Gap has not been closed yet today. The first upwave stopped at about 3pm London time when there were some profits taken but the RTH session low held and the buying started in earnest as price rode up to the top of the zipper.

There were a couple of bouts of profit taking which at this time has left a double top.We have been taken into the VA of 23 April and value has been accepted overlapping the tail of 26 April. We are likely to trade up to the 1209.00 VAH or even 1212.50, the POC of 26 April.

As I keep saying, context is everything and I place a different emphasis on different components of "the picture" because of it.

Drill, baby, drill?

A cloudy sheen of oil the size of Delaware is consuming the Gulf of Mexico as it inches closer to the New Orleans coastline. Thousands of gallons of oil is spewing from an underwater well after a rig caught fire last week and then collapsed into the murky waters. The ramifications to the wildlife along the coast will be devastating, so the U.S. Coast Guard has decided to light the oil on fire. And it has also ignited new questions about off-shore drilling.

What began as "drill, baby, drill" is turning into "burn, baby, burn" (although this doesn't appear to be a disco inferno).

So, where is Sarah Palin reacting to this man-made disaster? She offered fiery rhetoric at the 2008 Republican National Convention when she worked the crowd into a frenzy that off-shore drilling would be America's salvation for its fossil fuel consumption. She and other Republicans recently chastised President Obama, even though he opened wide swaths for off-shore drilling in the Atlantic Ocean. That decision now appears to be a mistake.

Let me say that I'm not necessarily opposed to off-shore drilling, but I do think the calls of "drill, baby, drill" were ludicrous and short-sighted. Fossil fuels obviously are finite, so rather than drilling for more oil and ripping off mountains to mine more coal, why don't we put all of our energy (literally) into finding new fuel sources that are both renewable and cheap.

Ah, but "green energy" isn't cheap, you say? Well, nothing is cheap in its genesis. It takes years to develop technology and find more affordable ways to link it into our lives. From televisions to computers, things become cheaper over time.

Glenn Beck likes to talk about his 9.12 project, but imagine if we had started a full-tilt green revolution on Sept. 12, 2001? I seriously doubt we would be dealing with a faltering economy and strained diplomatic relations with the Middle East. And I know we wouldn't have idiots like Sarah Palin calling for us to "drill, baby, drill" in the wake of an environmental disaster.

Order Flow Can't Break - More Details about Training

I am humbled by the overwhelming response to Yesterday's post and an email is going out today or tomorrow to those that responded, with lots of information. We are holding a place for all those that indicated they want to participate. There will be another blog page that will be available shortly where you can sign up officially, etc.

I had a comment overnight asking me if I wasn't concerned about teaching how I trade to others in case it "stopped working".

Order flow can't break. I have no secret squirrel super duper indicator. What I do have is techniques. Techniques that allow me to follow the direction of the money and how hard it is being pumped. The way I do it is certainly not the only way to "see" the same information, but it is for me, a clear and easy way to determine what the nett market participants are doing. Order flow is order flow and momentum is momentum - the basis of the markets and while markets exist, these things are its ever present components and must always be there. Learning to "see" this is a matter of learning how - getting the right kind of spectacles with the right lenses may be a good analogy, with a guide to show you what parts of the picture to focus on.

The Training: The theory that I teach on the week-ends will be during the U.S. Eastern time zone. We will start at 8am EST each Saturday and Sunday of training days. For the Monday to Friday sessions I will start at 7am London time which is 2 am U.S. EST (New York time). We will be dealing with whatever the market is showing us. If you are not there at 7am it does not matter as we will go on until 9pm London time which is 4 pm U.S. EST so we will get all the market types and setups plenty of times during those live training sessions over the two weeks. We will look at any major futures market participants are interested in.

If you have to go to a job you can tune in live before or after work and then catch up by looking at the live recordings. The recorded video files will be  pretty big but Kiki will try and make them available straight after the close of the training sessions so that those of you who want to, can review the day again before the next day's session. This is subject to technological restraints but that is the intention.

If you can only attend one of the weeks, you get a price break but have access to ALL the recorded training PLUS the 90 days mentoring. I'll give a price break to $4000 but your log on to the room will only work for the one week you specify. I want to give everyone the opportunity to participate and also maximise my contribution to my charities.

Participants will have all their questions answered during the live training and they can also email anything they think of afterward and we will deal with them the next session.

This will be an all out effort by me to share all my trading knowledge and experience and NOTHING will be held back. As a once only offering, I want to make sure that everybody who participates gets what they need to get to CP. I expect you ALL to become consistently profitable if you follow what is taught and do your part, which we will discuss in the training. This won't be easy but it is the necessary road to CP but it's up to you to follow it.

Light Crude - CL -rotated either side of the the support and resistance line - the 33EMA. My trades were outside in and inside out - scalping mode. This is one of the things I'll teach in the training as it's hard to do in writing.

This is it

There are a few things I want to talk about today.

First, Kiki and I want to thank everyone who has participated in this blog. Not only has it been a fun and enjoyable experience, but it has been great seeing the charts and hearing the stories of many readers' progression to CP ... things have now reached the point where the blog is taking up more personal time and energy than I can devote to it.

Second, I DO NOT want to start a trading education business, or be a seller of trader training CDs, and I don't want to sell indicators or a book or sell training webinars. and neither does Kiki. I'm a trader first, last and until I can no longer put on a trade.  But, the emails asking for training, mentoring and coaching continue to roll into my inbox in a steady stream. So I think we have some unfinished business. So here is the deal.

This is it. One time only. Beginning this July 10,2010  

125 plus hours live teaching/live trading plus 90 days of followup via a forum/email/or closed blog or some other method. The training will be provided on a commercial basis as I will have to stop trading for the whole period of the live activity and this training will also help my charities.

We will cover two types of trading. Firstly, the now familiar Range Bar trading which you have been watching since October and which trades 4 to 8 times during a 14 hour day. The other type of trading I will teach is a scalping type of trading which excels in the lower volatility times when the moves are much shorter. In the ES, this can typically trade more than 20/30 times a 14 hour day taking a full ES point each time. Both trade order flow but with different techniques. Scalping can also suit people holding down a job and who want to trade for a couple of hours at a time when they can.  I will be trading/training on whichever market is active on that day.

What I will teach: Everything you need to know to become a professional trader and the way to learn it and put it into practice with real money. We will start from scratch and build up our charts, teach you what shows what, how to create setups, how to trigger trades and when, how the whole decision making process  should be done, recognising "the picture", and, most importantly, how to learn to do this so you can react and not have to work out what to do and miss trades.

The proposed schedule is:

July 10 and 11: Two days of theory/Q and A, on a Saturday and Sunday. All setups, new techniques for scalping using the same EL methods but with extras.

July 12 to 16: one full week of live trading with teaching 12 hours a day to cover the European and U.S. time zones.

July 19 to 23: one week off where you trade either SIM or live to put into practice what you have learned. During this week I will be available through the webinar site to answer questions about the what I taught during the first week's training and my charts will be up, but I will not give advice about any specific trades. The idea is for you to practice what you have learned so we can correct any problems the following week.

July 25 to July 30: another day of theory/Q and A, on Sunday and another full week of live trading with teaching, same as week one.

Cost will be US$5,000. I will limit the number of people attending. Anyone who can send me a copy of proof of already having contributed to my charity will be given priority if too many people apply. All those attending will be invited to write a guest blog post during the training. You can blog about anything as long as it relates to trading. This training will be recorded and will be made available to the paid participants - subject to technical issues. The recordings may not be sold by me or sold/distributed by anyone else. After this training, I will keep blog the posted for reference only.

I will donate a percentage of the proceeds of the training to my 3 charities based on me retaining only half of what I would have earned from trading during that time. In this way all of us will make a difference. I will take a 50% pay cut for charity and those that benefit from the training will contribute to some very deserving causes.

Included - no extra charge, I will provide all the software signals and indicators I have created and that you have seen on the charts, for MarketDelta/ IRT and in easylanguage for TradeStation and MultiCharts. "Flo" is not included.

You don't "need" this if you are structured enough to create your own schedule after reading this blog.  But for those that want some extra guidance or illumination or maybe want to save themselves time and money getting to CP, than this option might be what you are looking for. This will also allow me to finish what I have started without leaving anyone out on a limb who truly wants to learn to trade using my methods.

Before everyone jumps all over me, I do understand that different people have different budget constraints. But primarily a trader needs to understand what value is, both in the market place and outside it.  Somethings are just worthwhile paying for. An education is certainly one of those.

Anyone wanting to participate, email me at electroniclocal@gmail.com with TRAINING in the subject line please, no commitment at this stage. Without wanting to hype, this will be a unique opportunity for many of you to get to CP in a very much shortened time. You should all have a good idea of what to expect as the blog has spelled out a lot of it since October last year. This personal mentoring may be just what takes you to CP. Getting close to CP is easy, hundreds of thousands of people are still doing it.  It's the last step that is like going to the moon from earth.

Additional note: If you are a genuine hardship case and can't afford the training and have been trading live for at least a year, have some risk capital, email me with your story and your contact details. I will train at least one person for free if I find a genuine deserving need.

The blog will move to a weekly basis with me posting something new on the week-end from the previous week's trading with some charts. This will start as of July 4 week-end. Until then, business as usual.

Trading this morning was tough. I switched to Light Crude until the ES awoke on the downgrading of European debt and rode the roller coaster down.

NASCAR is back

I realize I live in the north, but NASCAR is my favorite sport. Ever since my father took me to my first race at Daytona in 1993, I have fallen in love with a spectacle that excites some and bewilders others. Regardless, the sport has fallen on hard times (with ratings and attendance) as it tried to become mainstream. The bigger the fanbase the more the money, right? Wrong: The sport needs to connect with the southeast, which is where it roots are firmly entrenched.

That's why Sunday's race at Talladega was so amazing. From the bumping and fighting, the Aaron's 499 had it all. There were a record number of leaders and lead changes. And it's amazing the response you get when the sanctioning body decides to afix a spoiler onto the backs of the cars rather than a douchey fin.

But I digress. What made the race so intriguing is the passing and rivalries. Four-time defending champion Jimmie Johnson cut off teammate and fellow four-time champ Jeff Gordon on the backstretch. Gordon had to slide back into the pack and he wrecked a few moments later. This is the second time in as many weeks that the two teammates have tangled, making for an interesting storyline despite their clean-cut images. This is what racing is all about.

Then, on the last lap, Kevin Harvick bumped Daytona 500 champ Jamie McMurray to the side and they drag raced the final 300 yards to the checkered flag. It forced even the most hardened NASCAR fan to stand up and shout.

This is what the sport needs. More fighting and more side-by-side racing. I realize I'm in the minority with NASCAR, but I have a feeling that more people will start showing interest if the racing -- and story lines -- are as intriguing as they have been this year.

(Photo by Getty Images in the last lap of Sunday's Nationwide Series Race)

As Penn said, or was it Teller....

What the big print giveth, the fine print taketh away. And what the market gave me in the morning (London time) it took most of it away in the afternoon. I was a little preoccupied and not as focused as I should be and I woke up  late to what was happening.

These tight ranges mean you have to go into scalp mode and trade outside in, fading the market with delta divergence and scalping techniques. Kiki headed out shopping as she said it was cheaper than giving it to the market. I don't use delta divergence by itself nor do I use it much on days when the swings are long enough to give me a decent scaleout.

Stirred not Shaken

Removing all the indicators from the charts has caused quite a stir among the readership. Therefore, I'm going back to posting charts with the indicators still on them so both types of information is visible to everyone.

These emails and comments have highlighted something that I thought I had clearly explained, but maybe I wasn't clear enough in my explanation so I will have a go at explaining it again. What Exactly is a Setup. To summarise, a setup is the picture I want to see before I finally decide whether it qualifies as a trade and pull the trigger. Not all setups become trades. Why? Because when I look at all the ingredients of the picture, there may be enough contradicting ingredients to fail the setup as a trade.

A setup for me is when the order flow points either up or down without being hindered by support or resistance within the first logical scale area. The components of order flow is the pressure and amount of volume PLUS the speed or strength it is moving in that direction. The support and resistance comes from the context.

I see the setup as a picture that has many "colours". I sometimes place emphasis on one colour and at other times on another. This is discretionary trading. How I decide what to place the emphasis on in any one situation is based on context.  That context is what is hard to explain as sometimes I am not exactly sure how I do it. What I am sure of is that it's a lot like when my wife goes shopping. She can't tell me ahead of time what the dress she wants will look like, but she "recognises" it when she sees it because she has had enough "screen time" for her brain to compute the information and make a decision.

I know that this is not, in one way, helpful but in another way it shows the importance of reverse engineering setups and then spending enough time in SIM so that when you see it, you recognise it immediately and don't have to calculate or think. It's this "recognition" developed through "muscle memory" that takes you to CP. If you need or want indicators to get you there, that's fine. If you want to keep them, that's fine too. If you want to get rid of the indicators and it eventually improves profitability, terrific.

This whole decision making process is fairly unique as it involves you having confidence in what you are doing. Although I believe you shouldn't try and fix what isn't broken, I do believe that over time we can improve performance and as traders we are competing against other traders and need to be ahead of the curve, stretching our comfort zone while not falling out of CP. Experimenting by dropping an indicator and seeing how you go is an option.

Detecting and Using Order Flow Part 2

As you become proficient at reading order flow, you can get rid of all the aids and work with just the Volume Breakdown, Cumulative Volume Delta PLUS reading the Range Bars. The only additional indicator I have on my trading chart nowadays is the 33EMA as it tells me where I am. Of Course Market Profile is there to supply the context. The chart below is what I am using and I have noted today's trades on it.

But let's go back one step. Starting with the indicators is, I think necessary, to know what to see and to "see". The 2 CCIs allow you to see the momentum in 2 modes. The direction of the lines, whether they are above or below zero, how they interact with each other, is the market getting ahead of itself when, for example, the 6CCI leads the 45 by too much. All very important things. We look at the indicators together with the bars on the charts until we develop a feel for how the bars relate to each other and to the momentum we are measuring with the CCIs. If the CCIs are so good, why get rid of them? Because they are a derivative of the bars and therefore MUST lag somewhat. Getting to the PRIME information gets you in and out earlier.

The 33EMA divides the market for me and is a major support and resistance tool as well as a trend tool.

We then look at the order flow using the Cumulative Volume Delta and relate that too the range bars patterns and formations. The think I look at include things like: Do the range bars overlap? Are they going anywhere or is it sideways? Where are they in relation to the 33EMA and it's slope? Are they closing up or down? Are there any hammers or hanging men (candlestick terms)?  All of these things create the picture. When I started the blog I emphasized the importance of "the picture". I think that perhaps the reason for this is easier to understand once you delete the indicators because the picture is all you have left.

As far ad the CVD is concerned, it's flow, its peaks and troughs and the relationship between them are all important. I often see divergence between a peak in price and the CVD. It tells me a lot.

I'll be posting my charts without indicators and try to add some notes about selected trades - the type of thing I talk to Kiki about. This is the real discretionary trading. When people use a lot of indicators there is a real tendency to try and mechanise the process. While it may look easier (and if you are auto trading you have to) mechanising discretionary trading gives only an "average" performance rather than achieving the high win rates and profitability many of you have commented about in responses to the blog. Perhaps now there is a better understanding of the difference between just setups (trades to consider) and triggered trades.

Today was a choppy day. I spent all day buying and selling crosses of the 33EMA as CVD was horizontal.

Kiki: The Next Stage

Kiki has been doing very well. She is CP but still finding exits after the first scale inconsistent. Her win rate is slowly increasing too.

It's now time to start stripping off some of the indicators. This next stage of her progress into a top class trader who can live off trading any market anywhere will be even more exciting than the previous stage.

Kiki has been trading for more than 6 months live and has had enough so called "screen time" to try and move to the next stage. This will be a big challenge, mainly because financially, it will be a step back until the benefits start to kick in and her daily average profit per contract increases. We have to focus more on the Range Bars, how they relate to each other and how long they take to form. The volume delta remains the same.

Many of the indicators showed similar things from different points of view. Removing them one by one from the chart is what we will do, making sure that Kiki still "sees" the picture. This needs more intervention from me as we will go back to a daily replay of the day's trades after the market has closed and discuss "would'a, should'a, could'a".

FloBot Update: We are still in the testing and tweaking phase. Not ready for anyone to see it live yet even with all the disclaimers and caveats about it being only an educational and testing display. There are two issues at the moment: Back testing the current version has shown an annual profit per contract of about $US32,000 on the ES with a draw down of less than $US2,300 per contract. The issue is there is still one losing month out of the 12 and I am still trying to quantify the effect in live trading of missing an entry due to lack of overlap of range bars.

The point we want to get to with Kiki's discretionary trading is my trading chart below. It has just the 33EMA, Volume Delta and smoothed Cumulative Volume Delta. Market Profile, of course, stays for the context. I have marked my setups on the chart. The process remains the same, "get the trade on and manage it". I am not married to any trade and quickly cut a position, even for a tick profit or loss, if I see the market action or order flow weakening.

I was long the ES just before the Greek Moody news, scaled out the first piece and got stopped out the balance at the low after the news, missed the long after that too. There was a big gap in the 6E as the Euro was hit in the cash, and both markets looked shell-shocked for a while after that so I went for my afternoon espresso. Then just one more trade.

Order Flow part 2 will be the post for tomorrow!

Detecting and Using Order Flow Part 1

We trade order flow as the heading of this blog says and as I was reminded again of this by one of our readers yesterday.

We are getting towards almost 200 posts in this blog and we still have a lot to talk about. We have spoke about order flow in a number of posts and perhaps now we should talk about it in a little more detail. First, we have to define what order flow is and then we need to decide how we can detect it.

For me, order flow is the nett amount of business between the buying and the selling. Orders flow in two directions. In fact, each trade has both a buyer and a seller. On the floor, when a clerk was sent to the pit on behalf of a client to ask why the market went down, we would facetiously answer "more sellers than buyers" as if the person asking was an idiot. But in fact, the answer is not so facetious. Perhaps the answer should more correctly be: "There were more initiating sellers than initiating buyers". Traders like a bargain. They will buy below perceived value and sell above perceived value. On the other hand, other market participants "have" to do business. These netted aggregated large trades in the same direction become the order flow.

Contrary to what many people think, people with a lot of money are not stupid. These large market participants do the best job they can to get the best price they can. Not all large selling orders trade at the bid and not all large buying orders trade at the ask. Clever market participants hide both their size and intentions and often sell at the ask and buy at the bid. This can be done even more easily electronically than it was done in the pit.

For this reason, we need to look at both the volume traded at the bid and at the ask as well as where price is going and how it's going there to get the full picture. I remember seeing a black and white film as a kid about the Invisible Man. When he took off all his bandages, you couldn't see him. So to enable the audience to see what he was doing, the director created his footprints so we could follow his action. This is exactly what we need to do in the markets to monitor order flow. Our tools are Volume Delta (or its proxy of Upticks and Downticks), Market Profile and momentum measurement. Momentum measurement can be done and should be done in various ways including looking at the way that the range bars unfold and the speed with which they are formed.

Putting it all together we have order flow. If we correctly detect order flow then we can make trades with a high win rate.

This is DISCRETIONARY trading. This means that I am trading a picture of what I want to see to put on a trade. That picture is not the same every time. What I want to see in the picture varies depending on context. The arrows and notes on the MarketDelta charts are setups, not trades. As I said before, I can trade either by qualifying a setup's context before I put the trade on or I can just enter every setup by autotrade and then manage it including taking it off if I didn't like the context. At the moment MD is not autotrading. The signals mean that it meets my setup requirements and I then look at the context whether to take the trade or not. The subsequent signals in the same sequence tell me that bar meets my setup requirements, not necessarily the same ones as in the previous signal. It's MultiChart that is doing the FloBot trading but Flo trades in a mechanical fashion and has a different trading plan. It has to take lots of trades with small profits as so far we cannot incorporate all the context into the algorithm.

Part 2 of Detecting and Using Order Flow will examine the thought process I go through in determining the order flow.

Wrong side of the law

The trooper's name sounded familiar, but I wasn't quite sure...

While working with the Observer-Reporter on May 29, 2009, we heard on the scanner a police chase involving a motorcycle on the interstate. The bike crashed, so my editor looked over and asked me to go to the scene and find out what happened. I obliged and rolled up to the crash -- as I had in numerous other interstate crashes since 2005 -- and got out of my car to investigate.

I walked up to a Cecil Township police officer and asked her if she could locate a state trooper to help me out with the accident. A few hundred feet away was a crashed bike near several state police cruisers and ambulances. But before she returned, a state cop on a motorcycle rode up to me and asked me what I was doing there.

"Hi, my name is Mike Jones, and I'm with the Observer-Reporter," I told him. "Do you know what happened here?"

"No," the motorcycle trooper said to me.

"Can I talk to the supervising officer?" I responded.

"No," he said. "You have to go."

"Can I stand in the grassy medium?" I asked, since in four years I had never been kicked out of an accident scene.

"No. You have to leave," he said.

So I walked back to my car and called my editor, Liz Rogers. We had been struggling for several months to get timely press releases from state police based in the Washington barracks. Those press releases are the lifeblood of a news organization trying to get the daily crime updates to the public. But about five minutes after talking to my editor on the phone, the trooper rolled back up on his bike and ordered me to surrender my license and registration.

"What is going on?" I thought.

He let me sit there on the side of the road for another seven minutes while he took my information. When he returned, he cited me for failing to follow traffic instructions from a uniformed officer and failing to change my registration address. I didn't know his name, but it would become the subject of much debate at a later time.

I appealed the citation with District Justice Jay Weller, who decided that I was not wrong for parking my car on the side of the road to obtain information for the story. The media is protected by Constitutional rights that permit us access to some places where the general public is not allowed. Both citations were dismissed and I felt vindicated for my work. But the trooper who cited me would become entrenched in a much greater story less than a year later.

I forgot his name, but later I learned the trooper was Edward Joyner: the same person who is being investigated for his role in the Ben Roethlisberger saga. He's the "bodyguard" who allegedly stood in the way of several sorority girls as they tried to get their friend out of a dank Georgia bar bathroom with Roethlisberger. Now, the Pennsylvania State Police are investigating the case to see whether Joyner acted wrongly in the situation.

The Roethlisberger allegations are shocking to me, but I am willing to wait to see how the Steelers and NFL handle the situation. Still, while most Pittsburghers have their eyes on Big Ben and his suspension, my attention is focused squarely on how the state police handle the actions of Trooper Edward Joyner.

And I wonder if he told those girls standing in the Georgia bar hallway the same thing he told me: "No. You have to leave..."

Exit, Stage Left

As I have said before, for me EXITS are more important than entries. Again, as Pete Steidlmayer told me:"Just get the trade on and manage it".

Money Management is the key to profitability. It is THE holy grail. How and when you exit quantifies and determines whether you are exiting at a profit or a loss and how much.

My exit strategy is a key part of my trading plan. As I have said about Flo, it takes a lot of smaller profits. Why? because of the trading plan: Lots of entries, exits - HFT. In my discretionary trading, the trading plan is different. I get a trade on with the visibility of a profit of at least the first logical scale point. I don't have any certainty whether there is any more in the trade. I have my envisioning where I have a possibility in mind like the short trade yesterday in the ES, but no real certainty. My plan calls for a first scale based on either a monetary target equal to me drop dead stop or at a first logical scale area. It then calls for me to manage the trade scaling out or exiting all, depending on what I see.

To find my exit points, I am paying attention to support and resistance in both the Profile and the EMAs. These are logical scale points.

There are other things I look at: CCIs when momentum turns or runs out coinciding with something else. I use the MomDots too. If it has been a trade that has lasted more than about 5 bars, the MomDots give a good exit with the knowledge that if I have exited too early, I'll get a re-entry after that pullback.

Other people I know use ATRs (google it) as an exit as they adjust to volatility. Still others use a number of range bars stops. There are lots of ways to exit but I suggest that both consistency and a thought out exit strategy in a written trading plan are very important. It's not very efficient to try and make this important decision on impulse during the heat of battle.

Another fun day at the office. I traded the 6E in the morning again and then went to the ES. I first traded the gap back down to the top of yesterday's Profile. Even though the southern tail was double prints, it was pretty clear we were going north after the down action. I had a couple of good trades as the market went up until that Fib number stopped the action for me right at the upper Keltner area. Time to take the dog for a walk. If price explodes past the Fib top then it will be interesting in the U.S. afternoon.

What's my Profile

Splitting the Market profile into meaningful distributions is something I get questions about. I have said that I split the Profile when there has been a breakout from balance. This is when you see an abnormally long 30 minute period that covers more prices than normal. It looks like an obvious new start to something. I do this by toggling the TPOs so that everything is open and I can see the length of each letter of the TPOs. I then create splits at the longest letters and make a Profile out of each distribution I find. I then have a look whether any profiles should be merged if they overlap a lot. It's trial and error until I see something that is meaningful. I end up with good support and resistance information from the VAs and POCs.

Splitting a true 24 hour market such as currencies and particularly the 6E has some added benefits and challenges. I have looked at this in several ways. One way is to try and split the 24 hour profile into its three main timezones and look at those separately, splitting each time zone into distributions when there is a new balance. Another way is to look at only the main time zone - Europe- and chart ONLY that Profile and work off that. Yet another way is to chart only YOUR timezone and work off that.

Which one is best? Depends on which gives you the information you need. I find that with the ES, although I look at what has happened on a 24 hour basis, it is the RTH Profile that I use for my main support and resistance. I am still not sure with the 6E as the Euro v Dollar relationship is impacted by all sorts of news that can appear any time in the 24 hour cycle.

ELmom: I've had people asking about my ELmom indicator. As I said in one of the comments or posts, I have summarised some of my trading plan into an indicator - with lots of alternative rules. This way, I can see quite quickly when a setup is possible. By making a lot of "or" statements and "and" statements in different combinations, I was able to distill a lot into one red-green light indicator. It just makes it quicker to see the forest rather than individual  trees. This is my trading plan so is not sharable, but anyone can create an indicator like this type of indicator by putting in the cumulative and alternative conditions from your trading plan.

Today's trading started in the 6E in the morning London time and switched to the ES just before RTH. The Gap Trade up to previous day's VAH worked. The break down was a bit harder. parallel horizontal EMAs held the first short trade but even had I lost patience, I had a second bite at the trade after the support broke. My  one and only and favourite  Fib number held with the market going sideways into London dinner time. The chart shows it all.

Calculating...

I've written a very simple simulator to try and do some vehicle optimizations.
Using a very simple drag model... I used the data from page 16 of
http://www.jmrconline.org/Drag_Coefficient_Prediction.pdf built a table of mach number and Cd and interpolated. (This is actual data from a 5" rocket, were building a 6" rocket so it seems reasonable)


One of the interesting results is this graph:

It shows peak altitude achieved (y axis in meters) piloted against the equivalent peak drag. The peak drag units here are equivalent velocity at sea level in m/sec. The peak is at 50500m and 303m/sec (165Kft and 677mph)

Another interesting result (from a slightly different run) I'm not using any real fancy integrator and the results vs time steps don't change much:

Time Step	Alt
1	47458
.1	49532
.01	49576
.001	49593

So this means for very crude integration steps you get reasonable results, thus allowing one to use the model for optimization seeking. Right now there are a number of limitations, the model assumes that the ISP does not change as the motor is throttled for peak drag limiting etc... so as I add more detail to the model it will be interesting to see what happens.

Pittsburgh's role model

Friday night gave us a stark reminder of the differences between Pittsburgh's two greatest athletes.

On one side, the star quarterback of the football team is practicing on the South Side about a month after following a wasted girl into a single commode bathroom. The unsavory details have already been exposed, so there's no need to expand upon them here.

A couple miles away at the Mellon Arena, you have the captain of our hockey team pulling off an usual hat trick: Scoring a goal, making an unbelievable save and passing the puck on his knees to a teammate for the game-winning goal.

Make no mistake about which player Pittsburghers most align themselves with today.

Football will probably always be king in this region, but Sidney Crosby has officially taken the mantle as this city's brightest star. Since arriving in Pittsburgh five years ago, he has been gracious to both the fans and media. And, oh by the way, he's the best player in hockey.

We used to identify ourselves by our football team, but it's becoming increasingly evident that we might want to reconsider. The Steelers players continue to get into legal trouble and their supposed leader, Ben Roethlisberger, disgraced his team and the city with his disgusting behavior in Georgia. Do you notice how that doesn't happen with Sid the Kid? That's a funny nickname, considering he acts like more of a man than Roethlisberger.

The past month has been an eye-opening experience for even the most ardent Pittsburgh fans, myself included. Both the Steelers and Penguins are winning championships. The difference between both teams are their leaders.

And Sidney Crosby showed once again Friday night why he's the face of Pittsburgh.

Honoring the dead

A 27-year-old Army veteran in full uniform lies dead with a twisted white sheet covering his body. The statue of a Civil War soldier stands over him, looking down as if to gaze at what had happened just a few feet away.

The deceased man apparently used an assault rifle to shoot himself on the steps of the Veterans Affairs medical center in Dayton, Ohio. The man, who I will not name, enlisted in the Army in 2003 shortly after the Iraq invasion before leaving the service in 2007. Details of the soldier's suicide are vague, but it seems to be another reminder of the devastation inflicted on our citizens when they are sent to fight an unjust war.

But political feelings aside, why did The Associated Press feel the need to publish the photo of this man? How does it serve the story in any way besides to sensationalize his death? The AP used the full shot from the Dayton Daily News, which cropped the photo for its website.

There were plenty of times when I was sent out following a fatal car accident -- many times the person was ejected from the vehicle -- and the photographer declined to capture the shot or would not agree to have it published.

Using difficult photos is one of the most troublesome decisions for an editor. Some elicit strong emotional responses that would be tamed with a censored photo. But the details of this soldier's death are clear. And any good reporter would have been able to describe the sad scene, while also preserving this man's dignity.

UPDATE: 4:26 p.m. - In the few minutes after writing this post, the Post-Gazette and Associated Press have taken the non-cropped photo down from their websites.

Photo by Ron Alvey/Dayton Daily News

Why this Stuff Works

In looking at a methodology, I need to understand the "why". There are so many ways of trading, time frames, "indicators", "Calculations" and so on, that a good understanding of the "why" makes it much easier to be disciplined and focused. It is fundamental for me to have confidence in my methodology because sometimes I go through a draw down period that is hard to sit through. Knowing the "why" makes it possible to trade through those periods.

What I do has three very simple components. Many of you have successfully duplicated what I do through the necessary work. I don't answer detailed questions about all the setups and things as I believe that unless you work them out by reverse engineering the trades shown in the blog, you will never "own" the methodology and have the confidence in it that is necessary to become CP.

The three legs to my stool are Support and Resistance, Order Flow and Money Management.

Support and Resistance can be a very subjective thing. Some work sometimes and some don't. Having a lot of them is only confusing and makes me lose confidence in them. For this reason, I only use the EMAs and the Market Profile for Support and Resistance.

When I am at such a Support and Resistance, I examine the Order Flow - it's direction and strength. Will it hold or break?

Finally, my money management strategy. I put a multi-contract position on. I have no idea how far the trade will go, so I begin taking profits at logical scale out points. If I see evidence that the order flow has run out of steam, I exit the trade in full.

This has proven to be the way that suits me as it provides a high win rate and the possibility to profit from larger moves.

Early post today and no chart because Mrs. EL and I are off to Amsterdam on a horticultural expedition................... to visit the Keukenhof Tulip Festival. The computers will be churning all weekend under Kiki's supervision ready for Monday's live real money test start, I hope.

A hectic week

The common misconception about breadliners is that we don't do anything. That couldn't be further from the truth, especially for me this week. On Monday morning, I ventured out with the Census and enumerated 18 people for a few hours. Then I wrote a story about a new apartment complex in Braddock for the Trib in the afternoon before covering the Mt. Lebanon School Board meeting in the evening. That's when I got a call from Dan Hirschhorn of Pa2010.com asking me to cover a union endorsement on Tuesday for Jack Wagner. Back from that, I had to write a couple political stories for his website before polishing off the Lebo school meeting for the Trib. Toss in a few extra bucks for yardwork and I'd say it was a very productive week.


Braddock housing complex a symbol of renewal

A sparkling new apartment complex for low-income seniors, situated in the shadow of the defunct UPMC Braddock hospital, is set to open Friday, a $13 million project that county and local officials hope will help revitalize the borough.

The Avenue Apartments complex, on Braddock Avenue in the borough's main drag, has 53 units. Pennrose Management Co. has finalized 10 leases since it began accepting residents last month.

The property manager and Mayor John Fetterman are concerned the lack of a hospital next to the apartment complex will waste an opportunity to serve the complex's residents.

Read more...

Wagner looks to showcase union support

Auditor General Jack Wagner rolled out a slew of union endorsements on Tuesday, seeking to demonstrate his support within the organized labor community even as the state’s largest umbrella labor group did not make an endorsement in the Democratic primary for governor.

About 35 members from six local unions stood behind Wagner in the lobby of the David L. Lawrence Convention Center here, where the AFL-CIO was holding its state convention. Neither Wagner nor Democratic rival Dan Onorato were able to garner the two-thirds vote needed for an endorsement from the AFL-CIO, but the Wagner campaign was clearly looking to downplay that by holding Tuesday morning’s news conference.

“I think it’s powerful,” Wagner said of the union endorsements. “I appreciated every one of them from the bottom of my heart. I always make sure my employees are treated the way I want to be treated. They are really about the middle class and providing quality jobs for Pennsylvania.”

Read more...

Mt. Lebanon renovation draws criticism, support

Residents packed the Mt. Lebanon School Board meeting Monday night, some to support and others to rail against the proposed high school renovation project.

The board was considering a motion to submit the renovation plans and public feedback to the state Department of Education for approval.

About 25 people spoke -- with opinions on the project's $113.3 million cost evenly divided -- before the board voted 7-2 to forward the documents to the state. School directors James Fraasch and Faith Ann Stipanovich voted against the motion.

The project has prompted a petition drive to lower the costs to $75 million. Mt. Lebanon resident Elaine Gillen brought a stack of papers to the meeting containing 3,333 signatures and laid them on the desk in front of the board.

Read more...

Easy Decision Making

I'm a visual person as you have no doubt realised reading this blog. A picture is worth a MILLION words. I want to react to events and take in the information as quickly as possible. A picture does it for me. Numbers are for analysis.

In this quest, I create visual aides that show me in a direct way things that I may need to pull together from other sources. The chart below is the ELmom on MarketDelta. Here the information is being really pushed at me. I can almost trade RED light, GREEN light.

Using little tricks to make it easy to react quickly and consistently can be a good idea for some of us, especially if you like systematic trading. You can build "either... or" scenarios into the indicator so that it gives you a big part of the picture as a conclusion. The computer can help a lot more than I thought. Developing Flo helped me find a lot of things I can use in discretionary trading.

Even if I get the context wrong and take every trade, the methodology is robust enough to leave me GREEN on most days. BTW, we have improved Flo's code and the chart below reflects that improvement. As Kiki is getting a better handle on RTL, she's making more headway. We are now looking to add some more stuff from inside the bar. If we could use the eSignal data for analysis and, at the same time, broker data for trading, we'd be live on Monday. As it is, we'll be using the MultiChart version until MarketDelta upgrades their software.  As soon as we finish the next phase of live testing, we'll set up the GoToWebinar.

The Computers are Smokin'

It was great that there was so much interest in auto trading and Flo. It looks like there are some of you, like bakrob99 who are already going down that road. By the way, bakrob99, are you fully auto or just to enter and then manage?

A couple of you commented about slippage and not getting orders filled. I have said that using limit orders I have taken care of slippage but where we are vulnerable is when the range bars don't overlap and we miss the trade. This will have an impact on profitability, as we catch all the losers but miss some winners. Our experience so far running live in demo mode is that we make about 66% of the theoretical profits. I know this as we are running the same logic over eSignal data and live broker SIM. Any of you care to share your experience?

This project has a number of challenges.

1. Getting historical data that is accurate. I am part of a private group that enabled me to get good data with volume attached in MultiCharts format. I can't provide data under my agreement with them.
2. Ending up with statistics that show every month profitable over at least a 12 month period. This comes about by selecting the right range bar, stops and targets. There is no change in logic for the different markets.
3. Achieving a reasonable maximum draw down. This is an important metric as it reveals whether there is a period when the model is losing money. When you eyeball the charts you get a handle on why the losses occurred.

Once we have Flo working in real time with real money, I'll provide a way for people to see it in action live. I'll also then start on the other markets we want to automate. So, as a portfolio, we 'll trade futures for Euro FX, Bund, ES, Dow Euro 50, mini Light Crude as a start.

Trade for a Daily Profit Target, Drive a Porsche

I've spoken about trading once a day and then stopping and I have spoken about trading in HFT mode. Today I'd like to take the next step and provide another alternative to consider.

My dad loved casinos. He wasn't a big gambler but he did love to gamble. His thing was roulette. He spent a lot of time in his retirement working on a roulette system. Ultimately, he did come up with a system that regularly made money. Of course it only made money because of his money management rules. The roulette table has either a 1 in 37 or 2 in 38 edge in favour of the casino so the only way you can compete is controlling how you bet - the only thing you can control.

I can use this same money management system in trading.

One of the components of his money management system was to stop playing when he had made a certain number of times his perceived draw down.

What we are doing with Kiki in parallel with the trial of FloBot using a demo account is to data mine our statistics to determine:

1. Is it more profitable to stop trading when a certain profit or loss level is hit every day?
2. Are there times of the day when we shouldn't trade?

The outcome of this could be quite useful. We are thinking that the solution for an electroniclocal is to trade a few markets simultaneously on the basis that we stop trading when a target amount for the day is reached. We have noticed that even on a losing day in our HFT trading model, there is a point during the day that the system was in profit.

The maths could look something like:

We trade 3 different markets with a daily profit target for each of only, say, $200 per contract. This looks as if it's easily doable on our current statistics. If all three markets reach this target then trading each with just a 5 lot would yield a profit of $3,000 a day. Not too shabby. We will need to further study the best daily stop loss for the system so that if a market hit a certain level of loss for the day it would stop trading.

An extra benefit of auto trading is that in these days of 24 hour markets, the volatility and moves in the market I follow may take place during a time zone when I'm asleep or stopped trading. While I am not comfortable leaving FloBot completely unattended, I have no issue with it trading while I am asleep as long as I have both internet and broker disconnects alarmed so I can awake and sort out any issues.

Kiki is a huge fan of this way of trading. She is a huge Nipponophile and would love to spend a year in Japan and she sees this as a way of achieving that. I must admit I am becoming a bigger and bigger fan of FloBot trading as we get deeper into it.

I'd love to get some feedback and ideas from anyone who is interested in going down this road. I think it opens up a trading career for people who may not like or be suited to discretionary trading.

Auto trading update from Kiki

I took great interest in reading all the comments from EL's post yesterday.  The reason he posted the FloBot trades, is because FloBot is getting close to working the way we want it to. Yes, it trades a lot and yes, there are losing trades and losing days. HFT isn't anything like EL's discretionary method, but that's OK, because there's still a high win rate.  Even after the broker commissions, it's still highly profitable.

EL thinks there will always be a place for discretionary traders but I'm not so sure.  I know I can't begin to compete with his years of experience so I'm relying more on programming and computers.  I also know that I wouldn't have been able to program FloBot without the rules of his trading methodology, because those rules forms the order flow and momentum which is the basis of FloBot's logic.

Where this all goes is anyone's guess. It seems a lot of the big money is auto trading, and I know I'm lucky that I can take advantage of this technology at a low entry cost. In the end we both think the best auto traders will be the ones with the skill set of both a discretionary trader and a computer programmer, because so much about context and the little nuances, gets lost in translation if the roles are split.

I'm planning to run FloBot live on the GoToMeeting website for those who might be interested. I'll let you know when and how in another post. Right now I'm working on the difference between the performance from back testing using eSignal data and live performance on a demo account using the broker's data feed.  I'm concentrating on 6E because it's the most active market in all the time zones. The broker statements from my Flobot account will also be posted.

Kiki

Slime Bowl XXL

Apart from the Steelers losing Super Bowl XXX and a few AFC Championship Games, I'd be hard-pressed to find a worse day in franchise history. It amazes me how the two most critical players from Super Bowl XLIII -- Ben Roethlisberger to Santonio Holmes in the corner of the endzone -- both got into such serious trouble in the offseason. By now, we all know the (alleged) stories, so I won't get into them again.

But we awoke this morning to news that the Steelers had traded Holmes to the N.Y. Jets for a fifth round draft pick. That's all a Super Bowl MVP is worth these days? Actually, that price seems way above market value considering Sanantone's frequent run-ins with the law and his Twitter followers. He told one Twitterer (or is it Tweeter?) to "go drink the worst thing you can drink and kill yourself." That's one way to keep a loyal fanbase. And now he's been suspended for the first four games in 2010 due to a second violation of the NFL's substance abuse police. Apparently, Sanantone likes to "wake n' bake" at his crib. Good riddance to that spoiled idiot.

Amazingly, that wasn't even the biggest headline on Monday. Instead, we were all waiting to hear whether a Georgia prosecutor would file charges against Big Ben after a 20-year-old college student suggested he raped her in a bar bathroom. Although the prosecutor declined to press charges for lack of concrete evidence, his vivid and disgusting details of the incident that occurred in a 5-by-5 foot bathroom made me want to vomit. I'm wondering if public backlash against Roethlisberger might be more ferocious than felony rape charges.

However, District Attorney Fred Bright had a good suggestion for Roethlisberger that both he and his teammates should follow: "Grow up ... You need to be a role model for your team, your city, the NFL. You can do better."

I'll second that.

Where's the Exit Sign

Exiting a position at the right price is even more important than the entry. As I've quoted before, Pete Steidlmayer's famous words: "Just get the trade on and manage it".

However, in selecting exits, I have to take into account my style of trading. If I can't readily find a good exit strategy, my starting point is to go all out at the first logical scale out point and then look for a re-entry.

FloBot, on the other hand, examines all the trades within the parameters of its logic and can highlight the most profitable exit strategy. This can also mean that the model trades 20 or 30 times a day which I can't replicate manually. It's great for a FloBot but not for manual trading.

Using the MomDots for a manual exit also works for me. MomDots will keep me in a trade longer and that means that if there is a pullback I have already exited and can then also decide whether to re-enter. Using pure order flow is another method but I need to decide what sort of change I want to see before I exit. Looking at smoothed CVD or even raw CVD helps. Again, it's something I back test in the type of trading that is part of my trading plan. My trading plan copes with different volatility of markets. It's also different, for example, for the ES whether its RTH or before RTH.

As a discretionary trader, I use all the information in the context to fit my actions to where I am trading.

The complexity of all this is why auto trading has become so popular and will continue to be more so. The chart below shows FloBot's signals today in the Euro FX. The computer is programmed to give a signal each time the entry conditions are met. A new trade is not entered until the previous one is closed out. In fact, the way that FloBot is trading at the moment is to continually take small profits. This very much emulates pit trading by a local. This way of trading reduces risk and increases gross profitability as my entry conditions must be met each time FloBot re-enters. It is easier using a short profit target which is a more finite thing and then meeting entry conditions, than risking giving profit back due to less forgiving exit rules.

However, the commissions and fees trading from "upstairs" are much more than I paid when I was on the floor. There are a number of off floor memberships the exchanges are now offering that reduce these costs per trade for higher volume high frequency traders. At the present time, this seems to be the most profitable way to autotrade.

Space Access 10

I had a great time at space access. It was strange to be showing a space access regular the plastic model of the 75lb motor I'm having 3D printed in stainless and the CTO of Lockheed interrupts and asks for my business card. The motors is a 50 to 75 pound regen peroxide hydrocarbon biprop. I've ordered one from the 3D printer and I'll show pictures when I get it. This drawing shows 4 of these tucked into a 6" airframe:

For those of you that follow the blog that was actually the only 100% new picture in my entire presentation. I also talked about restarting my composite tank work that I started in 2006 at the very begining of the blog. (Go back and reread the first few months)

The Technical plan going forward is in several steps. Working on a smaller scale I can do 100% of this plan within my current budget.
1)Build a 4 engine gimbaled monoprop that uses irrigation tubing and HPR style recovery. I expect this to take two months to get ready for first flight attempt, this puts it in the middle of summer so first flight might be delayed until september as FAR in summer is miserable.

1a)In parallel test the bi prop motor I'm having printed.

1b)In parallel develop composite polyethylene lined tanks.

1c)Build some small canards for the 6" airframe and see if we can make it glide with tanks empty.

In no particular order do the following:

Trade out the mono prop motors for the bi-prop. (I'll Probably crash the mono-prop so its probably a series of mono-prop then bi-prop.)

Substitute the composite tanks for Irrigation tubing tanks.(or alternatively put one of Steves Flometrics pistonless pumps in instead of the composite airframe.)

Fly the whole assembly to 100K ft

Fly the vehicle to 100K ft twice in one day.

Seems like a simple list its probably two years work.
The first unpleasant step is to clean up my Garage so I can actually work on anything.

Chop Suey can be Sweet and Sour

I just love Chinese food. Before the great Oriental immigration to Australia that started after 1973, I'd been known to stop in Hong Kong overnight to eat Chinese. Now, you have some of the best Chinese and Thai food in and around Sydney.

Anyway, CHOP. You are in CHOP when you see  horizontal EMAs and greatly overlapping range bars. When this happens, I go into Outside In mode. Outside in mode is when I look to fade any move, small as it may be. I don't change the way I trade, but I put more emphasis on other parts of the picture. Momentum and VB are the main features. I'll try and trade away from the EMAs looking for the market to go back there.

If the volatility of the market you are trading drops, you have a number of choices, including:

1. Trade bigger size with tighter stops and closer targets
2. Trade Outside in trades only, fading the moves or picking tops and bottoms (these are usually lower probability trades)
3. Switch to a similar market with a larger daily range. An example of this could be switching to the DAX from the ES

As a trader, my job is to trade within the context that exists. I must fit the trade to the context rather than hope that the context will support the trade. The concept of envisioning what is going on is very important as it helps identify for me which mode I should be in. It's a natural part of my mental check at the close of each range bar. This has become part of my "muscle memory" and my win rate would be hugely less without this activity. It's like driving a car and knowing where you are.

You can use a few tricks to help you. The chart below shows an indicator - the 4th pane, the one below the VB, consolidates a lot of my rules into a red, yellow and green indicator that makes it quicker to see everything and not forget. As I get better at RTL I'm doing the same in MarketDelta.

Trade 100 times a day, Drive a Porsche

Lots of us really like trading the ES because of it's deep liquidity. When volatility drops off it makes it a less rewarding market to trade and also makes it frustrating for those of us that can only watch one market at a time.

There is a converse to waiting for the best opportunity and then hitting it with size, once a day. Its one of the buzz words of today - HFT (High Frequency Trading)- and its another way of trading. It requires less discipline in one way but needs different qualities, some of them technical and some of them managerial.

I get many comments and emails about the difficulty of focusing - its my main problem and the main problem for Kiki too. This was the last comment that asked about the focusing problem:

Anonymous said...

Looking at your chart seems so obvious entry points. But I know that is in hind sight. Doing it live is still a challenge as these opportunities come and go. I guess I get distracted a lot due to twitter/emails/internet browsing. I am not focused enough. Any advice

8 April 2010 00:47

My reply was:

Anon 0:47, Turn it all off except the music or switch to autotrading.

This was a trite but true suggestion as many of us are not capable of focusing intensely for long periods of time. I found it much easier when I was in the pit as there were fewer distractions. Technology has moved forward enough that the price of autotrading is within any trader's budget now. Maybe it's the answer for many of the people reading this blog.

Kiki and I have been working on this for a while as you know. The FloBot project has been going in the HFT direction. MarketDelta has not completed the final version of this functionality so we are using MultiCharts and upticks-downticks. We are still in the testing phase with a few technical issues still to fix - our logic engine is fine as you can see from the statistics in the screenshot below.

There is about a year's data being tested so statistically it should be good. However, there is one point to note: stops and targets should be changed when there are major changes in volatility, preferably from within the algorithm.

As you can see, there are lots of trades. Commissions in the simulation are $4 round trip and there is no slippage allowed for, as the model enters on limit orders and takes very small profits. This means that in live trading some trades will be missed - all winning trades - if there is no overlap between the range bars. How many trades will be missed and how it will impact profitability in live trading is unknown. This is one of the deficiencies of back testing that could be mitigated but not with certainty.

A thing to note here is that with autotrading you have to take the good with the bad. You get sideways choppy markets and most autotrading systems will be paying back profits to the market. There needs to be enough logic in the system to keep you out of most of the chop. But there is a price for this too. When the market takes off, you can be left on the sidelines.

Between the one trade per day as in yesterday's post and the 100 trades a day (slight exaggeration here) with autotrading, you have the discretionary trader which this blog is mostly about. How we use this discretion is what makes us CP. Its a harder road as we can all testify, but definitely an interesting one.

Today's Euro FX chart had lots of good trades and lots of chop too. When the EMAs are horizontal, it's chop. How do you trade this? Wait for the market to break out of the chop range. The price is a late entry but chop is often a coiled spring which will take the market a good distance as it has caught a lot of people who have to scramble to cover their positions.