The Market Never Sleeps

I woke up this morning just before 5 am European time. Everything except Gold was down. Both the fear and margin calls are driving prices lower, even markets that are not really impacted directly by the latest news are lower.

Those of you who have been reading the blog know that I have been expecting more of the downside. It's strange how the fundamentals just come along to make the technical picture true. Seems that a lot of people have been in denial about what has really been happening.

Commodity prices have been hit quite heavily resulting in the Aussie Dollar coming off about 6% from its recent peak.

I think we are still in the midst of the fundamental realignment that I have been talking about for a while. Looks like its going to go on for a long time and we will have huge swings in volatility as markets play out. The impact on traders is that stops and targets need to be more dynamic to accommodate the changes in volatilty on almost a daily basis. The methodology stays the same but the metrics change. I started writing the blog at about 6 am Euro time and have just seen the ES break down again after opening some 30 handles down and trying to rally. I'm showing a low for the day so far of 1161.50 and a high of 1179.00. Today's chart will be interesting. I have CNBC on to get the tone, and the fear in people's voices is quite apparent.

The realisation that the economic engine of the world, the U.S.A., is in trouble, has finally arrived.

I'm looking forward to a terrific trading day, but with a tinge of sadness for the hurt that the current state of affairs is causing.

Dow EuroStoxx50 on Eurex had a bunch of great trades this morning. You can see that even if you want to trade manually, by creating indicators that see the information and alert, it's possible to use the technology to enable me to operate at a much lower level of concentration and to look at more markets at once. An algo can have many configurations and many purposes.The last two trades bounced against yesterday's VAH. The second failure, after the chart was shot, resulted in a nice reversal down. The context rules and is why I am an advocate of Hybrid Trading.

The ES wasn't shabby either. Whether just using trade logic in alert indicators or trading algo with Flo, managing more than one market becomes easier and more consistent.

1989/ 1990 All Over Again?

There was the Gold and Silver run beginning in 1979. I was down on the LIFFE floor trading the German Bund when the Berlin Wall came down in 1989. Then there was the dot.com boom leading up to Y2k. We had a stint of huge volatility in 2008 when the Lehman inspired financial crisis exploded. We now have a transformational change going on that is partly a resolution of the past and partly a transformation of what the future will be - basically the BRICs emergence. Seems these periods of "unusual" activity are getting closer together.


These forces could continue for some time, but then we will return to lower volatility at some point. In the mean time, I'm grabbing opportunity with both hands. Who knows how long it will last.


For me, the greatest opportunity is with the most volatile markets. These are the most difficult to trade, as when volatility increases more than usual it takes more of a move against me for me to know I'm wrong. Also, I am underestimating my targets - there is usually more in a move than I think. Happily I am very short term and am used to re-entry, but re-entry needs to be part of a TP to do consistently profitably.However, there needs to be an adjustment of vision and expectations to accommodate this changed volatility.

If you are in Euroland or are looking for a market to trade in the Euro timezone then the Dow euroStoxx50 is worth looking at. It is as almost as liquid as the ES and trades well. Most brokers offer this market. Here's today's activity. I switched from the DAX for the day as the DAX was a bit too twitchy today.

The chart shows how filtering market action for order flow avoids losing trades. I didn't take trades when my Order Flow indicator didn't allow me to. Also, the Pressure Change Alert did its alerting job and prepared me for Longs. Of Course I needed the Order Flow indicator to allow those trades. Finding ways of qualifying the pullbacks in the direction of the trend using ways of reading the order flow, whether its volume breakdown or footprint delta or something else is a worthwhile activity as it makes a huge difference to the day's P and L. It's a matter of finding ways of making an indicator out of your rules that are derived from observation and back testing. It does take a huge amount of work but it's worth it as you can see.

As I said, I don't need indicators but use them in two ways: to catch my attention when I am looking at several markets at a time and secondly, to program into my FloBot as part of her algo for auto and hybrid trading. For a trader with less screen time the right indicators can make the difference between getting to CP quickly or taking years.

Anatomy of a Breakdown

This morning's DAX started the day quite bullish. The Value Area for yesterday was very deep, which means that the market could motor up and down between the VAH and VAL without much support or resistance in between.


My first trade was LONG. Buying kicked in and there was a nice pop. We hit Overbought and I waited for the next long. It didn't setup.


Then the Order Flow turned. It may not have been easily visible, but my Order Flow Indicator showed it very clearly. I ignored any Long pictures due to this context.


The Pressure Change Alert Dots in YELLOW started showing some selling pressure. I only act on the second one, as the first one is just a warning. The market broke nicely and gave some great trades. The ES mirrored these moves but the DAX was much more profitable.


I don't need indicators to see these changes, but had to create them for Flo and I thought I'd show them as an example of what can be created to help you see what "they" are doing more clearly. You can put alerts on them too.


The technology that we have available today is a fantastic tool to use to get to CP. Yes, there are some great seat of the pants traders around. A few are born but most of them are created after years and years of struggling. The learning curve can be reduced to months now with what we have available to us. The Goldmans and HFTs of this world are making fortunes every day using the technology. Private traders can use it too, perhaps not in the same way but in a way to achieve CP relatively quickly. 


Working out a way of capturing the information and then making it into an indicator is easier than trading discretionary. If you have ideas to create an indicator that speaks to you, it's worth putting the effort into it. Each indicator should be providing additional information, not the same info in a different guise. The next step, of course, is to use those indicators in a trading entry strategy after back testing it.


I've been getting lots of emails from people wanting more information and help with algos. I'll be posting about this next week.

Context Matters

The DAX chart I have posted today has two types of trades on it. The small arrows and white writing are the trades without context. The big RED and GREEN arrows are the trades with the context. I turned the logic off in Flo that is context related to show the difference that this makes.


Also, using Hybrid trading (me managing the exits) I have marked the manual exits with  CYAN "X". The difference in profitability is considerable. Most optimised targets and stops are "average" and the dynamic ones, although better, still give more back than I can manage manually. HYBRID TRADING is the best of all worlds for me.


If you compare the context entries and without context entries, you can see an improvement in win rate as well.


Having said all that, the benefit of fully auto trading should not be ignored. It requires a lower skill level as it's possible to create/buy an algo and be CP without having the ability to manually make trading decisions in the heat of battle. This is a benefit even if the fully auto profitability is not as high as that of an expert trader. Trading a number of markets in full auto mode can offset that deficit, as can the ability to be CP without yet having acquired all the manual trading skills.

Using performance management to increase project success

One of the most interesting aspects of my job is explaining the relevance of project management to those who are not directly responsible for managing projects. This week I met with an HR Director was fed up with projects which she saw as creating more problems than solutions as staff struggled to adopt the new deliverables. We discussed the need to manage the implementation of what projects

Who Is Franz Pick?

No, not John Galt but Franz Pick.


I first heard about Franz Pick back in about 1968. He has a relative in Australia who was part of a group that I used to hang out with in my late teens and early 20's. You can Google his name and read about some of his then theories which have proven to be true. Perhaps his biggest claim to fame is his writing of the obituary of the American Dollar. I remember getting over 4.3 Swiss Francs for every U.S. Dollar back in about 1971. Today, 0.87 cents. You might want to do the exercise of looking at the Gold price in Swiss Francs over the years.


We live in interesting times.


Today's morning in London was great. I have two charts to show you. You can see Flo's trades and the RED additional arrows are extra trades. I've thanked Kiki for getting me back to using automation in my trading. I'm a lot slower since I turned more than 39, and I trade more markets at once. I couldn't do it as effectively fully manual.


Anyone not using an algo is at a distinct disadvantage in today's fast markets ruled by the HFTs. With an algo, I can use their liquidity to my advantage. Yesterday's afternoon in the DAX was awesome. But I could have been hurt without Flo, I must admit, as the volatility was brutal and the action was very fast.

 

Is it Is or Is it Ain't?

Well, there's a deal in the U.S. Why don't I feel as if everything is settled now? I still see a shoe in the air that will drop when people least expect it.

Looking at today's action- Flo took the first trade long, a loser, and then found that the trend was down. Today is a good example of why using an algo, at least for entries, is the way to go. Quick trade recognition and instant trade execution. Not a lot of thinking needed. Trades get executed in accordance with my TP. Flo can change her mind on direction in the blink of an eye. I can still add trades manually and I get out of any trades I don't like.

The big green arrow show where I finally exited the trades. I used Flo's exits for scaling out. With chart trading, it's very easy to move orders around to suit the context.