sdoma

This is true, and occurred to me as well. I would think that the usefulness of amalgamating those orders is that it sums them up, rather than having to look at a string of ones and twos a mile long.

Oddly enough, I've always been so focused on riding the bigger pulls that I never really dissected chop trading. Also, it's always drummed into a new trader to stay away from it. The more I look at it, the more I'm convinced that there's a lot of money to be made there if you know what you're doing and have a good rig with a fast connection. Here's what I am noticing about chop thus far: 1. Chop exhibits a lot of swing overlap. In a trend, you won't have more than one swing overlapping another, and most of those two won't be overlapping. 2. Most tests beyond a swing high or low fail and retrace most or all of that swing. So, even if you have some sort of a directional move, and you are trading in that direction, you will be stopped out if you aren't trading accordingly. 3. The worst thing you can do is get in right near a swing high or low and play for continuation. In a move with more momentum, that type of play will pay you. In chop, you'll face plant nine times out of ten. Basically, an initial conclusion is that you'd be better off fading swing points, especially if you see passive buyers coming in and absorbing the mo mo buying or selling. You will suffer the occasional loser, but you could grind out a nice day if you are nimble.

Imagine that you are in a trade and the market experiences an adverse event, going against you very hard and very fast. At what point do you start wishing you had a stop in? Put your stop there. If that is a ten tick stop, then it's a ten tick stop. That's a disaster stop. If you want to be more statistically driven, you could graph out your returns per trade and do a standard deviation analysis to eliminate your losers beyond one standard deviation. In essence, you cut out your fat tail losses while keeping the gains. So, if one standard deviation of your negative returns are within 8 ticks, consider putting your stop at 9. If you want to get more sophisticated you could account for your intratrade P/L and adjust your stop that way. That's the most effective but the most difficult.

I am sitting here watching the YM slowly swaying back and forth in a sloppy, irregular range and I have to wonder - who trades these markets well? Do any of you? What are your methods, what are you doing? Do you get killed when the market starts to move again? More specifically, three questions: 1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process. 2. How do you trade them? Do you simply avoid them and wait for volatility to pick back up? 3. Do you raise your size? What is your money management like?

You guys are talking about ES the way most futures traders talk about Nat Gas or Wheat. The ES is a choppy, mean reverting instrument due to all the algos and arbitrageurs that trade it. If you compare it to other indexes, however, they all track each other intraday. So, some systems would still work on it, choppy or no, and the advantage of the ES is that you can scale your system up like a mother if it works. For example, if you like to fade moves intraday for several ticks, the ES would be an instrument I'd advise you to look at. If you like to ride trends or trade wild markets, I would advise you to stay away. You also have to develop the judgement to know when you need to lift the offer or hit the bid to get in, as AuctionMarket said. The nice thing about the ES is that you could lift in with 100 if you needed to. Try that on the YM and see where it gets you. I'm not advocating that people go and trade Spoo, I just think it's funny that people think it can't be traded, or that all the best traders trade it. Some people who are very good at trading ES would get their ass kicked trading crude, or soybeans.

Large participants almost always break down their orders, especially institutional level players and flow algos. Oftentimes large funds will also buy and sell to disguise their true intent, with the goal of taking a net position long or short when it's all done. I agree that the speed of the tape matters, and you are actually making my point for me by bringing it up. I said that the patterns are there, but are not obvious because big players try to disguise their movement. If you don't realize the games that go on, you have no chance of reading the tape. Now I'm thinking I need to put my own tape reading observations up in a new thread.

That comes with its own risks. Thin markets are subject to wild moves and disruptions. If you are a trader your goal should be to eventually trade size. A thin market offers a lot of barriers to that. Also, as for Dude's claim about speculators and noise, the ags are heavily spread traded. Whenever you have a lot of spread traders, reading the tape can be trickier. They can create a lot of non-directional noise as they leg in and out of stuff.

The algorithms have made this more difficult. Big players now shred orders. This isn't to say it's impossible or not useful, but especially on the ES the tape flies now, usually in a flood of 1s, 2s, and 3s. Also, the CME has recently changed how they report data. Before, if somebody threw a hundred lot on the market, you'd see it, regardless of how many people took the other side. Now, if a hundred lot trades to fifty people who each buy 2, that's what you'll see. This is, at least, how I have been led to understand it.

There is no category here. You are talking about one call where you went long momo stocks. The tricky part is to be profitable month-on-month, year-on-year for a long stretch of time. Also, I highly doubt your strategy is scalable to the level of a large hedge fund. Do you even understand what an inconsequential amount of money $130k is? Anyway, my point remains. If your strategy is sound enough, it should be easy to attract capital and scale it up.

Trading is like any business, you need capital to make it work. Try to open a Subway with $5k and see where that gets you. The only reason to open a small account is to generate the results and stats that will enable you to attract real capital backing. I.e. you take your results into a firm and argue that it scales enough to make it worth their while. Also, you must must MUST be pragmatic to succeed at trading. I would argue that pragmatism is, in fact, the greatest virtue for a trader.

What do you think qualifies as lucrative in terms of return on your capital? Retailers generally have a 2-3% profit margin. As a trader, that would mean a return of $2,000 - $3,000 per year per $100,000 of starting capital (after expenses). Consider that generating 15% returns on your capital year-on-year without excessive risk would make you a big player if you bother to attract the capital. If you generate 30% you would be up there with the Stevie Cohens of the world.

It does, and, more importantly to this setup, oftentimes buyers will come in at the 50-62% retracement zone. The group of traders that plays this way is big enough to affect market activity, so if you have a sharp pull back to the midpoint, I will generally wait and see if I want to get short unless there's some big market event.

1. The risk with the first setup is from your entry point to the low, or to a midpoint or whatever you can tolerate and have back tested as a part of the setup. But really, it could retest the low and form a double bottom and you'd still be right. 2. There's nothing wrong with the setup, per se. How you execute could be a problem though. I am basically blind here, since most of my trading is based on market auction theory, but just using my candle reading ability, I'd say that your problem here would be getting spiked out, since the chance of a retracement is relatively high. Now, I will show my work. I've posted your chart below with a few annotations of my own. Basically, you have a sharp pullback to the midpoint of the up move (shown by the white box), and the candle did not close on its lows, showing that there was some sort of buying going on. I'd be reluctant to just sell into this because it will pop more often than not, even if the move will continue down. You could either buy this on a scalp basis and play for a move back towards the highs, or you could let that move occur and wait for rejection and sell into it. At that point, you'd set your target for the previous lows, or close to them. Honestly, I couldn't care less about your triggers or methods, I'm more interested in what you risked in these two trades and where your targets were. A good trader can make money trading with a coin flip.

You know, I wouldn't even worry about this as a trader. I used to get upset with whoever I thought was taking money out of my pocket, but I eventually learned not to take anything personally. Also, it's impossible to know why some large trade was done that spiked you out of your position. It might have been a stop run, but, especially in the indexes, it could also be that someone legged into or out of a spread, or an options player had to hedge a position in the futures, or a basis trade, or any number of complex strategies that many traders have no inkling of. Worry about two things - your edge and how well you execute. Take care of those and you won't worry about market makers. Just saw this. Go back to what I said above. A lot of trade, in the indexes especially, is complex, non-directional, and done for a lot of different reasons. It's good that you will try and model for it, but remember, concentrating on the WHY in trading will eventually drive you nuts. Find something that works and get as good at using it as you possibly can. The first part is easy. The second part is hard.

A great analogy to edge is The Old Man and the Sea. You have this big tuna, your edge, and you have a bunch of sharks taking a bite here, a bite there, and all you have left is a pile of bones. Human mistakes, psychological problems, computer and data-feed failure, sick days, all of these and many more can erode your edge until there's nothing left. You can thank me for this brilliant analogy in the forward.

Most traders don't realize just how small their edge is, don't you agree? Even a lot of the big players have an edge that is very small, a tick a trade, but they make trades with big size. So, even if this only improved your execution by a tick 20% of the time it's a huge advantage. To those of you wondering about data feeds, as yourself, "Is this data really expensive?" If not, it's not unfiltered. I hate to say that, but it's true. Paying 100 - 200 a month for data is not going to buy the highest quality stuff.

Well, not quite. I think that both are important, and I don't understand how someone could claim to understand order flow without considering all types of orders.

The fact that orders are pulled from the book tells you something, doesn't it? Like I said before, delta only tells you something in context. If there is a high delta with high movement, that means market makers and reversion traders have pulled their limit orders for the time being. If you see a high delta with low movement, especially in the context of a level, you can take that to mean that aggressive buyers or sellers have run into a large amount of limit orders. There is no tool that will give you a complete and total view of the order flow. It changes much too quickly, and it is responsive and dynamic.

"Paper" means institutional order flow. In the pit, it was obvious since the broker was standing right next to you as he did the orders. On the screen, you could see it because the orders were larger. Also, initially I think there were names attached to orders in time and sales. Now, institutional order flow is chopped up to make it harder to see. Institutions don't want other participants jumping on and affecting the quality of their fills. So, instead of 2000 in the S&P it will be done in ones, twos, and threes by an algorithm.

I will preface this by saying that I haven't done as much back testing on cumulative delta as I'd like. From what I remember, I wondered what information it gave you that simply observing price action couldn't. I would have to guess that you'd want to look for divergences between cumulative delta and price, but again, could a CCI give you that? To sum up, from my recollections I wasn't sure if I saw an edge or not. I will come back to it eventually to test it.

I always found Delta to be most useful in context. If you constantly try to read it, it will drive you nuts, but if you are trading pivot points, for example, it can provide a look at order flow at the pivot. One thing you can look for is extreme deltas with failure to break the level significantly. Example: Price declines to a support level. You look at the delta, which shows a 5000 selling delta one tick below the pivot. You also notice that prices have stalled. You could take this to mean that passive buyers (limit orders) are absorbing all that aggressive momo selling. If you are in a mean reverting instrument like Spoo, you want to be on the lookout for a pop. This can help you exit your short profitably, and/or put on a long with some confidence. It doesn't always happen this way of course, but there's an example of how I think Delta should be used. The important thing to remember is that screen time and context are everything as usual.

How would you trade them? Looking at a level in hindsight and saying "good sup/res" is all well and good, but how would you use them to make money? Blindly fade every level? What are your targets and stops in that case?

Identifying levels: Overnight high, low, and midpoint. Below I've attached charts of the last three days' trading with the overnight high, low, and midpoint marked out in red, green, and blue respectively. I use a box to show you where the market opened, and a green vertical line to denote the end of the first hour's trade. A few observations you could make based on these charts: 1. Market participants like to test one of these established extremes in the first hour. 2. It is difficult to play these extremes as fades without additional information. 3. The midpoint acts as an important pivot. 4. If prices auction to or beyond the overnight high or low and are rejected, the midpoint makes a nice target for your trade. I'm not giving you a "if A, then B" type of scenario here. This is all context dependent and uncertain at the time of execution. Welcome to the market. If you want to learn more, let me know and I'll post more.

Before you trade gaps, you need to do your homework. Record if they fill and how long they take. Simply knowing a gap fills X% of the time won't help your account. Many fill in the days after, or after significant price movements in the opposite direction. Also, this trade changes subtly over time, as do they all. Beware of large gaps and volatile markets, as gaps tend to fill less given those conditions. I will write more on this later, but you are best served understanding the key reference points in play close to the opening price, especially the highs and lows of the previous overnight session and day before that. Oftentimes, if you are close to an overnight high or low it will be tested to see what order flow lies in wait there. I like to play rejections from those extremes back to the overnight midpoint. If you use market profile, understanding where you open in relation to the value of the last 3-5 days (composite) can help as well.

I find POC's to be most useful as targets for reversion trades. In other words, if prices move out to the edge of the trading range or a major support level and I fade it, I will often look to POC's for targets. It makes sense - if there is a disagreement on value and those who wish to change value lose the battle, then prices will revert to established value.