TheNegotiator

I thought I'd put a quick chart on up on a nice little delta divergence today that saw me right and hopefully a few of you guys too! Top is ES bottom is cumulative delta. The divergence happened around 11:15am then 11:30am EST. Initially the ES had reached an important area. On the retest, fairly strong selling was still present yet price was higher than previously and clearly struggling to fall. This suggested an underlying bid to the market at the previously identified price area. The two gold dots on the delta chart show a couple of candles of particular interest where there were delta buying wicks. There had been strong selling but buying came back in and reversed the delta. This showed perhaps the supply/demand dynamic had changed. Testing higher as we speak in the ES. Make of it what you will...

Okay, so you've done your research and you have your plan. You have rehearsed it over and over again maybe. But how much emphasis do you put on the moments before/during/after executing an order? How do you get a feel for the setup? Each and every trade is unique and so experience is vital to knowing the signs of whether a trade is going to work or not. As much as you plan your strategies and money management out, the really successful guys just tend to 'connect' more when they trade. I guess I would use the clichéd analogy we often like to use in trading of professional sports. Specifically, sports which have 'plays' or 'set pieces' or have batters or the like. I guess it would be good to use particularly a baseball analogy. The batter (or whatever you guys might like to call him!) steps up. I'd say virtually all MLB players know what it should be like to hit the ball sweetly and they train hard etc.. But what sets aside those who know what it should be like and what they should do, from those who are great at actually doing it consistently? A while ago there was this video on a guy named Evan Longoria I think. I don't have the link but google it and watch it. I think the key is that these guys like great traders, have done their research and preparation. But when they have the decision to make or a swing at the ball, they enter this kind of uber aware and focussed state. Nothing magical. Just really, really focussed. I know this won't apply to many traders because of how they trade. But discretionary traders should take note. Do you enter a specific higher state when you enter a trade? How do you get a feel for the way the market is behaving when your setup occurs? I don't know exactly what puts me in this focussed state leading up to and during a trade and for me it's something that I hope I am constantly evolving. But I know when the market is fulfilling various stages of my scenarios leading up to the part where I actually place a trade, I become more and more focussed. I will watch the TICK, the DX, T&S and the general speed and aggression and flow of the market. This helps me to decide whether to fold a hand which my research tells me is good. What do you guys think?

A point which is possibly worth making is what is more important to a unprofitable vs. profitable trader and why. I would suggest that most profitable traders are more concerned with exits and unprofitable traders, with their entries. But is that because profitable traders are focussing on the right thing or is it because they have already nailed their entries? I think for many, we use different parts of the brain to enter and exit. Many of the best traders also suggest having a proper plan in place before the trade as when you enter and emotions are involved, all can go to shit. So perhaps it's easier to plan in a logical way for entries before emotions get in the way and much tougher to deal with exits. it'd be interesting to do a study on the parts of traders' brains which are most active at entry and exit of their trades.

To start with, I'd just like to say how valuable Jerry's knowledge has been for many guys here at TL. However, like everything and especially in trading, it's not for everyone. Personally, I feel rightly or not, that it is particularly suited to some products but not to others. But that's just how I see it. What I've seen in this thread is what I have suspected for a while. People like and feel comfortable with MP and even VP but know there is more to what it was originally trying to achieve with more sophisticated technology and dare I say it, more sophisticated participants! So what is the most important aspect that MP could improve upon? I think the heart of it is judging strong commercial activity and a complete lack of interest. These need to be more finely tuned. But MP and VP to me offer an intuitive approach. One that works well with 'auction market theory' and one which doesn't lead the mind like say a standard bar chart may do. The eloquence and simplicity in the clarity of market structure is what I like. The 'shape' of the market and its distributions is something which is visible to all. What I would like is to think of a way to accentuate the relative intensities of probably behaviours of certain market participants and not give a very useful tool the chop altogether.

I think it is true that both are important. I wanted to think more deeply about this as I think that it is true that all too often, people have little effective planning for exits. Mostly to do with targets rather than stop losses. How many times do traders finally have a trade get onside and they get a great feeling when it gets to their target and fills them, only for the market to storm past and show them what they missed out on? But also I would reiterate that unless you find a good entry point, you are potentially risking more. The market does not care what your account balance or risk tolerance is. It cares what its past and current activity is. So to be 'wrong' in a trade is about where the market is likely to turn from or continue to price-wise. If you get your entry wrong, you will have to have a wider stop for the market to show you where you are wrong. I think that both are important and both need to have attention paid to them. It has frustrated me to see a trend in people saying that entry points are just not that important. Well they are. Maybe exits are more important, who knows for sure. But BOTH are essential IMO.

I have been a trader long enough now to see certain markets which were once highly liquid and traded by day traders/locals completely lose their appeal. This can be for economic/mechanical/technical reasons. Markets go through unfashionable periods. Certain products go through low volatility depending on what's happening in the world. Judge for yourself if it has happened to a certain product, but history repeats itself so the question is what to do about it. If you are a day trader and say you look at the ES and maybe YM/NQ/TF in addition, you are effectively a US stock index futures trader. You have no diversity really. I'm not saying these markets could die in terms of liquidity as things stands, but they could also not be WHERE THE ACTION IS. So let's say you finally have succeeded in being profitable. You have become an expert in the markets I just mentioned. But all of a sudden, they are just not really doing too much. You might say that you should adjust your strategies, but really if there is less liquidity in a certain market there will be fewer opportunities and as a result, more competition for those trades. But let's even take out of the equation the possibility of the market you currently trade having a 'lull' or worse. You trade away in your market of choice and think you are okay, until you hear about some fellas trading Oil or Silver making shed loads of money fairly easily. What do you do? Keep on at it? Or hop over to the hot market which you don't 'know' as well and run the risk of it losing its lustre by the time you are more familiar with it? This can even apply to trading on a month by month basis in fact. In truth it is always a difficult thing to judge IMO. I would say that things which are difficult to judge are better handled by those who are prepared to some extent at least for what to do and when to do it. My simple advice is as follows:- 1)Use methods to interpret your market of choice which can be applied effectively to anything. If you're not sure how well your methods will hold up, I suggest you do some analysis and see if they do. Of course there will be differences especially if you are looking at say wheat as opposed to you usual trade in Gasoline. But you should get a good feel as to whether there are things which could well work or not. 2)Monitor key markets as a way of supporting your own understanding of what you are currently trading. So say the Dollar; Euro; Gold; Crude Oil; Stock Indices; etc. (just an idea to get you started). Just take a look at these markets each day briefly to see what's going on in the overall market. You will be surprised at how much you pick up by looking at them. 3) Have a specific plan to get into the markets where the action is. You might want to base this on price movement, or even a marked increase in average daily volume. Then watch this market more closely and trade it small or even simulated to begin with. But there must as with everything in trading, be a plan to cover what to do and when. What do you think about this and do you even see it as important?

Hi Fulcrum, I'm sure many people are interested as am I in what exactly you are seeing in the TICK that suggests a buy or sell program is active. As far as I understand it, you are saying high or low extremes are indicating large baskets of stocks are being simultaneously bought or sold. This could indicate a program executing or combined with other factors, it could indicate extreme exhaustion as participants finally capitulate. So if the readings are looked at in isolation, couldn't they mean two very different things? What do you look for in reliably identifying this very specific type of participation? To me, the 'quality' of auction tends to be a good way of working out whether these programs are active. You can see a uniform 'flow' of trade in short term cumulative delta. An exhaustion print on the TICK, I often see the delta 'hang' for a short period of time and if no further participation in the same direction comes in, a reversal can follow.

I don't think it really tells you anything. It could be a certain strategy out of hundreds which they cherry picked as doing well during that period. People have ambiguous descriptions of their strategies they are selling generally are for a reason. If it is so profitable, what's the need to sell it?

I would say you need to write down a new set of risk parameters and possibly strategy altogether for this period. Some methods just tend to not work that well during earnings season or more likely, some traders tend to not work too well. Study your trade data. Write down some separate risk parameters. Be careful in your trade selection. Try it simulated(so long as you have a non-fillontouch sim).

I think that it's a really good point that we are open to many possibilities while trading. To visualise the various scenarios is one way. Playing through plans for various different outcomes will cover more bases and help you be more prepared for what can happen and so hopefully it will help you be more profitable overall. Preparation is so important. The real key is to not remain "married" to your trade or belief about what the market 'should' be doing. It's about let the market show you what it is doing.

I guess it can really depend on what you're trading and in what timeframe. Some days you really just need to catch a good entry point early on then let the market do the work for you. But clearly you have to be able to identify when you have one of those days. Day traders are also artificially contained in a time bracket also where as markets work until supply/demand dynamic changes.

What is perceived to be bad for the world is often only about short term pain for most people anyway. I'd just point out this with a quick note on the financial crisis just gone and the reaction of the 'honest' workers and 'consumers' to the evil banks. I think what they are slightly overlooking is that all of the boom pre meltdown was also due to that. Had everything been done differently, there may never have been a boom at all. Anyway, Oil. Two simple points. A higher price point means oil companies investing in drilling in previously uneconomical reserves. That means when prices stabilise, there should be at least temporarily, a better supply of oil. So prices can then fall a little and remain more stable for a time. Stable energy prices are good for economies. Secondly, if such high oil prices hadn't been explored, would we have seen such a push towards renewable energy sources? So yes, in this case the 'speculator' may have hurt the economy short term, but there are potential positives to it too in a situation like this where something has gotta give. Btw, I bet it was also a speculator who bought right at the top. Poor bugger.

It doesn't look like a bad opportunity but I would want to see two-way action within that balance. It looks as if the balance occurred more due to buyers backing off after a strong move up rather than an intense battle but I couldn't say for sure as I wasn't watching. Either way I would say your stop was probably too tight. Actually, it would be fine, but if you do trade breakouts like this, you'll probably get stopped out an awful lot. So make sure when you get a winner you really ride it.

Greek parliament vote for austerity measures passes 155-138. Anyone else see this as surprisingly close given their current situation?

Hmm, well I'd agree with the point about not trading off the news personally(unless you have a reuters or bloomy term and know what you're looking for). Personally, I think the FREE 2min delayed version of RAN is just fine. Up to you though.

Isn't speculation a function of efficient market theory? If there is a window of opportunity for people to capitalise on something then they will. The window then disappears. The market then becomes more efficiently priced. Anyway, aren't all traders effectively speculating?

An interesting and fairly common discussion we come across in trading is the importance of entry and exit strategies and their impact on risk. Lots of traders it is true, look for entry systems with high success rates in picking great turning points or likely trend continuation points where you aren't likely to endure much heat. More and more though, people are suggesting that entries have little to do with their success or failure and it is the exit strategy which makes all the difference for them. I'd like to hear from people their view on either or both entries and exits. My idea is that anyone who says one is more important than the other is underestimating the impact of both. I believe that they must work in a system in conjunction and are just as important as each other. For example, what do you think would be the average success rate of a short(ultra short say fx on a 1min intraday) term trend system where you have 99% of days with a range of 100 prices or fewer and you buy after a rally of 100 prices? Or if you have a system with a fixed number of prices to exit at which is not adjusted for volatility or near price structure which could alter the expected move size? What do you guys think about this?

I was just taking a look back at what has happened in Gold over the past few years to see if I could find a reference for what Silver may be doing. Thought I'd share the comparison of a sharp run up and decline in Gold back in '06. It's not the exact same thing, but I really think that it is worth taking note of because of the similarities in dynamics. Trend coupled with growing confidence in price rising strongly moved the markets up initially. A period of consolidation followed. A final minor dip with a test of short term balance high preceded a 'close your eyes and buy' rally where each market had very little time to establish any accepted prices on the way up. So when the markets reversed, there was nothing much to slow them down. You can say markets were over long, you can point to artificial intervention by underlying supply being 'controlled'. However you want to look at it, it looks like both metals got way ahead of themselves, but look where gold is now... Take a look at the chart and see what you think.

Do you trade using MP each day? I think you already have a great deal of information. To understand it you need to live it. Imo. Use it and review it with others. Twitter I'm sure has plenty of mp users sharing their ideas. Or start a thread here to chat about structure each day. $275 may sound cheap. But then that's the point isn't it?

Have you read many books on it yet?

So it looks like the Greeks have agreed a 5yr austerity plan to fix their economy. I would really want to see some details if I were a H/F manager with multi millions on the line. But it certainly seems to be just the tonic for stocks today. IF it is what it looks like, my question is how long before we all forget this and realise there's a whole lot more wrong with the system? Or will it be back to buying the Fed?

My idea for the ES today:- Don't get chopped!! Memorial Day Monday could see lots of book squaring before the weekend.

My gut instinct is yes and no. The main alternative to MP as I understand it is the use of volume profiles. When market profile was first introduced (in the 80's?) the CBOT reported statistics every 30mins. So this is why the approximation was brought in of using a TPO to represent volume. Volume is now widely available both historically and realtime. It better represents imo, how the auction technically played out and so helps with price specific entries. So what about MP then? If it's just an approximation of what is now available as a Volume Profile, what is the point? Well, the interest it still holds for me is in the means of the approximation itself, whether by design or luck. Time. To me, time is becoming more interesting as a measure of market activity within the auction. One has time, the other has volume. Surely there is an effective way to combine these methods?

Simple question really, do you think MP is really a tool for the 21st century fully electronic markets which we trade? Does it fully represent the auction or are important details missed out? What are the alternatives anyway?

Rande, are you suggesting that there is a measurable kind of lineage effect on our trading?