Future

Nice one mci. I like to apply mp concepts first then find trade location with VSA.

There was a topic somewhere on the boards about insitutions automating their trading more and more. Hence discretionary traders are amongst the rare breeds in many insitutional firms. The recent subprime problem has lead to a domino effect leading many hedge funds to post massive losses. These funds are whats called Quant Funds that use automated computer models to trade in various equities and markets. The article from bloomberg about Goldman Sachs Global Equity fund explains their automated strategies of long/short. Article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atrLyIlkKSjg Futher information regarding this strategy can be found here: http://en.wikipedia.org/wiki/Long_/_short_equity The second article is about Citigroup which may also be in trouble of around $3billion in losses: http://www.bloomberg.com/apps/news?pid=20601087&sid=ahW1pLE7WZ7I&refer=home What interests me is the $3billion "rescue package" of Goldman Sachs fund. Furthermore, a fund that just lost 26% or so states "We don't think the strategy is going to change". With volatility going back to where it was, it is possible that Goldmans fund will recover. However, what intrigued me was how these so called mathematic based fund managers/traders/programmers have this much faith in their automated models. Did it never occur to them to view the market with their own eye? It seems like day traders are more informed of current market conditions becaus we breathe it tick by tick. These funds go on to post 10-15% returns annually, yet when they lose over 25% in a matter of weeks their reason is "the models (ours included) are behaving in the opposite way we would predict and have seen and tested for over very long time periods (45+ years)". This sort of excuse is unacceptable in my opinion. A good trader is informed of market sentiment changes. A good trader can distinguish opportunities vs warnings. A good trader will know something doesnt seem right. These bots will never know what hit them until they are down in the hole and unable to unwind their positions. It seems like history repeats itself over and over again. Did we all not learn from LTCM crisis? I personally find it unacceptable that fund managers are panicking worldwide. Should they even be appointed as fund managers? I understand hedge funds with that much capital must apply different strategies. But I think it would be beneficial for investors and the securities market if these funds simply hired and listened to a good discretionary trader instead of loading the boat over computerized strategies. Any thoughts?

http://www.reuters.com/article/hotStocksNews/idUSN0135773520070810 What are your thoughts on the central banks pumping cash into the financial system to provide liquidity? What sort of effect does this behavior usually have? How does this provide liquidity? (having some problem fully comprehending this) Thanks!

I think all the text book explanation and strategies about gaps is a little misleading. First, I think its important to understand the reason behind the gap and then read for supply above the opening price and demand below it. In terms of market profile, this would be a open-test drive in which the markets test one direction before reversing to the other. Luckily for those who traded in 24 hours markets, these "gaps" can be further analyzed by overnight price action. Overnight activity can give out clues as to the signficance of the gap. As a matter of fact, for those trading the US futures that are pretty much "24 hours", I no longer think it is a wise idea to trade off a gap chart. Instead a 24 hour chart is probably better considering all the action that takes place beyond the closing hours. Has anyone done any recent backtesting on gaps and how effective they are fading them now? From my observation, overnight trading has increased significantly over the past years in the S&P and Dow. I would not be suprised if gap plays no longer become as efficient in the near future. I find it more effective to use overnight resistance and supports instead of playing gaps. Any further expansion is appreciated.

Hi james_gsx, Reading through your threads, you seem to express a tone of motivation. I think there is alot of pontential in getting to where you want to be as a trader. However, I do think you are rushing a step too fast and perhaps it is affecting the way you trade? For example, do you find yourself taking setups that you would of not taken going back to your end of day analysis? In hindsight it sounds easy but do you ever catch yourself going..."why did I do that?". Or do you find yourself breaking more rules than you ideally want? Are you thinking in terms of $ when price upticks or downticks? Have you considered being mentored or coached? This may significantly help you decrease that learning curve and learn a more slow and stable way of trading. I think what can help is trading maturity. And this can only come through experience and constantly improving to control your emotions. New traders tend to be easily controlled by their own emotions which lead to overtrading. What I like to call a more high probability trading style is sniper trading. Basically, you are looking for 1-3 high probability trades that captures good intraday swings. For YM trading, instead of having 5-10 setups a day each aiming for 20 pts... limit the setups to 1-3 aiming for minimum 30-40 pts. Once you can get a hang of it, you can easily start trading more aggresssively.

Thank you Torero. I wanted to add a few things.... bids and asks getting withdrawn are not always traders playing games. This can easily be due to uncertainty, fear, or nervousness regardless of whether the person was a private or insitutional trader. How many times have we placed a limit order just to withdraw at the last minute due to uncertainty? Regarding market profile and order flow, I personally do not have a tight correlation between the two. Market profile is more of an understanding of auction theory to me instead of a rigid trading methodology. For example, this is how I would use MP in my trading. Lets say prices break the previous day low swiftly on stop runs and momentum shorts. However, order flow slows and the tape surprisingly shows diminishing sellers. All of a sudden a burst of buy orders, short covering, and momentum longs enter the market and the order flow is twice as fast on this move up compared to the move down. As a matter of fact, the tape shows a burst of buying emotion with order flow showing most contracts being traded at the ask. You ask yourself... okay, if we break into the previous day range I am going long for a possible rotation back into the previous day POC or VAH. Why? Because this tail it left below the previous day low is rejection and value must be higher. (market profile concept) So I wouldnt even hesitate and throw in a market buy order once price breaks into the previous day range again. I think specific setups are nice to catch and wait for because they line up perfectly with the tools traders use whether they be support and resistance, internals, indicators, etc... However, understanding order flow allows one to enter based on momentum and gut instinct. (important you realize u have a solid instinct and not impulse) Lets say prices decline to test the low of day. I am observing tape and level 2 to determine whether to fade this move or play a breakdown. I see temporary support with buyers trying to keep prices up. However, tape and level 2 shows a thick ask as prices move up by a few ticks. In other words, sellers are still trying to dump contracts. Order flow tells me this is weak and that we are likely to break the low. Hence, I would short at 1-3 ticks above the previous day low. For new traders, you might wonder why in the world would you do that? I am comparing the action on level 2 and tape on the leg up vs leg down. (the leg can be anywhere from 3-10ticks) Happy Trading.

In response to an interesting debate over discretionary vs automated trading, I wanted to expand on some of the skills required for a trader to become a successful discretionary trader. I think by far the best discretionary traders are floor traders. One of their most significant edge is the ability to read order flow and understand trader psychology. That being said, one of the most effective skill to possess in discretionary intraday trading is reading order flow. With a strong ability to read order flow, see trader psych and emotions in price charts, and the ability to understand the type of market... indicators are absolutely unnecessary. By order flow I mean the ability to read tape, level 2, and volume. I wanted to focus this thread specifically on order flow. First lets discuss the level 2. Level 2 can be manipulative. However, one of the biggest clues level 2 shows in my opinion is the ability to see a heavy buyer or seller. Often you will see a thin ask but price unable to lift. Then when checking tape, you will see that alot of contracts traded at that price. This is short term resistance. What you are seeing is seller with a heavy line of contracts to sell and will not step off the ask. A couple of games you might see: tape shows huge line of contracts trade at a specific price level (lets call this level X for now). On level 2, price appears to have enough momentum and volume to take out level X. However, someone is standing firm there not showing his hand entirely and even when price breaks that level X by one tick, you can see contracts getting dumped taking price back below X. What is this indicating? First, lets say you are an insitution with 10,000 contracts you need to sell. Are you going to dump this at the market and cause an artificial selloff? No. You can get a much better entry by distributing throughout the day whether it be the entire morning session or in the afternoon. If youre sitting on an order from several hedge funds to short 10,000 contracts in total... you want to short into the rallies. So what you are going to do is to hold the ask at a desired level. You might even by a few contracts to support any decline... but you are going to be distributing alot more contracts than the fake support you are creating. So some games you can play is: Hold the ask and then withdraw the ask causing an impression that the selling is over. Instead of posting a monster 5,000 lot size at the ask, post 50. When buyers start buying at the ask, start dumping without exposing your hand on level 2. (obviously this is visible on tape) Withdraw the ask and then buy 500-1000 lot just to bring price up by a few ticks. This fuels momentum as traders think resistance is over. Then dump another 2000-3000 to take price back to the breakout point. Understanding order flow offers the ability to enter trades early. Do you see strong order flow coming in that has the potential to take out the high? Does it show that the pullback is likely to hold? Are you sensing a breakout from a consolidation with the sudden buying/selling interest you see on tape? Did the level 2 bid/ask just get thicker? Thinner? What do all these information mean? In discretionary trading understanding this type of action and actually seeing it real-time offers a tremendous edge. However, this is just one skill set and there are many other skills I think is absolutely necessary in being a successful discretionary trader. Volume, tape, price action, trader psych are just some of it. For traders, I have a question. When you look at a candlestick chart, what do you see? Are you able to see human emotion and trader psychology in price action? If the answer is no... youll need to gain more experience and practice. For those that are struggling with trading, once you are able to see the psychology behind each price bar, you will realize that trading is about people and taking money from their mistakes. It has nothing to do with numbers, indicators, and news. How traders react to news is far more important than whether the news was good or bad. You dont need to be the first one to act... all you have to do is determine which side is going to win and just hop on board. (at an early point) Happy trading

Thank you very much for your comments. I would have to disagree regarding this as I personally know of many traders that trade strictly off news, sectors analysis, etc.. which are all fundamental based. What I realized throughout the course of my career is that trading is not limited to but just one style. I used to be 100% technically oriented. I cared less about news as I truly believed everything can be seen in volume and price action. However, after spending time with fundamental based short term traders it was mind blowing. Now, they are mainly stock traders that have deep pockets and are able to diversify their positions throughout various sectors. But one thing is in common. They are able to understand the rotation of money, relative sector strenght extremely well. Hearing them talk is like reading next weeks newspaper. Simply amazing. I am by no means criticizing 100% technical traders. But I have to state that understanding how top Tier stocks are behaving, the flow of money, etc... can really help give short term trader an edge. I think it is important to understand what the big money is. Of course this can be seen in volume. But these hedge fund type guys are holding such a big position that they need to constantly re-adjust their portfolio several times a day. And alot of their decisions is based on fundamentals. Using 100% fundamentals is a sure way for me to lose intraday. This I admit because I am no expert. But having a balance in my opinion is an advantage for any trader. Please feel free to disagree.. or agree :p

How many traders rely strictly on technicals in your intraday trading? Many veteran traders like Linda Raschke has mentioned that good traders need to have a balance of both technical and fundamental trading. In this thread, I hope to expand the fundamental side of trading for intraday trading. How many of you read the papers everyday to gain a macro view on the global economy? There is a correlation between various markets. For example, the Nikkei tends to follow the US Markets. Therefore US Market news tend to be a leading indicator for the Nikkei action the following day. It is quite ironic due to the fact that Tokyo/Osaka standard time is approx 12 hours ahead of NY time. Yet investors and traders glue their eyes on the S&P, Dow as if they are afraid to make a decision without knowing what is going on in the US. I am sure Aussie traders or Germany traders have some input on market correlations. Secondly, how good are you at analyzing sectors? Are you aware of interest sensitive sectors? Sectors that ppl flock to when banks/securities sectors are flat or down? The stock market is a giant arena full of hopes and dreams for many investors. Why do US stocks have alot of high flyers? Do you really think it is possible that these companies gain millions of dollars in capital overnight? These are the hopes and dream stocks. Watch for these when all other stocks lag. These are what I like to call pure speculation stocks. Let's take a look at yesterdays action (July 10, 2007). A trader well informed of fundamental news especially with the subprime mortgage panic... would of known that any long setups would of been extremely risky. How many intraday traders actually went long? Did you profit from them? The easy money was on the short side. For intraday index traders, it is extremely important to be well informed of fundamental news behind various sectors, stocks, commodities, currency, etc.. All of these have an impact on index futures. Stocks like Microsoft, Intel, Apple, etc... have a tremendous impact in the minds of traders globally. A rise in Intel can cause global tech sectors to lift. Where tech stocks are weighted heavily in the minds of traders in markets like Tokyo and Singapore... this news can lift the indexes. Hence you want to be focusing on long setups. Please feel free to add your inputs. I am no fundamental expert by any means but hopefully this thread can help traders gain a macro of view of trading because intraday trading can easily get one absorbed too much in tick by tick action. Happy trading.

Here is my 2cents with the VWAP. I keep a real-time record of the VWAP similar to how a POC moves higher or lower. As the VWAP is lifting I focus on the long side. If I am long and the VWAP starts to drop (even by tenths of a point) I take this as a warning signal. Vice versa for shorts. So picture the VWAP number moving up and down just like the tape. Also keep in mind that the VWAP is a common number viewed by many insitutional traders as well as the general public investors.