The Secret (or Not) to Day Trading Futures

[AgeKay 10]

I am a very visual person, which was the reason that I had developed some really cool custom charts (which I don't use anymore) but that doesn't change the fact that this is how the futures markets work and that is what professional day traders look at. I already said that you have to be in the right frame of mind to understand this. I now think that charts are actually distracting. You need to be focused when day trading. If you look at your chart for just a few seconds, you might miss something important.

 

I recommend you just try what was described near the end of the second post. Just watch the market without trying to make sense of it and see what happens. And won't see much if you just try it for a few hours. Watch it for a month. You have to put in the effort though.

[AgeKay 10]

I would love if this thread originator show me (or refer me to) how does he uses this knowledge to make money.

 

I've once referred to a book + video by someone else that describes some of this in detail in another thread, but the reference was removed because the moderator thought I was spamming (even though I was already a forum member for 2 years and had never recommended anyone's products or services), so I won't do that again. You can probably find it if you google with the right terms, but don't even bother if you are not willing to watch the market for at least a month without charts.

[Nemesis 10]

The secret is no secret, is plain old hard work and realizing there are no short cuts, no magic indicator.

 

To be precise.

 

The secret is two fold and both very time consuming.

 

One is research, the other one is attitude.

 

I'll define research.

 

Research to know the high probability areas of reaction. What has a high degree of probability of making the market turn in that particular area no matter the trend. Studying thousands and thousands of charts to recognize these special areas.

 

Now attitude.

 

Probably the hardest of the two to master.

 

Attitude to understand accept that anything is possible, that you dont know how far things can go ever after they react, that the high probability areas are not 100% eventhough they are high probability and many other things that take a lifetime to master.

 

The rest, the rest is irrelevant.

 

Nem

[HARDMAN_GAZ 10]

Attitude to understand and accept that anything is possible.

 

 

On the markets? Not really, they only go up and down. Are you(or Mark Douglas) saying that i should wear a gas mask to trade, just incase anything happens?

 

Anything can happen!! Surely a quote meant to help noobs feel a little better about themselves and their losses?

[pbylina 10]

What about spread trading? I heard it is better than scalping.

 

TT Autospreader > TT MDTrader?

[mikew 10]

but that doesn't change the fact that this is how the futures markets work

 

Does what you say apply only to futures markets? What about stocks or forex?

[AgeKay 10]

What about spread trading? I heard it is better than scalping.

 

TT Autospreader > TT MDTrader?

 

I've never used TT Autospreader and I don't know much about spread trading.

[AgeKay 10]

Does what you say apply only to futures markets? What about stocks or forex?

 

It only applies to futures markets and NASDAQ stocks. Does not work with stock markets that are run by specialists. Does not apply to Spot Forex, but Forex Futures. I highly recommend staying away from (Retail) Spot Forex in general, because they don't allow you trade the market, instead you trade directly against them.

[AgeKay 10]

I've received a few PMs asking me for that book/video. I am not going to tell you, so please don't send me anymore asking me. And you don't even need a confirmation that it's the one I mean. You will know it when you find it. There is only one as far as I know that is not all but bullshit.

[iris_ta 10]

Sorry, but what is MD?

 

The secret to day trading is that there is no secret. Smart-ass, huh? Bear with me, I'll explain.

 

A secret means that not a lot of people know about it. When trading, do you want to look at something that only a few people are looking at? So that when you make the decision to enter, it's you against everyone else? Hell no! That makes no sense. Even Paul Rotter, probably the largest individual futures trader, said he wouldn't be able to go against everyone else if the market was going one way.

 

So you want to be on the side of with the most volume. And where does the majority of futures volume goes through? Trading Technologies' (TT) gateways (I remember a quote on their site that said about 70% of all futures volume goes through them). And what do you see on the screen of every professional trader? Columns of red, blue and prices. What is it? MD Trader that is part of TT's X_Trader (or a competing product that looks pretty much the same)!

 

Don't you think professional traders would tell TT if there was something essential missing on MD Trader if this is what they use all the time? What about X_STUDY (TT's charts that are also part of X_Trader). How many chart types does it support? Not many. How many indicators does that have? Not many, and most of them are based on volume. And why don't traders complain about X_STUDY? Maybe they don't look at charts for decision making? So might it be possible that all the information you need can be seen on this small MD Trader window? Is this even possible? Paul Rotter (same guy I mentioned above) says he looks at charts for orientation, but doesn't make decisions based on that. What does he use to make decisions? The MD Trader! (Btw, this is not a commercial for MD Trader, you can use any competing product that shows you the same information). And what does MD Trader show you with just 5 columns?

 

• All Bids

• All Offers

• Last Trade (Price and Size)

• Volume by Price (a.k.a. Volume at Price, Market Profile, etc)

• Your Orders inkl. your estimated position in queue (shown as EPIQ)

 

Why is this relevant? Because this is a market, not some magic world. Bids and Offers make a market and the last trade shows transactions that took place in that market. See, this is simple. This is just a market, no magic. Think of it as a bazar. No one uses charts or indicators on a bazar to make the decision to buy or sell something. Same with the trading pit. And traders in the trading pit also use something else: noise. Noise meant momentum. How can you see momentum in the MD Trader? It's how quickly bids and offers change and how much is how quickly traded. So momentum is another important information that you can't put in numbers, but you can feel looking at the order book.

 

What about Volume by Price? It allows you to find out how much has traded at a price when the last trade information is changing too quickly. It also summarizes the entire day's trading. You don't know whether the volume that you see there are still open positions or whether they have been already closed. But some of them are likely to be open. And those traders care where price is right now. You don't know when the traders that are on the losing side are going to puke, but you know that they are going to puke at some point. And that point comes closer the more the market moves against them. And they don't care whether there was an S/R on the chart or there is some indicator telling you to buy or sell, when they want out, they get out and this will affect the market.

 

What about EPIQ? It shows you how likely it is that your limit order is going to get filled. Do you really need this? No, but it's good to know. No reason to enter at market, if your EPIQ is 10 and you expect a few more trades at that price.

 

 

I hope I've given you something to think about. And please don't flame me in this thread, it won't change anything. That's like saying Newton's law of gravity does not apply to the part of the world that you live in. It is what it is.

 

I'll post a few snippets of my favorite posts made by other traders from this forum to illustrate what I mean by all this.

[joshdance 10]

Sorry, but what is MD?

 

Sorry for venting a little bit, but did you ever hear of googling the text? "MD Trader" ... and do you really need to quote the entire post to ask that one question? Some of us look at this site on a phone, and it's frustrating as hell to scroll 200 lines of text which don't need to be quoted.

[mikew 10]

I've received a few PMs asking me for that book/video. I am not going to tell you, so please don't send me anymore asking me. And you don't even need a confirmation that it's the one I mean. You will know it when you find it. There is only one as far as I know that is not all but bullshit.

 

Ironically I did find one that seems similar. Is the last word/sentence in your above post a hint?

[mikew 10]

Does not apply to Spot Forex, but Forex Futures. I highly recommend staying away from (Retail) Spot Forex in general, because they don't allow you trade the market, instead you trade directly against them.

 

Could you elaborate on this? I don't really understand what you're saying..

[AgeKay 10]

Could you elaborate on this? I don't really understand what you're saying..

 

When you place an order with a retail spot forex broker then your broker does not execute on the market (by calling a bank or whatever), but just takes the other side of your trade. The prices he quotes you are not even real and there is no way to verify them because there is no centralized market. And because there is no centralized market, there is no record of how much traded when and where. Even if you found an ethical retail spot forex broker that did execute your trade on the market, you wouldn't be able to day trade, because depth he quotes you does not show you the entire market depth.

[youngamerican 10]

Can you elaborate a bit on why this would not work on NYSE stocks? I was of the understanding that tape reading is to be used ideally in NYSE stocks and in fact once they started going electronic the prop firms started losing their edge using classic tape reading. Unless what you are talking about is not tape reading in its classic sense?

 

It only applies to futures markets and NASDAQ stocks. Does not work with stock markets that are run by specialists. Does not apply to Spot Forex, but Forex Futures. I highly recommend staying away from (Retail) Spot Forex in general, because they don't allow you trade the market, instead you trade directly against them.

[mikew 10]

When you place an order with a retail spot forex broker then your broker does not execute on the market (by calling a bank or whatever), but just takes the other side of your trade. The prices he quotes you are not even real and there is no way to verify them because there is no centralized market. And because there is no centralized market, there is no record of how much traded when and where. Even if you found an ethical retail spot forex broker that did execute your trade on the market, you wouldn't be able to day trade, because depth he quotes you does not show you the entire market depth.

 

Hrmm, so in these cases, the broker is really nothing more than a sports betting bookie. But with bookies, at least you can compare the line you are getting with other outlets online or in vegas. When I open up yahoo and see EURUSD at 1.333, where are they getting this number if there is no central exchange? Could I look at two retail brokers at the same time and see different prices quoted? This does seem strange and I probably will stay away from forex..

[AgeKay 10]

I don't want this to turn into a Forex beginners tutorial, so this will be my last post on this topic. Please restrict questions to the topic of this thread.

 

Hrmm, so in these cases, the broker is really nothing more than a sports betting bookie.

 

Exactly.

 

When I open up yahoo and see EURUSD at 1.333, where are they getting this number if there is no central exchange?

 

Probably some bank they ask every day for a quote. Notice that you don't even know the time when that was the price and whether it's the bid price or asked price.

 

Could I look at two retail brokers at the same time and see different prices quoted?

 

Yes. You may even get different quotes if you were to ask two different banks on the interbank market, but don't think you can arbitrage that. It's not guaranteed they will fill your entire order on these prices and they may change the quote after they've filled part of your order.

 

Be aware that I don't know much about Forex other than retail traders should stay away. Ask a professional Forex trader if you really want to know how they trade.

[AgeKay 10]

I would like to make a comment on charts. I've posted earlier in this thread:

 

I am a very visual person, which was the reason that I had developed some really cool custom charts (which I don't use anymore)

 

I've once posted on of those charts here, but then removed it. I've just received a PM asking me for that chart. I don't mind sharing it because I don't use them anymore. So this it with a few commens that I made at that time to explain one of my trades in the Bund (FGBL): http://dl.dropbox.com/u/6237073/Volume%20Chart%20with%20Comments.PNG

 

I called it "Volume Chart". It works a bit like P&F charts, but uses the inside market in addition to actual trades. Each box shows you the volume at the inside market (277 means 277 contracts and 1,2 means 1200 contracts). A new bar is formed when the movement of the inside market changes. Sometimes you'll see empty boxes at the top or bottom of a bar. This are prices that were bid or offered, but no one trades.

 

It seems like it was a great idea to enter when there was an empty box, but it wasn't, because if you saw this chart in real time you didn't know in advance whether the box would stay empty. And this shows you the problem of charts. It's easy to interpret them in hindsight. Humans are always looking for visual patterns and you'll always see patterns that might be meaningless or you wouldn't be able to see in real time (like trend lines). I am not saying that charts have no value, but they are no good what most people use them for. Yes, it makes sense to look at a chart to see the general direction of the market and see where prices have been in the past. But don't try to look for patterns on that chart.

 

Another chart I had is what I called "Time Chart". It didn't use candle sticks or bars because it wasn't based on the Open, High, Low or Close. It showed you every trade at any point in time, so it had no resolution, or you could say it had infinite resolution. Was it helpful? Yes. Do you really need it? No. Stick with the order book and you'll be fine.

Edited December 11, 2011 by AgeKay
Forgot to explain what the numbers on that chart mean.

[TheDude 10]

There is only one as far as I know that is not all but bullshit.

 

LOL. Nice clue!

 

I have to put some more words in my reply as otherwise it's too short

[phantom 16]

The secret to day trading is that there is no secret...

A secret means that not a lot of people know about it.

 

Actually, AgeKay, there is a "secret" to effective trading which I go into at great length in my thread. I only call it a secret because very few folks discuss it, which means either few will talk about it or few even know about it.

 

It doesn't require any of the things you seem to think pros use to day trade. In fact, I'm a pro and I don't use any of that stuff...

 

The real secret to trading effectively is the understanding of price rejection and price acceptance.

 

When you've got a handle on these, you've got everything you need to make a living as a day trader. (Actually, you also need to know how to manage a trade as well).

 

 

Luv,

Phantom

[youngamerican 10]

I don't want to put words in Agekay's mouth but from reading this thread I believe watching order flow gives you just what you are talking about, price acceptance and rejection in its rawest form before it gets to the chart where judgments become more subjective.

[zdo 20]

When you place an order with a retail spot forex broker then your broker does not execute on the market (by calling a bank or whatever), but just takes the other side of your trade. The prices he quotes you are not even real and there is no way to verify them because there is no centralized market. And because there is no centralized market, there is no record of how much traded when and where. Even if you found an ethical retail spot forex broker that did execute your trade on the market, you wouldn't be able to day trade, because depth he quotes you does not show you the entire market depth.

Hrmm, so in these cases, the broker is really nothing more than a sports betting bookie. But with bookies, at least you can compare the line you are getting with other outlets online or in vegas. When I open up yahoo and see EURUSD at 1.333, where are they getting this number if there is no central exchange? Could I look at two retail brokers at the same time and see different prices quoted? This does seem strange and I probably will stay away from forex..

Hopefully this won’t pull this great thread off track with pro FX and con FX talk, but it is worth mentioning that if a forex broker’s quotes gets very far away from the banks’ quotes, there are automated triggers in place that will tear him a small new one.

Yes you could look at two retail brokers at the same time and see different prices quoted but the diff is only significant at all in fast extrema… ie it’s not a reason to stay away from forex. Fx is best suited for longer holding time positions in the mid thickness pairs where there is ANY possibility at all that you would have to roll the futures. It has potential benefits very carefully long the high yield pairs short the low yield pairs. FX can be used intraday too.

... if you need real dom and real volume to complete your representations of the auctions, then you do have a valid reason to stay away from forex…

[joshdance 10]

I don't want to put words in Agekay's mouth but from reading this thread I believe watching order flow gives you just what you are talking about, price acceptance and rejection in its rawest form before it gets to the chart where judgments become more subjective.

 

Just as AgeKay says that a chart isn't necessary, that all is needed is to watch order flow, perhaps phantom is saying that neither is observation of the order book, and that all he needs is to view resulting price behavior as displayed on a chart. Different tools for different traders...

[phantom 16]

... perhaps phantom is saying that neither is observation of the order book, and that all he needs is to view resulting price behavior as displayed on a chart. Different tools for different traders...

 

Yes, joshdance, that is exactly what I am saying. And if one is only looking at the order book without assistance from price charts, how does one do anything except scalp the market? In other words, how can one ever expect to catch a swing move?

[AgeKay 10]

how does one do anything except scalp the market? In other words, how can one ever expect to catch a swing move?

 

Every large move is made up of smaller moves. You exit the trade when the momentum slows down. How do you know when to exit your "swing" trade?