Quit Job to Watch DOM.

[lastninja2 10]

Hi,

 

Just felt like introducing myself to the TL crew

 

Had half a mind to give an in-depth review of my life over the last 6 months or so, but instead I'll just cut right to the chase. Can give more details later if there's interest.

 

July 2011: Quit job with 20k GBP. Tending bars on the side now.

 

August 2011 - Present: Have been watching FESX, primarily DOM, but occasionally mixing it up with some charts and/or an indicator or two.

 

P/L 2011: Lost about 34EUR via TT/Velocity Futures. Clearly don't know what I'm doing.

 

P/L 2012: Lost about 30GBP via CMC Market Spread Betting Platform

[started executing £1/point bets on 'EURO50'. At least this way I can get stuck in without blasting through my 20k on the real FESX market]

 

Getting profitable with one lot is proving difficult, as I expected it to be. Nevertheless I'll keep staring at the DOM until it starts to make sense to me.

 

Here's the meat of the thread. A few private videos I made with Camtasia, and uploaded to Youtube. Gives you some insight in to what I'm up to...

 

 

2011 November 21st: FESX going long, losing 1 tick.

[ame=http://www.youtube.com/watch?v=2whddr01krU]2011 November 21st: FESX going long, losing 1 tick. - YouTube[/ame]

 

 

2011 November 22nd: FESX afternoon. When will the market reverse from day-low?

[ame=http://www.youtube.com/watch?v=p6lvtQzgj2I]2011 November 22nd: FESX afternoon. When will the market reverse from day-low? - YouTube[/ame]

 

 

2011 December 12th. Classic "Offer, to Buy" action. FESX.

[ame=http://www.youtube.com/watch?v=VfQ_KmMIuSc]2011 December 12th. Classic "Offer, to Buy" action. FESX. - YouTube[/ame]

 

 

2011 December 13th. The Blue-Red Shift

[ame=http://www.youtube.com/watch?v=U6zOQz7i6Cg]2011 December 13th. The Blue-Red Shift - YouTube[/ame]

 

 

2011 November 25th. Instances of OFFERING, TO BUY. FESX Morning Phase 1.

[ame=http://www.youtube.com/watch?v=Kr9JkVtr3qQ]2011 November 25th. Instances of OFFERING, TO BUY. FESX Morning Phase 1. - YouTube[/ame]

 

FWIW the best two pieces of advice I can give to any aspiring Futures Trader would be to

a) Enable trade sounds (bleeps) on MD_Trader if you use it [really get immersed in the action]

b) Assuming you aren't scalping for only the next couple of ticks [and frankly, I don't even know what my style is yet, so I can't say if this applies to myself], execute your trades on an equivalent spread betting product, at £1/point, but taking your entry and exit queues from the 'real' market, e.g. FESX as displayed on MD_Trader. Provokes an emotional response, but doesn't really hurt you if it goes wrong.

 

Always nice to hear words of encouragement from experienced guys who have walked a similar path [...to riches]......

[mdubsnz 10]

Hi Lastninja,

 

It seems you've picked up some of the 'tricks of the trade' per say already which is great.

 

The leaning into a large bid/offer to encourage selling/buying is a common tactic that is generally good for a few ticks depending on the instrument you're trading.

 

I'm by no means a pro at reading the tape, however did spend a good part of last year learning to trade off it while I was trading prop.

 

It always helps when you can learn from those competent in the art as they help to reinforce ideas and point out where your decision process is right or wrong.

 

If you would like to possibly save your self some time/pick up on in identifying some more common patterns, I would look up an e-book and video called 'NO BS DAY TRADING'. By no means is this a bible to reading the tape, but it does offer some good tips and common tricks that were used in the treasury markets a few years back by large prop firms and I assume (and can still identify them from time to time) in todays markets across a range of instruments. Some people here like the e-book, others don't, but I thought it was a good read and the video helped to point out the ideas he discusses which again helped quicken up the learning process and improve my decision making process.

 

Tape reading takes a lot of screen time to perfect. I like how your taking notes as your watching/on replay. This is exactly the kind of mindset needed to perfect the art.

 

You mentioned that you are currently unsure about your potential final time frame as a trader. Regardless of your end time frame I still believe being able to read the tape/order flow is a skill that as a trade you should spend some time developing. I no longer trade ticks per say as it wasn't the best fit for my personality. However I still use order flow to pick my entries and exits on even tho my time frame can be days.

 

Keep at it and all the best.

[lastninja2 10]

thanks dubz, for those words

 

Actually I've read John Grady's No BS book, maybe ten times... might be due another read this weekend.

I fully recommend it to any newbies currently fixated on traditional technical chart analysis.

 

Will keep powering on!

[BlueHorseshoe 10]

Hi LastNinja2

 

I know nothing about tape-reading at all I'm afraid. However, I would recommend that you consider trading the underlying instrument rather than spreadbetting.

 

I know that there are serious tax advantages for us living here in the UK with spreadbetting, but I think it's completely unsuitable for scalping, or any kind of high frequency day-trading. The last time that I met with someone from the leading spreadbetting firm (not sure whether I'm allowed to name it on this forum!), he explicitly stated that all their clients who are consistently profitable are those who hold positions for longer periods.

 

As I'm sure you're aware, there can also be other issues with Spreadbetting in terms of execution, slippage, requotes etc. Basically, it's great for swing and position trading, but I think it can pretty much anihalate any short term edge that you may find.

 

Moving from spreadbetting to futures was one of the single most profitable developments I made in my own trading - I went from treading water to profitability without changing any other aspect of what I was doing.

 

I hope that's helpful to you.

[Predictor 11]

I have never used the DOM. I made over 60% last year with a minimal DD (hypothetical) trading the futures. I have subscribers who take my signals with real contracts and are profitable. I do think the DOM might provide some edge. However it will likely require programming skills and possible co-location. I watched a webinar from CQG and the tools that the little guys like us are up against will make it very hard. Take a look at my Price Driver vs Liquidity Provider article here for some good ideas. Basically, all trades can be broken down into drives or liquidity provisions.

 

I've read tape for 5-6 years. It is very hard to learn to read tape and your chance of success is very low.. without knowing what to look for. It is unlikely you will learn by just watching tape. In fact, I watch it for 3-4 years but my skills were still rudimentary compared to what they are today.

 

I'm undecided how much of an edge order flow is, however. I'm not convinced its enough an "edge" by itself for the futures market. The futures game tends to reward in proportion to skillful risk taken. I do offer some tape reading/order flow materials at my website. I'm not sure why you are looking at a DOM if you have foot print/market delta information(?) I use a completely unique method which enabled me to take my tape reading skills to a completely new level.

 

My recommendation would be don't get tunnel vision. I speak to a lot of traders, many of whom are tape readers but they don't understand the whole game. This puts them at a significant disadvantage. If you're not consistently profitable.. I wouldn't even bother spread betting at $1 per point.. One thing you can do that I recommend is I recommend you start with say a reasonable SIM account like 30k give yourself a max loss limit per of say 1.5k/day and "trade" 24/7. I did a similar activity and it improved my overall trading. You can't trade this way with real money unless you want to lose it all but you will learn a lot.

 

I want to be clear about one thing. I think you are headed down wrong path with focusing on the DOM. I think order book edges are one avenue to explore with programming but I don't think you will be able to read that. Even if you found an edge, you will still have to get your order into the market! It is not even possible to read all the information in time&sales. This is where I made my break through was understanding how to really read tape.

 

Good luck!

----------

 

Curtis

http://themarketpredictor.com

Edited January 21, 2012 by Predictor

[Marsupilami 10]

I would focus on studying price action first, not on reading the DOM.

 

If you can put on a trade at the weekly high/low, at an important support or resistance level, the chances of a bigger move are much higher than if you take a trade in range bound choppy market where the DOM gives you one long and short setup after another, each reversing after a few ticks.

 

I don't look at the DOM at all since I trade FX so I might undervalue it's importance. Just wanted to let you know that you can trade very well without looking at it.

[lastninja2 10]

Thanks for taking the time to respond. Appreciate that.

 

1) I believe spread betting is generally a mugs game/hope I didn't give the impression that I think otherwise. Nevertheless I find it serves as a useful training tool --- if you can profit despite the stupid 2+ point spreads on EURO 50, you can profit on the real market; FESX.

 

2) I also realise there are many ways to skin a cat, so to speak, and if DOM-watching is one, it is only one of many.

 

3) It is apparent that there aren't any dedicated DOM-watchers around LT. When the public domain don't give much credence to an idea, I am encouraged to some extent. Having said that, if there are any DOM-watchers lurking, feel free to share your story... I'd very much like to hear it.

 

4) I'll keep staring at the DOM, and not a damn thing else.

[clmacdougall 11]

Hi,

 

Just felt like introducing myself to the TL crew

 

Had half a mind to give an in-depth review of my life over the last 6 months or so, but instead I'll just cut right to the chase. Can give more details later if there's interest.

 

July 2011: Quit job with 20k GBP. Tending bars on the side now.

 

August 2011 - Present: Have been watching FESX, primarily DOM, but occasionally mixing it up with some charts and/or an indicator or two.

 

P/L 2011: Lost about 34EUR via TT/Velocity Futures. Clearly don't know what I'm doing.

 

P/L 2012: Lost about 30GBP via CMC Market Spread Betting Platform

[started executing £1/point bets on 'EURO50'. At least this way I can get stuck in without blasting through my 20k on the real FESX market]

 

Getting profitable with one lot is proving difficult, as I expected it to be. Nevertheless I'll keep staring at the DOM until it starts to make sense to me.

 

Here's the meat of the thread. A few private videos I made with Camtasia, and uploaded to Youtube. Gives you some insight in to what I'm up to...

 

 

2011 November 21st: FESX going long, losing 1 tick.

 

 

2011 November 22nd: FESX afternoon. When will the market reverse from day-low?

 

 

2011 December 12th. Classic "Offer, to Buy" action. FESX.

 

 

2011 December 13th. The Blue-Red Shift

 

 

2011 November 25th. Instances of OFFERING, TO BUY. FESX Morning Phase 1.

 

FWIW the best two pieces of advice I can give to any aspiring Futures Trader would be to

a) Enable trade sounds (bleeps) on MD_Trader if you use it [really get immersed in the action]

b) Assuming you aren't scalping for only the next couple of ticks [and frankly, I don't even know what my style is yet, so I can't say if this applies to myself], execute your trades on an equivalent spread betting product, at £1/point, but taking your entry and exit queues from the 'real' market, e.g. FESX as displayed on MD_Trader. Provokes an emotional response, but doesn't really hurt you if it goes wrong.

 

Always nice to hear words of encouragement from experienced guys who have walked a similar path [...to riches]......

 

 

Get your old job back.

Learn on the side.

The process will take years, not meaning to discourage you,only to help you make some good decisions. You are not alone in your experience so please take the advice.

[lastninja2 10]

I could get my old job and learn on the side... if only there were 48 hours in each day instead of 24.

[TheDude 10]

Hi LastNinja2

 

I know nothing about tape-reading at all I'm afraid. However, I would recommend that you consider trading the underlying instrument rather than spreadbetting.

 

I know that there are serious tax advantages for us living here in the UK with spreadbetting, but I think it's completely unsuitable for scalping, or any kind of high frequency day-trading. The last time that I met with someone from the leading spreadbetting firm (not sure whether I'm allowed to name it on this forum!), he explicitly stated that all their clients who are consistently profitable are those who hold positions for longer periods.

 

As I'm sure you're aware, there can also be other issues with Spreadbetting in terms of execution, slippage, requotes etc. Basically, it's great for swing and position trading, but I think it can pretty much anihalate any short term edge that you may find.

 

Moving from spreadbetting to futures was one of the single most profitable developments I made in my own trading - I went from treading water to profitability without changing any other aspect of what I was doing.

 

I hope that's helpful to you.

 

i 2nd this. spreadbetting is a losing proposition

[Lornz 10]

Get your old job back.

Learn on the side.

The process will take years, not meaning to discourage you,only to help you make some good decisions. You are not alone in your experience so please take the advice.

 

That's nonsense. Most traders fail, but it does not necessarily take years to become a profitable trader.

[Tams 20]

That's nonsense. Most traders fail, but it does not necessarily take years to become a profitable trader.

 

just because you do not think it takes years to become a profitable trader

does not make his comment or recommendation "nonsense".

[Lornz 10]

just because you do not think it takes years to become a profitable trader

does not make his comment or recommendation "nonsense".

 

I find it annoying when people wrongly speak in absolutes. It is not factually correct to claim that it "will take years", thus I find it to be nonsense.

 

Most will not make it even if they spend 20 years, while others will pick it up in a couple of months.

[TimRacette 11]

The DOM is great, but I agree it's not the be all end all. With so many large firms trading huge size scalping for only a few pips, reading the tape, DOM, or Level 2 is important, but for the at home trader looking to make a few points or handful of pips make sure to put your effort into executing your order entry's the same way each and every time. Thats what I feel the value is.

 

One other thing, it's very very very difficult to trade a 1 lot, reason being that you have to time your exits perfectly. You either hold for the big winner, or take small winners over again and die a slow death. Even just going to a 2 lot allows you to scale out and take profit at multiple points, very valuable and increases profits.

[DionysusToast 10]

You know...

 

There are diet sites where fat people have the balls to go and say "I'm going to lose weight"...

 

There is a theory that doing this gives them an extra reason to lose weight - they went public, warts & all.

 

Well, young fellow, your thread just went out to 10's of thousands of other traders and now they are all looking at your fat ass (well, OK, newbie account).

 

Good luck. Keep up this thread. Next time you think about a gambley trade, you'll have this thread on your shoulder telling you not to take it!

 

Pete

[BlueHorseshoe 10]

Even just going to a 2 lot allows you to scale out and take profit at multiple points, very valuable and increases profits.

 

This is exceptionally BAD advice. Scaling out of profitable positions is the precise opposite of what you should be doing. It's reducing the amount of profit that you take, yet doing nothing to diminish your risk. Scaled out profit taking completely skews the risk:reward ratio of any profitable strategy. Let's look at a simplified example:

 

STRATEGY A: Trades two contracts and places a twenty point stop and a fourty point profit target for each. It has a 50% win rate. Over ten trades its net performance will be (5*40*2) - (5*20*2) = 200.

 

STRATEGY B: Trades two contracts and places a twenty point stop, with a twenty point target for one contract and a fourty point target for the other. It has a 50% win rate. Of the winning trades, 50% are exited at the first twenty point profit target, and 50% at the second fourty point profit target. Over ten trades its net performance will be ((2.5*20*2)+(2.5*40*2)) - (5*20*2) = 100.

 

Someone is sure to point out that this is a simplified example using made up figures. However, adjust the figures as you will, using real market data, and you'll find that the example above holds true. The reason is simple: the more optimal profit target (and risk:reward ratio) is either twenty points (1:1), in which case it makes sense to take profits on both contracts at a twenty point target, or it is fourty points (1:2), in which it makes sense to hold on to both contracts and exit at the fourty point target.

 

Scaled out positions reduce reward, but leave risk the same. Profit taking feels good, and that's why the likes of Racette, Carter, etc are keen to promote 'scaling out'.

 

I defy Tim Racette, or anybody else on this forum, to provide hard evidence of any objective trading strategy that benefits from the scaling out of profitable positions (no need to disclose the underlying strategy, of course!).

 

And apologies for the fact that this post seems rather confrontational in tone - it's just that some things really annoy me!

[DionysusToast 10]

BlueHorseShoe

 

You can put forward mathematical arguments for & against:

 

All in, all out

Scaling In

Scaling Out

 

I know people that make money employing all 3 techniques. Different people, of course & they all swear that this is the way.

 

In the end, it's down to personal preference. The best strategy is only ever known retrospectively...

[Predictor 11]

I think Blue is right. I've tried scaling out and sometimes I'll do it but I don't think it improves profit. I find that adding works better but adding is intraday requires a high degree of skill.

 

People like to scale out because most don't like to miss the top. Its frustrating. Scaling out is kind of a response for having to take responsibility. But I can see it can work

To Tim's point, one benefit to scaling out is that you are effectively trading 2-3 systems which could smooth the equity curves.

 

If you are good at setting targets you'll find that scaling out is equivalent to holding to the "best" target because your average will be the same as your highest probability target. The larger traders do tend to scale.. you'll find that this why vwaps develop.. etc

 

BlueHorseShoe

 

You can put forward mathematical arguments for & against:

 

All in, all out

Scaling In

Scaling Out

 

I know people that make money employing all 3 techniques. Different people, of course & they all swear that this is the way.

 

In the end, it's down to personal preference. The best strategy is only ever known retrospectively...

[BlueHorseshoe 10]

BlueHorseShoe

 

You can put forward mathematical arguments for & against:

 

All in, all out

Scaling In

Scaling Out

 

I know people that make money employing all 3 techniques. Different people, of course & they all swear that this is the way.

 

In the end, it's down to personal preference. The best strategy is only ever known retrospectively...

 

Hi DionysusToast,

 

I have certainly seen pretty convincing evidence for scaling into positions, even the controversial practice of 'averaging down' . . . But I have never seen any objective system that benefits in terms of overall profitability from the scaling out of profitable positions. Can you put forward a mathematical argument for this?

 

Yes, you may know people who make money scaling out - the trader in my original example made money - just less than they would if they hadn't scaled out. Are the people you know who make money scaling out able to provide any hard evidence that their performance would have been poorer if they hadn't scaled out?

 

My challenge still stands - I defy anyone on this forum to provide hard evidence of any strategy that benefits from the scaling out of profitable positions.

[Tams 20]

... Even just going to a 2 lot allows you to scale out and take profit at multiple points, very valuable and increases profits.

 

This is exceptionally BAD advice. Scaling out of profitable positions is the precise opposite of what you should be doing. It's reducing the amount of profit that you take, yet doing nothing to diminish your risk. Scaled out profit taking completely skews the risk:reward ratio of any profitable strategy. Let's look at a simplified example:

 

...

 

that's because he is not a trader... a trader won't say things like that. He is just a talker selling his talks. LOL

[BlueHorseshoe 10]

To Tim's point, one benefit to scaling out is that you are effectively trading 2-3 systems which could smooth the equity curves.

 

The larger traders do tend to scale.. you'll find that this why vwaps develop.. etc

 

Hi Predictor,

 

I agree that you are effectively trading two-three systems. However, all but one of these systems are bound to be less than optimal in their performance, and so their ability to smooth the equity curve is doubtful. They'll certainly smooth the upside of the equity curve, as scaling out of profitable positions will have most impact on the upside of the equity curve, but they'll do nothing to smooth the downside of the equity curve. Why? Think back to my original example - when you get it wrong you're still going to lose exactly the same amount as you would have when you didn't scale out of profitable positions. Your risk remains unchanged.

 

Larger scale (as in seriously large, institutional) traders do supposedly scale into positions. But they do so begrudgingly. They'd much sooner go 'all in' and 'all out' at the optimal entry and exit; they only scale execution as a compromise measure to reduce the impact of large orders on the market.

[BlueHorseshoe 10]

that's because he is not a trader... a trader won't say things like that. He is just a talker selling his talks. LOL

 

I have no idea whether Tim Racette or any other educator in the industry actually trades - my post wasn't intended as a slight against Racette or his company, but as a criticism of the specific concept that he was advocating in that particular post.

 

I am sure there are plenty of people who do trade, including profitable traders, who scale out of their positions. I certainly experimented with it at one stage with a live account, and didn't obviously lose money because of it. But then I'm talking about maybe fifteen trades - hardly a representative data set. Leter on, once I started looking at how systems performed across thousands of trades, it became abundantly clear that scaling out of profitable positions did not improve the results.

 

That's why I am hoping that there will be some advocate of scaling out who is able to offer something more than just anecdotal evidence of the benefits of doing so . . .

[Predictor 11]

I've found the optimal condition is usually not to set a target on my systems. I trade a variation that uses targets often because my win ratio jumps to 80% and the equity curve is much smoother.

 

I feel that most traders who scale out do so because if you exit 100% and the market keeps ripping then that frustrates many. Likewise, if the market comes within 1 tick of your exit and then reverses, that can be very frustrating.

 

I typically exit 100% at my targets because I can call a PEAK (not a TOP) with high accuracy. But as I eluded too, unless you have perfect knowledge.. they are pretty much equivalent except for the smoothing function..

 

Why lets say I have 3 contracts

 

I have 3 possible targets

 

Low target -> highest probability, highest win ratio, lowest return

Normal target -> high probability, high return, moderate win ratio

High target -> Lower probability, higher return, lower win rate

 

So, if I have 3 contracts I set for each one then I get an average of the "normal" target. If I have 1 contract and choose target 3 then i make highest return but equity curve will be choppier. I can scale out 2 at normal and 1 at high.. net return will be less then 3 but win ratio will be higher too.

 

I have found my trend strategies tend to be most efficient at producing max profit per contract. However, they suffer from choppier equity curves. I often put on more contracts, make less per contract, but do it with higher probability. Trading to target is not as optimal on a profit per contract but can produce much higher net returns.

I don't think you've really thought about this as much as you act.

 

Whether you trade to target or trend then is a function of the # of opportunities you can take...

 

One benefit to Tim's claim is also the standard deviation per trade should be less scaling out. Its just basically combining a target system with a trend system. Again, I think for most it will be equivalent... I take 100% off at my targets because I like to take 100% responsibility but I also scale in/out.

 

Tim's right though about 1 lot traders. You need ability to add.. 1 lot traders are also more likely to push a trade too far because the profits are so small.

 

--- See my stops article to see another reason why its equivalent. The higher target pays off more but is less likely to get hit.

 

Hi Predictor,

 

I agree that you are effectively trading two-three systems. However, all but one of these systems are bound to be less than optimal in their performance, and so their ability to smooth the equity curve is doubtful. They'll certainly smooth the upside of the equity curve, as scaling out of profitable positions will have most impact on the upside of the equity curve, but they'll do nothing to smooth the downside of the equity curve. Why? Think back to my original example - when you get it wrong you're still going to lose exactly the same amount as you would have when you didn't scale out of profitable positions. Your risk remains unchanged.

 

Larger scale (as in seriously large, institutional) traders do supposedly scale into positions. But they do so begrudgingly. They'd much sooner go 'all in' and 'all out' at the optimal entry and exit; they only scale execution as a compromise measure to reduce the impact of large orders on the market.

Edited January 24, 2012 by Predictor

[BlueHorseshoe 10]

I've found the optimal condition is usually not to set a target on my systems.

 

I don't think you've really thought about this as much as you act.

 

Tim's right though about 1 lot traders. You need ability to add..

 

--- See my stops article to see another reason why its equivalent. The higher target pays off more but is less likely to get hit.

 

I personally no longer use or a fixed profit target or stop-loss when trading, and I agree with you that this can be the optimal solution for many systems.

 

While I can assure you that I have thought about (and researched) this point thoroughly, I may of course be completely wrong! What I am looking for is someone to provide convincing proof that I am wrong - I then won't hesitate in re-evaluating my stance on scaling out.

 

I disagree with the third point you make above - you need the ability to SUBTRACT contracts when you experience a drawdown. Any trader has the option of adding contracts when increased capital justifies doing so.

 

A higher target will typically pay off more, but get hit less often, and the lesser target will pay less and get hit more frequently. Are the two equivalent in terms of their perfomance? I would argue that this seldom proves to be the case: one will always perform better than the other, and this is the target that would ideally be used.

[SunTrader 10]

Get your old job back.

Learn on the side.

The process will take years, not meaning to discourage you,only to help you make some good decisions. You are not alone in your experience so please take the advice.

 

 

Agree completely......