Quit Job to Watch DOM.

[mikew 10]

*I think special attention to developing long-term edge,

 

*Develop some basis for entering a trade.

 

How do you develop some basis for entry, that you can reliably determine has an edge? Certainly theres plenty of traders who have developed a basis for entry when two moving averages cross one another. But how can you be sure of what you're choosing actually DOES have a long-term edge?

Edited May 9, 2012 by mikew

[lastninja2 10]

Possibly backtesting, although I don't know anything about that.

How about remaining on a trading simulator for several months, multiple trades every day - will that provide a statistically significant sample?

[mikew 10]

Yeah I suppose so, simulating for several months should be enough to give you a good idea.

 

But is statistical samples the only way to determine if you have an edge? Suppose you simulate for 6 months and win consistently, and then you go live and the market changes and you no longer win. It seems to me the WHY behind the trades is where the true edge must be, but I'm having a hard time figuring it out..

[jackepalin 10]

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!

[DionysusToast 10]

Yeah I suppose so, simulating for several months should be enough to give you a good idea.

 

But is statistical samples the only way to determine if you have an edge? Suppose you simulate for 6 months and win consistently, and then you go live and the market changes and you no longer win. It seems to me the WHY behind the trades is where the true edge must be, but I'm having a hard time figuring it out..

 

It's a skill isn't it?

 

Those mechanically inclined won't agree and they are the majority but still...

 

Like any skill, you should have a fair idea as to how you are coming along. You do the same thing every day, you become more confident, opportunities become more obvious, you see more easily when you are offside.

 

Of course, the results should speak for themselves but you should intuitively know when you are getting better at daytrading.

[BlueHorseshoe 10]

Yeah I suppose so, simulating for several months should be enough to give you a good idea.

 

But is statistical samples the only way to determine if you have an edge? Suppose you simulate for 6 months and win consistently, and then you go live and the market changes and you no longer win. It seems to me the WHY behind the trades is where the true edge must be, but I'm having a hard time figuring it out..

 

If your trading is discretionary then there are a number of platforms that have 're-play' features, I believe. This would allow you to test how you would have performed in historical time periods outside of the six months you describe.

 

If your trading is rule-based then you simply need to learn to program those rules into backtesting software to see exactly how they would have performed.

 

Hope that helps,

 

BlueHorseshoe

[kuokam 10]

Don't they train into pros in 4 months in props?

 

For my 15 years of trading I have often heard of a 90%+ failure rate. Ok so of course it is not possible to reach 100% but damn close to me at least to be called a kind of absolute.

 

I have also never (again an absolute) come acrross a trader who learned in a few months what they needed to know that has consistently made money from that point on for a long career. Made a sh*tpile of money and blowed up months later. Yes. Fairly typical.

 

Any job worth doing is worth doing right which means continuosly learning and getting better. It doesn't happen overnight or weeks or months.

[lastninja2 10]

in my experience, that isn't so

[kuokam 10]

Could you please elaborate a bit ?

 

in my experience, that isn't so

[lastninja2 10]

I dont know any prop guys who really had anything to show for it inside 4 months, or anything close. But then, I only know about a fraction of all prop traders so how statistically significant is that?

[kuokam 10]

I am just sure of one thing: with a competent and dedicated guidance, 3 months are enough to at least spot good entries. The Turtles spent less time.

 

I dont know any prop guys who really had anything to show for it inside 4 months, or anything close. But then, I only know about a fraction of all prop traders so how statistically significant is that?

[lastninja2 10]

aye well you may be right.

 

Altho, 1 day, nevermind 3 months, is probably enough to describe + explain a few good entry setups, e.g. flipper-algos, front-running real size on the DOM, joining a reloading bid etc etc.

 

Trouble is (just in my experience - all i can go on) everything else in between.

Hard to spot enough good entries, day in day out (and if the prop shop is backing you, you'll be under some pressure to trade regularly every day)

Hard to keep the less-good entries to a minimum day in day out.

Hard to manage the trades once you are in - after all, who except for 'Harry Hindsight' can say how long you should have held that winner for... meh

 

re: Turtles, I'm sure I must have read the book years ago - something about breakout chart strategy? Hmmm, well, I can pick out markets that for several consecutive years have rallied nicely, pulling back 50% periodically. I could probably find some great examples on S&P 500 over the last 3 years, but too lazy to upload such a picture. Anyway, had I been buying 50% fibonacci retracements because my SMA 50 was above my SMA 200 (or whatever), month after month, I might have made a fortune by now.

 

Dunno if that makes me a good trader tho... conditions change and all the money will be given back.

[Patuca 13]

Your initial risk is unaffected.

you don't think initial risk is affected by actual risk?

[Patuca 13]

Lastninja2 you might wish to google jigsaw trading. They might have some useful tools for your senario. Only you know that....

[DionysusToast 10]

I would agree that making a living from flips would be a tough game - as someone that trades the ES morning session every day (as a position day trader), it's pretty rare I play them.

 

When I do see them, I'm more inclined to think "OK - let the big boys have their fun" and step aside.

 

Part of this is because from a trade location perspective, flips occur in a God-awful place UNLESS we have been in a fairly tight range and hit the bounds of it 3-4 times. In that case, a little gameplay to break the range is to be expected but it doesn't mean there will be any follow through - did I mention I was a position day trader?

 

If I have some directional bias on a range, I'd play the flip but I'm much more likely to just buy the bottom of a range if I am overall biased upwards.

 

Playing what appears to be a flip on the ES without good trade location is not something I would do and then you come back to the issue that all of this needs experience. I'd say that if you want to scalp the DOM and get profitable fairly quickly you need to....

 

- stick to thicker markets - FESX, US Treasuries

- consider spread trading

[suby 10]

I would agree that making a living from flips would be a tough game - as someone that trades the ES morning session every day (as a position day trader), it's pretty rare I play them.

 

When I do see them, I'm more inclined to think "OK - let the big boys have their fun" and step aside.

 

Part of this is because from a trade location perspective, flips occur in a God-awful place UNLESS we have been in a fairly tight range and hit the bounds of it 3-4 times. In that case, a little gameplay to break the range is to be expected but it doesn't mean there will be any follow through - did I mention I was a position day trader?

 

If I have some directional bias on a range, I'd play the flip but I'm much more likely to just buy the bottom of a range if I am overall biased upwards.

 

Playing what appears to be a flip on the ES without good trade location is not something I would do and then you come back to the issue that all of this needs experience. I'd say that if you want to scalp the DOM and get profitable fairly quickly you need to....

 

- stick to thicker markets - FESX, US Treasuries

- consider spread trading

 

Its not every day you see someone say there a "position" day trader. I was wondering if you could define position day trader and give a little bit of insight to your methodology towards taking a position intraday on the ES.

[Seeker 11]

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.

 

 

Interesting debate regarding scaling out. I have a question...if scaling out of winning positions reduces profits, would you consider scaling out on a losing position to be beneficial?

[DionysusToast 10]

Its not every day you see someone say there a "position" day trader. I was wondering if you could define position day trader and give a little bit of insight to your methodology towards taking a position intraday on the ES.

 

I'd have thought most ES traders were position day traders. To me the definition is fairly simple, it's a trade who tries to hold some or all of their position for a good run - potentially lasting the whole day.

 

Of course, a typical day on the ES will see it put in 3-4 decent sized intraday swings - of the 8+point order, so as a position day trader, you can't really expect to hold a single position all day unless it's a one way day and those only come about once every 2 weeks.

 

So a position day trader on the ES needs first and foremost to figure out what mode we are currently in. If we get into a 2 point range, I'll hit it from both sides because that's all that is available. It's not my preference though.

 

If you know what mode the ES is in - or at least become proficient in making a decent call as to what mode it is probably in, then you can decide if it's a short term move, jump on those 8-10 point swings or hold all day.

 

For the 8-10 point swings, my method is fairly simple. I will watch the levels everybody else watches - globex range, value areas, yesterdays range, weekly highs/lows but I don't trade off them. I prefer to let the market reverse from one of those levels and then jump on the first retracement. I find those retracements easier areas to play as there is less gameplay there. I make less points per move but then I have less stop outs from catching the proverbial knife.

 

In terms of a reversal vs a retracement, I use discretion to decide which is happening but it is roughly along these lines:

 

Reversal (long to short)

- will be accompanied with a large relative shift in Cumulative Delta, 10k or more

- will be accompanied with a larger swing than prior upswings

- will be accompanied with larger volume (per swing) that prior upswings

 

Pullback (in a down move)

- will be approximately the same size as average pullbacks on the way up

- will be accompanied by smaller volume that the last push down

- will have very little if any shift in Cumulative Delta

 

Everything is relative, so you have to put this within context of the sort of shifts in delta, price, volume for the day.

[DionysusToast 10]

Interesting debate regarding scaling out. I have a question...if scaling out of winning positions reduces profits, would you consider scaling out on a losing position to be beneficial?

 

I don't agree that scaling out of winning positions reduces profits.

 

Now - I would agree that a mathematician could probably prove to himself that scaling out reduces profits but stick the guy in front of a trading screen and see how he performs.

 

It's all relative to your instrument & of course you don't have to manage all trades in the same way. For instance in tight consolidation, I'm all in all out.

 

For trades where I think we have a decent move ahead of us, I absolutely scale out and I personally make more money that way. I don't really care what some academic things about the issue.

 

I read Phantom of the Pits and I agree with his philosophy of scaling in but for an intraday trader on the ES where the moves often only last 30 minutes, there's no real scope to do it the way I trade.

 

Fact is, when you get into a trade, you have no idea how far it will run. All in all out is great in theory - but all out at what price?

[kuokam 10]

Sounds like waiting for the IB on market profile to complete and give a clue as to what the trend of the day might look like. Do you use it?

 

I'd have thought most ES traders were position day traders. To me the definition is fairly simple, it's a trade who tries to hold some or all of their position for a good run - potentially lasting the whole day.

 

Of course, a typical day on the ES will see it put in 3-4 decent sized intraday swings - of the 8+point order, so as a position day trader, you can't really expect to hold a single position all day unless it's a one way day and those only come about once every 2 weeks.

 

So a position day trader on the ES needs first and foremost to figure out what mode we are currently in. If we get into a 2 point range, I'll hit it from both sides because that's all that is available. It's not my preference though.

 

If you know what mode the ES is in - or at least become proficient in making a decent call as to what mode it is probably in, then you can decide if it's a short term move, jump on those 8-10 point swings or hold all day.

 

For the 8-10 point swings, my method is fairly simple. I will watch the levels everybody else watches - globex range, value areas, yesterdays range, weekly highs/lows but I don't trade off them. I prefer to let the market reverse from one of those levels and then jump on the first retracement. I find those retracements easier areas to play as there is less gameplay there. I make less points per move but then I have less stop outs from catching the proverbial knife.

 

In terms of a reversal vs a retracement, I use discretion to decide which is happening but it is roughly along these lines:

 

Reversal (long to short)

- will be accompanied with a large relative shift in Cumulative Delta, 10k or more

- will be accompanied with a larger swing than prior upswings

- will be accompanied with larger volume (per swing) that prior upswings

 

Pullback (in a down move)

- will be approximately the same size as average pullbacks on the way up

- will be accompanied by smaller volume that the last push down

- will have very little if any shift in Cumulative Delta

 

Everything is relative, so you have to put this within context of the sort of shifts in delta, price, volume for the day.

[DionysusToast 10]

Sounds like waiting for the IB on market profile to complete and give a clue as to what the trend of the day might look like. Do you use it?

 

Not really, I'm usually positioned way before the IB forms.

 

In terms of the things I watch to figure out what sort of day we have:

 

- The open - how fast it is in terms of prints coming through, how thick the depth is, how many ticks the opening range is. Of course, if there is news at 10:00 and we have a slow start, I tend to give things till 10:00 and then re-assess if the action changes

 

- Todays volume profile - does it start out building a lot of volume over a relatively small range of prices, does it have clusters of high volume with lower volume between, does it just churn high volume at higher & higher prices without retrace. This sort of thing you can easily see in the first 30 minutes

 

- How we are positioned relative to yesterdays range/value

 

In essence it's about the pace of the market and how it builds up volume at the prices from the outset. After any decent move, I am always wary of consolidation. When we get that consolidation, the more volume we get there, the more likely I think it is to continue.

 

So if you push up and then build 100k contracts near the new highs, I see this as acceptance and a new push up more likely.

 

Most of this you can get off the DOM but I also use swing charts on the ES which look like this:

 

 

The idea being that you get a handle on the price swings and the participation in them. The Cumulative delta is below which is your mile high view of the order flow.

 

I also keep a watch of the average volume for the time of day - whether that is above/below average and I also watch the NYSE Tick to see if the stocks are on a one way day, swinging up & down or just moving sideways.

 

Bottom line is that if you watch enough days, then you start to get a feel for it.

[numbertea 10]

To learn to read the tape I recorded the days data for the ES and replay it at night so that I can still have a day job. Tape reading is a wonderful extra tool for trading and its use has changed my trading for the better. I programmatically analyze the tape data for different time frames and that analysis gives me the information I need to stay on the right side of the market which prevents me from having losing days. My trading is based on repeating patterns of price and bid/ask levels. I have made custom indicators that span multiple time frames and it seems to me that order flow and ease of price movement is the most consistent indication of future price movement.

 

Cheers

[kuokam 10]

How possibly can you "programmatically analyze the tape data for different time frames" ?

 

To learn to read the tape I recorded the days data for the ES and replay it at night so that I can still have a day job. Tape reading is a wonderful extra tool for trading and its use has changed my trading for the better. I programmatically analyze the tape data for different time frames and that analysis gives me the information I need to stay on the right side of the market which prevents me from having losing days. My trading is based on repeating patterns of price and bid/ask levels. I have made custom indicators that span multiple time frames and it seems to me that order flow and ease of price movement is the most consistent indication of future price movement.

 

Cheers

[numbertea 10]

How possibly can you "programmatically analyze the tape data for different time frames" ?

 

I use the cumulative bid/ask during the time frame used. I make my entries and exits using 5 minute bars to avoid harsh whipsaws and look at longer term bars for the bigger picture. Trade events per bar is an indication of liquidity, interest, and sometimes that is a nice reinforcement of a big move. I use the cumulative bid/ask to create order flow profiles that I use alongside candlesticks giving me very good results as the false signals are easily identified. I trade the ES.

 

Cheers

[newmillionaire 10]

I might not be a forex trader guru but I am an expert researcher. Based on research and current trade trends I think gold trading is the way to go. Truth of the matter is in times of crisis and economic down fall, gold it always standing tall and is a mutual form of trade. You can’t loose when you trade gold it is almost like crude oil.:helloooo: