I will have to be careful for sure. "Intellectual inferences" can be a dangerous thing without data. LOL. Well said.
From Micros to Millions: 2% per day
- Thread starter sstheo
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I will have to be careful for sure. "Intellectual inferences" can be a dangerous thing without data. LOL. Well said.
"My Edge"
Part 2
6) Cumulative Delta
I took a course on "Footprint" charts. I even showed some in my last journal. All the limit orders in the world don't move the markets. Someone has to take the leap. Therefore, all the numbers of the deals transacted at the ask or the bid represent the "aggression" to the upside or the downside.
Footprint charts were fascinating, but in fast moving markets, there is no time for numbers! So I shrunk them down and got simple colored bars for bullish or bearish or neutral activity. But even those were just "one more thing to look at."
Then I stumbled upon Cumulative Delta charts, which simply moves a line up or down based on the aggression of the market participants. Here is a short tutorial: https://www.jigsawtrading.com/learn-to-trade-free-order-flow-analysis-lessons-lesson8/
The On Balance Volume (OBV) indicator is very similar.
Things get almost magical when I do an overlays on my charts: (Teal is the OBV in this case.)
What do you see? The teal line is going down. This demonstrates that more volume is hitting the bid than the ask. The "aggression" is down. And what is price doing? It is going down.
In my two years of using this, I have seen an accuracy rate of about 70%. If the CD or OBV is going DOWN, will the market go down? About 70% of the time! Them's good bettin' odds folks!
BUT I don't just following the CD/OBV line around all day long. I need actual signals on the price. So I use the CD/OBV more as a filter against bad trades. If the CD/OBV is pointing down, I will NOT go long! But I will consider shorts. So more than anything, it keeps me SAFE.
Most of the time, the lines are synchronized well. But sometime there is a big divergence, and that is when I really pay attention. And I use it on multiple timeframes. Here is an example of a two-day view on YM and NQ:
When I see these two charts I say "Be careful. The market is mixed. The YM has been down, but the behind the scenes action (CD) is bullish. The NQ is up, but the CD has not been rising." When multiple instruments are in sync, then good moves often result.
Have fun with the Cumulative Delta or OBV. I know I do.
7) VWAP. Volume Weighted Average Price. I don't want to get into the details of how this is calculated, but once I heard that the hedge funds watch this, I was hooked. It is good to know if it is rising or falling, but the true value comes in the (1) Standard Deviation bands. They are amazing at predicting turns. The other important concept is (2) that the VWAP acts as a magnet, kind of like the midline in the range conditions I previously mentioned.
Here is today's chart. Notice the red arrows at the orange +1 SD band and at the green arrows at the orange -1 SD band. This is where the RTM (reversion to the mean) action is the strongest, with the VWAP (red) as the target.
Above +1 SD and below -1 SD, the action is really tricky. I may discuss my observations later another time if someone is interested.
That's all for today. In my next installment:
8) Entering in a pullback
9) Break of Two
10) Volume Profile: Value Area and Point of Control
Part 2
6) Cumulative Delta
I took a course on "Footprint" charts. I even showed some in my last journal. All the limit orders in the world don't move the markets. Someone has to take the leap. Therefore, all the numbers of the deals transacted at the ask or the bid represent the "aggression" to the upside or the downside.
Footprint charts were fascinating, but in fast moving markets, there is no time for numbers! So I shrunk them down and got simple colored bars for bullish or bearish or neutral activity. But even those were just "one more thing to look at."
Then I stumbled upon Cumulative Delta charts, which simply moves a line up or down based on the aggression of the market participants. Here is a short tutorial: https://www.jigsawtrading.com/learn-to-trade-free-order-flow-analysis-lessons-lesson8/
The On Balance Volume (OBV) indicator is very similar.
Things get almost magical when I do an overlays on my charts: (Teal is the OBV in this case.)
What do you see? The teal line is going down. This demonstrates that more volume is hitting the bid than the ask. The "aggression" is down. And what is price doing? It is going down.
In my two years of using this, I have seen an accuracy rate of about 70%. If the CD or OBV is going DOWN, will the market go down? About 70% of the time! Them's good bettin' odds folks!
BUT I don't just following the CD/OBV line around all day long. I need actual signals on the price. So I use the CD/OBV more as a filter against bad trades. If the CD/OBV is pointing down, I will NOT go long! But I will consider shorts. So more than anything, it keeps me SAFE.
Most of the time, the lines are synchronized well. But sometime there is a big divergence, and that is when I really pay attention. And I use it on multiple timeframes. Here is an example of a two-day view on YM and NQ:
When I see these two charts I say "Be careful. The market is mixed. The YM has been down, but the behind the scenes action (CD) is bullish. The NQ is up, but the CD has not been rising." When multiple instruments are in sync, then good moves often result.
Have fun with the Cumulative Delta or OBV. I know I do.
7) VWAP. Volume Weighted Average Price. I don't want to get into the details of how this is calculated, but once I heard that the hedge funds watch this, I was hooked. It is good to know if it is rising or falling, but the true value comes in the (1) Standard Deviation bands. They are amazing at predicting turns. The other important concept is (2) that the VWAP acts as a magnet, kind of like the midline in the range conditions I previously mentioned.
Here is today's chart. Notice the red arrows at the orange +1 SD band and at the green arrows at the orange -1 SD band. This is where the RTM (reversion to the mean) action is the strongest, with the VWAP (red) as the target.
Above +1 SD and below -1 SD, the action is really tricky. I may discuss my observations later another time if someone is interested.
That's all for today. In my next installment:
8) Entering in a pullback
9) Break of Two
10) Volume Profile: Value Area and Point of Control
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Thanks for sharing.
1) re: "Footprint Charts". I once joined a trading room that used an elaborate set of metrics all built around these charts. The entire thing was custom-built in Ninja Trader. I quit after two weeks when they could not produce any consistent profits from using it.
2) re: "Cumulative Delta". It is my understanding this indicator requires a Level 2 data feed.
3) re: "On Balance Volume". Are you saying this mirrors Cumulative Delta for the most part ?
4) re: "purple and green triangles". What's the logic behind these ? They look like great scalping entries.
Part of the game, you cannot completly avoid them. 2 small losing days out of 11 is still an excellent result. Dont try to go for perfection, this will only drive you crazy.
Keep doing what you are doing, try to stabilize those numbers over a longer time period, then slowly scale up. If you trade 50 contracts of the emini ES in a possible future, do you think you would not be absolutely happy and satisfied with your over 600k of profit in just 10 days ?
Those thoughts are bad juju.
juju ?
*sighs* Jumping the gun in thought. As you scale up, those consistent days seem to lead to larger and larger returns. But eventually there becomes a psychological breaking point where mistakes will be made. 50 ES contracts? That's jumping the gun.
I do that myself. I think...Wow...Today, if I had only done that with 1 ES instead of 1 MES, I'd have ten times the profits.
That's all fine and good until I look at the losing days and think, "Wow, if I had done that on ES instead of MES, my account would have been wiped out."
Of course you have to be consistent to pile up the contracts. sstheo has a sensible plan, he plans to "reward" himself with increasing size for every amount X of profits he makes. I grew my account in a similar way, and it is not that tough, from my experience. It just takes time. You dont go from one MES to 50 ES within 2 months. If you are good, your trading will get you there, but it might take something like 5 years, once you started being consistent.
But the scaling gets easier once you trade already a few contracts. The jump from 1 to 2 contracts is significant, 100%. Later, when you jump from 10 to 11 contracts, it is nothing special anymore, a 10% increase.
Of course it is "a bit" early for him to think about 50k profit days. But, what motivates you ? A positive picture in your mind, a dream, a vision of your future success, does that not help ? I can tell you that it helped me. In fact it was a key. If I would have been a negative person and naysayer, I would have quit trading before I even knew what trading really means. Especially in the early days it is important to keep yourself motivated, to know why you are doing this. Later, once you have your nice house, good cars and enough change for black jack and sluts, you can reward yourself with other things.