02 Oct What I look at when trading?
These are questions from an email I got a couple of days ago:
- Do you look at other market information/indicator for trade confirmation besides volume profiles and ‘trade areas’?
If you are asking if I look for any technical indicators for entries, the answer is a resounding “no”. You will notice in my prior post that there are no technical indicators on my futures charts except for VWAP. The rest are subcharts of internals (VIX, TICK and ADD). Even those are fairly useless, in my experience, because they don’t give you a true picture. It is best to create the tick and others on your own. I used to have this with CQG, but haven’t learned TS enough to create them myself.
My entries are refined through heavy usage of the Depth of Market (DOM). I started out trading as a SOES bandit back when the NASDAQ was the exchange to trade electronically. When I switched to futures, I continued to be a momentum scalper who really never looked at his charts. I have somewhat of a refined ability of reading the quality of the prints (sales) going through the DOM. My entries are based strictly on the quality of the move into my levels that I want to trade. I don’t stand in the way of the market except on my scale-outs.
My process is simple: I do my homework before the market opens (at night or in the morning). I identify the “areas I want to do business in“. Generally, I have at least 3 fundamental setups every day before anything happens at all. When I come in next morning, I note what happened overnight by looking at a chart of the overnight session only. I put a line up for the high and low of the overnight session. That becomes another benchmark. The next benchmark is where we open relative to the prior day’s action.This gives me a couple of more setups for the morning. I measure the participation by the bigger traders through the opening swing size and how it is treated.
At that point, it is just a matter of waiting to take those setups or to wait for the market to get to my “areas I want to do business in”. Note the last statement that I’m waiting in either case. Once those areas are close, I use the DOM to measure how it is approaching and what is happening by keeping track of 3 dimensions of the tape. These are hard to describe in writing.
Does this answer your question? If not, please reply in the comments section.
- What’s your screen setup for different time frames?
I use small time frames across the board, but have composite charts of 405 mins (Regular Trading Hours) to quickly assess the bigger picture when one of my areas gets violated.
- Do you trade breakouts from value?
No, I only trade breakouts on scalps of economic or news releases. When the market was thinner and less mechanized, the big trades were breakout trades that a trader can take and actually add to. Now, it is mostly reversion trading. I generally trade rotations from one important area to the next. I let the market come to the area and go the other way unless something says differently.
On a separate note, I don’t use “value” as defined by Market Profile in any of my setups. I think it is theoretical and is irrelevant. Why should the market stop at 1 sigma? Why not 2 sigma? Was it a trending day yesterday. If so, what value does “value” have? It is a day for price discovery, so obviously the market didn’t find value so it kept going in one direction or the other. Do you follow what I mean?
- What are your stops based on (do scalps have different stops)?
My stops are based on whether or not it has violated an area. In some areas, they are tight because there is a sharp volume cluster or other setup that just got violated. In most instances, I will manage a trade within the “area of interest” unless I see aggressive actual prints going against me as algorithms and people panic out. I feel comfortable adding when I need to in order to improve a position. I also scalp around those trades to keep improving my average as well. Stops are generally pretty big when they do happen, but their occurrence is statistically acceptable.
I use different stops for scalps than I do for the “heavy” positions. In either case, I know how much I can lose if I’m wrong and, most of the time (LOL!), I accept it before hand. This is key to consistency. Create a hypothesis, define the risk, put on the trade and let the market prove it right or wrong. In away, a trader is a scientist who is getting paid to validate a hypothesis that is later shown to be right.