[AgeKay]

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.

[AgeKay]

This is shortened post made by namstrader but the original author is someone else. namstrader just received it in an e-mail. I've bolded what I like you to take away from this post.

Originally Posted by namstrader »

Indicators are just a way to choose and filter the best chances to win over other ones [...] There are basically only five things we can look at and we can twist up in 1000 different ways - the high, low, open, close and volume data of previous price events. These are all really important to know but what they don't do is tell you buyers can't push prices past 1377.50 - RIGHT F'ING NOW. Sorry for the drama but I am trying to impress on you that price action is what really matters. That information is right on the entry chart and as plain as the nose on your face. The bottom line sadly enough is that there wouldn't be much of a trading industry if everyone new the real secret of scalping is just looking at two numbers which constantly change throughout the day. Those dynamic numbers are called support and resistance and those coupled with the interperatation of how participants are acting at and on these levels is the real key to scalp trading. How could it be that easy? It is - and then again it isn't and that is why 90% fail.

The best futures traders in the world are trading the pits on a handheld with X-trader. No indicators. No charts. All they have is a DOM and a sense of what and who is moving the market as represented by PRICES and the number and size of participants at those prices and whether there are more sellers or more buyers - that is it. It really is pretty basic and deceptively simple. They make note of intraday support and resistance levels as they change and the floor pivots for the day/month/week which don't change, etc - all centered around you guessed it, the PRICE RIGHT NOW...The spaces BETWEEN these levels are the trading opportunities [...]

Could you trade with just this and a pencil and pad to make notes? Maybe not yet, but you will be able to some day if you take to heart what I am telling you. My best friend is one of these guys. He trades the SP in open outcry and consistently makes $750,000 a year from his seat. So do I, in fact I made over $1,000,000 last year. I'm not bragging and I know that is an insane amount of money, but it is true and I am living proof that a guy with average intelligence can get filthy rich trading the S&P. There is more to life than money, but in this game it is how we keep score. There is no other way to evaluate the success of what we do. I grew up in the woods with no running water and used an outhouse until I was 13. Point made.

[...]

I am sick of hearing people say that 90% of traders lose because the market chews them up or the system doesn't work or whatever. That is just BS. The problem is those traders spend all their time playing with indicator values or analyzing timeframes or whatever and they miss the whole point of what they are doing here. This is a MARKET. All markets have buyers and sellers. I don't know why everyone can be experts on value when they look at items in a store or a piece of real estate or whatever but not in the market. If you wanted to sell your house for 500k and you had nobody even look at it in a booming market what would that tell you? The price was too high. Would you then raise the price of the house the next day? Of course not, you drop your offer if you wanted to sell it. You see what I mean? Markets make sense when we are talking about real estate or whatever, but people just blindly look at indicators and follow systems even in the face of obvious current pirce information. Example: in the last 5 minutes price has had a high failure at 1350 three times and is currently trading at 1348. Do you take a long setup here because a momentum indicator is above zero and the 9 day moving average just crossed over and above the 20 day? Why not, don't we always have to stick to our trading plan - blah, blah, blah? That is a great example of how traders follow systems to the letter and then scratch their head because they can't figure out why they are losing. Into the 90% pile they go. This isn't a ridiculous example either. This scenario repeats itself about once every 10 minutes on most days in any market.

In closing I would like to give you an exercise. Turn on a simulator of some kind or use a pencil and paper. I want you to put up one chart of any market you like in a timeframe that moves but is not too fast or too slow - say 250 ticks in the ES or 75 in the YM. I want you to use nothing but the one chart and the DOM to trade. Turn off the news too. From 9-9:30 spend exactly 1/2 hour looking over previous and current price action. Find the S/R levels - there won't be two, there will be several on each side. Write them down. Don't forget, resistance becomes new support and vice versa. You should also use the floor pivots as well. How will you set your targets and stops? It is right there in front of you. See how obvious it is? Trade this from 9:30-10:30 EST EXACTLY like you would with Ryan's system, but without the indicators for the moment and tell me how you did. Wait for pullbacks within strong price pressure and don't take any trades against recent S or R zones within a few points. Give it an honest run and let me know how you do. If nothing else it will show you how weak, as once was, you are at really seeing the market for what it is - a mess of chaotic buyers and sellers that actually does have a very measurable pulse. It will just take you a while to find it. When you do, look out world, here you come! Then add Ryan's filters on top of that and you will be deadly accurate.

[AgeKay]

I bolded the important stuff again.

Originally Posted by 86834 »

I'm not saying that TA has no place, it is a useful support tool, but as I mentioned in another post, every half decent prop firm that i've ever seen will make their traders look at nothing but the book for at least a month. There's a reason for that, and what you should take away from that is if that's how the professional industry train their traders, who have a way higher success rate than retail traders, then maybe, just maybe you should be doing the same?

When I refered to TA in my previous post, I was refering to price charts which are just a representation of the past, which it is, no matter how you try and cut it. The order book on the other hand is what is happening right now, which is extremely important.

Higher time frames then it's a different ball game, traders managing funds long term etc. I've never traded in this way personally, but my friend who used to sit next me at the firm I started at, he does all that stuff now days. He was completely hopeless at day trading, but his fundamentals were second to none, which is what he trades. Like I say, his track record is faultless, but like I say, not something i personally do so I can't comment

So many different trading styles with different methods, but if you're a day trader, in my professional opinion you need to learn to read what is happening now, not 5mins ago. There's always going to be someone who says they're doing well using just XYZ and not using order flow etc, but even if they're are, they're not doing anywhere near as well as what they could be if they knew order flow.

A good example would be that there's been loads of people moaning as of late about how quiet the markets are, but if you take the time to learn how price trades on the book it has been quite easy this year really.

[AgeKay]

I bolded the important stuff.

Originally Posted by 86834 »

The resting orders are only half the story and alone are not really going to tell you too much. What you also need on your order book is cumlative volume which shows the total amount of contracts traded at each price, so you can actually see how many contracts are trading.

Now typically, price will have a tendency to trade towards large bids and offers, so if we look at ES as an example, a large bid or offer in the that market is normally 2000-3000 resting orders. This is where the so called games people talk about take place... it's nothing new though and has been going on for donkey years. To keep it simple, say ES trades up to a hypothetical resistance level at 1100. When we get to 1100, if the offer is much larger than the bid with blocks of 2000-3000 lots resting, what a lot of people will try to do is lean on these resting orders to get short. What is actually happening is a large trader is putting up them large offers to make the market appear weak, which incourages people to lean on his orders as described above. What this does is cause the market to tick off lower where he can buy a lot more and smash price through the level by running the stops of the people who were leaning on his fake large offers.

What you have to do is recongize that this is happening, and as the market ticks off lower, you need to be looking at the cumlative contracts traded to see where that big fish is buying a lot more lower down.

So carrying on with the above example, lets say those people have started leaning on his large fake offers and the market has ticked down to 1098.75 where previously, 20,000 contracts have traded. Now as the market ticks off, if another 10,000 contracts trade there bringing the total to 30,000, and price keeps on bouncing on 1098.75 even though 10,000 contracts have just traded there, then you want to be buying there yourself and catching a ride on his tail as he smashes peoples stops....

If you're doing it properly, the market shouldn't really ever go more than 2 ticks against you in ES. If it does, just cut it.

If anyone has any questions, then feel free to PM me.

[AgeKay]

I bolded the important stuff (I have to write something here because this forum does not allow just posting qutoes).

Originally Posted by DbPhoenix »

Trading by price -- and "volume" -- requires a perceptual and conceptual readjustment that many people just can't make, and many of those who can make it don't want to. But making that adjustment is somewhat like parting a veil in that doing so enables one to look at the market in a very different way, one might say on a different level.

One must first accept the continuous nature of the market, the continuity of price, of transactions, of the trading activity that results in those transactions. The market exists independently of you and of whatever you're using to impose a conceptual structure. It exists independently of your charts and your indicators and your bars. It couldn't care less if you use candles or bars or plot this or that line or select a 5m bar interval or 8 or 23 or weekly or monthly or even use charts at all.

Therefore, trading by price and volume, or at least doing it well, requires getting past all that and perceiving price movement and the balance between buying pressure and selling pressure independently of the medium used to manifest or illlustrate or reveal the activity.

For example, the volume bar is a record of transactions, nothing more. The volume bar does not "mean" anything. It does not predict. It is not an indicator. Arriving at this particular destination seems to require travelling a tortuous route since so few are able to do it. But it's a large part of the perceptual and conceptual readjustment that I referred to earlier, i.e., one must see differently and one must create a different sense of what he sees, he must perceive differently and create a different structure based on those perceptions. As long as one believes, for example, that "big" volume must or at least should accompany "breakouts" and clings to this belief as ardently as he clings to his rosary beads or rabbit's foot or whatever, he will be unable to make this perceptual and conceptual shift.

If you can work your imagination and use it to travel in time, you will have a far easier time of this than most. Imagine, for example, a brokerage office at the turn of the 20th century. All you have to go by is transaction results -- prices paid -- on a tape. No charts. No price bars. No volume bars. You are then in a position wherein you must decide whether to buy or sell based on price action and your judgment of whether buying or selling pressures are dominant. You have to judge this balance by what's happening with price, e.g., how long it stays at a particular level, how often price pokes higher, how long it stays there, the frequency of these pokes, at what point they take hold and signal a climb, the extent of the pokes, whether or not they fail and when and where, etc., all of which is the result of the balance between buying and selling pressures and the continuous changes in dominance and degree of dominance.

One way of doing this using modern toys and tricks is to watch a Time and Sales window and nothing else after having turned off the bid and ask and volume. But this wouldn't do you any good unless you spent several hours at it and no one is going to do that. Another would be to plot a single bar for the day and watch it go up and down, but nobody's going to do that, either. Perhaps the least onerous exercise would be to follow a tick chart, set at one tick. Then follow it in real time. Not later, but real time. Granted this means a lot of screen time and only a handful of people are going to do it. But those few people are going to part that veil and understand the machinery at a very different level than most traders.

Once this is understood, the idea of wondering -- much less worrying -- about what a particular volume bar "means" is clearly ludicrous, as is the "meaning" of a particular price bar or "candle". If it is not understood, then the trader spends and wastes a great deal of time over "okay so this volume bar is higher than that volume bar but lower than this other volume bar, and price is going up (or down or nowhere), so...".

[AgeKay]

I bolded the important stuff.

Originally Posted by BlowFish »

Using price action as a basis to make trading decisions is possibly one of the most straight forward and simple ways to trade. Understanding how and why these things are as they are takes a bit more work and the perceptual shifts that DB talks so eloquently about. There are few (if any) better places to help you understand why (and the how for that matter) than the Wyckoff area here.

Just as it is not necessary to understand Newtons universal theory of gravitation to collect apples from the foot of a tree, it is not necessary to understand why markets move as they do to capitalise on those movements. There are numerous good resources that demonstrate different possible 'hows' without paying to much attention to 'why'. If you are anything like me you'll want to know why though to some that is not important.

A short comment on prediction. It is not necessary to predict to trade successfully, in fact the emotional attachment you are likely to get through trying to predict can be detrimental to trading without bias. The way most people apply price action is they see how it has behaved in certain areas in the past (finding potential areas of support and resistance if you like). They then monitor (in real time) what price does when it reaches that area again. There is a degree of anticipation but it is more about what is happening now than what might happen.

In a nutshell 1) use historical price action to give potential trade areas. 2) Use 'real time' price behaviour to determine if you have a trade in those areas. Pretty simple if not easy

[AgeKay]

I bolded the important stuff.

Originally Posted by 86834 »

The biggest road block for retail traders is pandora's box. In my opinion and experience, 99.9% of retail traders are chasing and worrying about things that actually have no important relevence to profitable trading.

Most of the retail community are focusing on learning things that are going to get them no where. It's like building a house.... but focusing on the garden for the whole project... no matter how nice the garden is, it isn't going to build that house.

If you learn how to trade professionally, any self respecting firm won't let you look at any charts for a month at the minimum. This is why I call it pandora's box, as when a retail trader gets involved with trading, they're opening pandora's box and making all the unimportant things important, and all important things unimportant. Most have it completely back to front, but instead of realizing and accepting that, they'll say it's the mental side, or it's this or that... basically they're blaming themselves.

The truth is, if you're trying to make a cake with a sledge hammer, it doesn't matter how disciplined you are, how mentally strong you are, how devoted you are etc... it just isn't going to happen because you can't make a cake with a sledge hammer, just like you're not going to be consistently profitable as a day trader by just staring at charts and techncial analysis, or following indicators or systems. You need to learn how to trade if you want to make money from trading. Don't learn how to be an analyst, and then be surprised you've made no money. At the same time however, 99.9% of people on this forum have made no money, but as mentioned, most will think there's something wrong with them and that they're their own reason why they have not succeeded. Like I say, most of you are following the piper over the hill into the magical forest, so it's not a reflection on your personal ability to trade, it's just a reflection of the b.s that you're following...

Just my 2 cents

[AgeKay]

I bolded the important stuff.

Originally Posted by 86834 »

The trend is your friend, but in day trading you need to learn how to guage price action and momentum in the market. You have to remember that support and resistance levels are not set in stone, they are merely points where you can enter the market, but price action and momentum will determine how you use the level. So for example if price is trading quickly to the upside, momentum in the market is high and there's high volume to add fuel to the fire as well as strong open interest to the upside, then in this case you shouldn't be looking to sell a resistance level above you, if you did you would be standing infront of a steam train trying to fight the market. In this situation the highest probability trade is to wait for the level to break and turn to support and then use it as an entry point to get onside with the trend and momentum.

[...]

As for letting your profits run, this is also true. If you're in a position and you have no reason to get out of it, then why get out? When you lack the ability to read how price is trading and momentum then you have no way to gauge the strength of your position. For example if you're long, and after 5 points price starts to struggle to trade higher, the open interest on the book is leaning more towards the offer, and there are very large parked orders on offer that won't lift no matter how many times they get high ticked, then you gotta start thinking to yourself to this move is coming to an end.

Learning how to read price action and momentum is key to being a consistent day trader, but unfortunate it's also the hardest aspect to get a feel for and the only way to learn it is to put in the screen time. There are no indicators that are going to do it for you, you gotta put the hard work in.

Welcome to the hard knock life of trading

You'll get there in the end as long as you put the hard work in.