A Successful Trader's Perspective on Price Action I Found to Share.

[ChampM 10]

Lots of wisdom in these posts.

 

Trading is difficult, no two ways about it, but it can be so lucrative most people are drawn to it. Yet many look for indicators to make decisions for them. Price is the king of all indicators -- learn to correctly identify support and resistance and you will have the start of a successful trading method.

 

Simple is the key -- most successful traders know it. Consistency helps, too.

[AgeKay 10]

It's funny how I am now trading exactly how this guy describes (but without indicators) - not because I read this post, but because that's how my trading evolved when I took a step back, looked at what worked and what didn't, and stopped looking at any indicators.

 

You won't be able to really appreciate his advice until you trade the same way because your in a different frame of mind. I had read similar posts like this in the past and I just didn't get it even though they all tell you the same thing. The very largest and most successful traders don't need charts to trade. Some do look at them to remind themselves where S/R exactly was if it didn't trade there for some time but you do know S/R if you look at the DOM all day. They certainly don't base their decision to buy or sell on what they see on a chart. All we need is MD Trader (that's what the DOM is called in X_Trader).

It really is pretty basic and deceptively simple

Best advice I can give anyone who wants to trade intraday is to try his exercise. You will feel like a clueless beginner again, but give it time. It will make sense at some point, just don't expect that to happen in just a few weeks.

[matinthehat 10]

It's funny how I am now trading exactly how this guy describes (but without indicators) - not because I read this post, but because that's how my trading evolved when I took a step back, looked at what worked and what didn't, and stopped looking at any indicators.

 

You won't be able to really appreciate his advice until you trade the same way because your in a different frame of mind. I had read similar posts like this in the past and I just didn't get it even though they all tell you the same thing. The very largest and most successful traders don't need charts to trade. Some do look at them to remind themselves where S/R exactly was if it didn't trade there for some time but you do know S/R if you look at the DOM all day. They certainly don't base their decision to buy or sell on what they see on a chart. All we need is MD Trader (that's what the DOM is called in X_Trader).

 

Best advice I can give anyone who wants to trade intraday is to try his exercise. You will feel like a clueless beginner again, but give it time. It will make sense at some point, just don't expect that to happen in just a few weeks.

 

What are you looking at/for on the DOM? Just the flow or the orders at the BID/ASK? Start a thread on this, i'm sure some people would appreciate it.

[Kiwi 16]

Here's the funny thing.

 

You guys all love the dom. I turned the sodding thing off because of the deception in my markets.

 

Now I trade with S&R, progressing boxes (read market profile; moving s&r zones, whatever) and fibs (not because they're fibs but to give a progressive read on how far retracements are likely to go.

 

No dom. No bar by bar price action. No volume. Disappearing mas. Just big picture+retracement zones.

 

Its the most relaxed I've been in the last 5 years.

 

The great thing about trading is that there are so many ways to make or lose money ... and they're the same for both ... and who would have it any other way?

[subterfuge 10]

What are you looking at/for on the DOM? Just the flow or the orders at the BID/ASK? Start a thread on this, i'm sure some people would appreciate it.

 

X2.

 

I read a thread similar to this a long long time ago, advising me to turn everything off and 'stare at the DOM' etc.

 

Well....nothing happened. Just chaotic randomness! Sometimes there was huge size in the bid and the market crashed. Sometimes there was again huge size on the bid and the market instead rallied. Lots of trades going off on the buy side and it carried on going up. Lots of trades going thtough on the buy side and the market dropped off! Sad to say that i I didn't gain anything from it.

 

like the poster above said, it just made me more confused!

 

Maybe we need to know exactly what we are supposed to be looking for before it can aid in our trading decisions.

[BlowFish 10]

Here's the funny thing.

 

You guys all love the dom. I turned the sodding thing off because of the deception in my markets.

 

 

The trouble I find is that it draws you in to the action which is fine if you are a 'scalper' (term used loosely) but not great if you are trading larger swings. I also find it rather mesmerising so even if you are using it to finesse entries or exits you get rather glued to it long after it should be minimised

 

I really empathise Kiwi, Having said that if it's not there I feel strangely 'naked'.

 

@AgeKay are you still using the stuff you have talked about before (the custom bars for example which if I understand correctly are built based on order book)? I just wondered if you had abandoned any of that in favour of 'plugging directly into the MD'?

[AgeKay 10]

What are you looking at/for on the DOM? Just the flow or the orders at the BID/ASK? Start a thread on this, i'm sure some people would appreciate it.

 

I look at how much volume trades at each price and how the depth in the DOM reacts to it and vice versa. How quickly something happens is also important. It's hard to describe using text. There is a guy who has attempted to do it and even has videos. His name is John Grady. You'll find his book/video if you google for "no BS day trading". I don't own any other trading related book anymore and I've literally read it like 100 times until it sunk in, but I have developed my own style now so I don't specifically look for his "low risk entry strategies" but its the basics he talks about that are what's it about in scalping anyway. It talks about choosing the right market for scalping, commissions, hardware, software and internet connection you need, low risks entries, exits, position size and trading economic numbers. I am going to quote the second paragraph from his introduction which is all you really need to know to scalp profitably:

 

The only way to make money in this business is by consistently picking low risk entry points, pressing your mouse to get in the trade, riding it for all it's worth, whether it's 1 point or 20, and then pressing your mouse to get out of the trade. When you know you're wrong, you have to get out immediately. You must have some serious personal discipline to do this. It's not just about how much you make. It's about how much you keep.

 

I couldn't care less whether you buy it or not and I don't personally know him although I have exchanged e-mails with him. The real content is only about 50 pages and I bought it for like $30 so you're neither going to lose much time or money if you check it out.

 

The great thing about trading is that there are so many ways to make or lose money ... and they're the same for both ... and who would have it any other way?

 

Completely agree. I like scalping because it suits my personality. The stuff I look for actually makes sense to me (logically) which is important to me. I can't sit there and look at a chart for hours because I get bored and start entering stupid trades out of boredom. If you are profitable, more power to you, whatever you base your trading decision on.

 

You guys all love the dom. I turned the sodding thing off because of the deception in my markets.

&

I read a thread similar to this a long long time ago, advising me to turn everything off and 'stare at the DOM' etc.

 

Well....nothing happened. Just chaotic randomness! Sometimes there was huge size in the bid and the market crashed. Sometimes there was again huge size on the bid and the market instead rallied. Lots of trades going off on the buy side and it carried on going up. Lots of trades going thtough on the buy side and the market dropped off! Sad to say that i I didn't gain anything from it.

 

like the poster above said, it just made me more confused!

 

Here is the thing. You have to look at the right market. Looking at a market that just basically follows another one is obviously not going to help. Even if you trade outright, you need to look at correlated markets and find out which one is used to manipulate the one that you want to trade. For example, Bund is Bobl's bitch. Dax is EuroStoxx' bitch. And it's not as simple as just looking at which side has larger size. Every market has a personality. You have to get to know it. But also remember, there is only so much traders can do to manipulate markets. It's not rocket science. It just takes experience and insane discipline. I am still working on my discipline because if it wasn't for that, I wouldn't have any losing trades because sometimes I stay in a trade even though I know I am on the wrong side. It's simply human emotions, but I think I'll get better over time.

 

@AgeKay are you still using the stuff you have talked about before (the custom bars for example which if I understand correctly are built based on order book)? I just wondered if you had abandoned any of that in favour of 'plugging directly into the MD'?

 

I've dropped 3 of my 5 custom developed charts including the order book visualization because it was just too much information that just wasn't necessary for my style of trading. For example, I was looking at one to see trends and S/R, now I don't even think about it, I just know it. I later found out that I was even connected to the MISS interface of Eurex where order book analysis is useless because it updates only every 250ms and trades are coalesced. I also used it on the wrong market (Bund). I should have used it on Bobl. I might try it again in the future, but right now I am pretty happy with my setup.

 

I think it's similar to product design: Take away as much as you can, but not less. There is only so much you can pay attention to, and for me it's 2 DOMs and 2 charts. I've even removed T&S from both MDs and one could certainly trade without charts at all if they could keep all the DOM information in their head. I can't, and I'll let my charts "remember" some of the information for me.

 

To answer your question, I wish I could delete 98% of my posts since almost all of them except the recent ones are outdated.

[BlowFish 10]

Certainly will check out the book. Very little stuff written about the order book or even modern tape reading. There are a few old ones particularly aimed at NASDAQ but I seem to remember them being universally poor.

 

Certainly agree with your point about removing everything that is superfluous..there is a famous quote that escapes my mind at the moment.....maybe by Einstein, pretty much as you said it. Also I know what you mean by old posts!

[subterfuge 10]

I have the book you mention, Agekay.

I will look into trading the DOM again at some point.

The concept is very logial, which I like, but as I said, in my experience, I just didn't get anything out of it

[DugDug 10]

Personally I dont use the DOM very much - but also feel like its good to have there for entering orders.

But when it comes to reading/listening to it, the analogy of a trading floor comes to mind when watching it....you get the feel for the noise, the excitement, the panic, the quite times that you just do not get unless you are watching a tick chart.

A 5min, 60min etc; chart will not tell you about the vibe of the move.

It all takes practice.

 

I used to be a floor trader and on a busy day you might do 200 individual trades or different quantities, and on other days you might do three trades. A chart would never tell you which was which.

Of course all this depends on strategy and personality.

I dont really have the desire to watch and trade as a scalper, or to do more than 10 trades a day any more, so watching the DOM does not make sense.... as BF said it can be mesmerizing.....a secret hypnotic subliminal tool be the brokers whispering .... "trade, just buy or sell, or do both many times ---- we dont care so long as you give us the brokerage."

 

that quote " It's not just about how much you make. It's about how much you keep." reminded me of the similar one we had which was "its easy making money - the hard part is hanging on to it"

[AgeKay 10]

I have the book you mention, Agekay.

I will look into trading the DOM again at some point.

The concept is very logial, which I like, but as I said, in my experience, I just didn't get anything out of it

 

How long did look at the DOM? What market? Did you look to see which market influences the market you wanted to trade?

 

Did you really read the book? Did you read what it says in "Chapter 12: Final Word"?:

Turn on your X Trader and turn off your charts and watch that screen every Monday through Friday from 8:30a.m. till 10:30a.m. You're going to start seeing it. It's like any other job. You have to pick it up. However, let me just say that's it's not going to happen in a week. I've had guys write me after one week and tell me, “I've been watching the market for a week and I don't see your setups. It's not working for me. I'd like a refund.” Literally, they wrote me after one week. If this is you, let me just tell you right now that you are never going to make any money doing anything other than working from 9 to 5. You don't learn anything in a week. I sat there for seven MONTHS before I got it.

 

I give you an example of a trade this morning in Bund where I was sure what was going to happen. And I was right - to the tick on both the entry and exit. Bund and Bobl trading down slowly. Big bids in Bobl and offers keep getting lifted but it just won't break the high of the day in Bund at 122.59 which held 6 times. Big bids in Bobl but it just keeps going down, slowly. Meanwhile Bund should have been trading much lower but doesn't. Bobl is bid 2500 contracts at 116.63 and trades 11,000 contracts at 116.64 and only 164 on 116.63. Similar thing happening in Bund: trades 6,200 contracts at 122.54 and 1,600 at 122.53, 122.53 goes offer but no one wants to sell even one contract at 122.52. Why not? It's highly likely that this is as low as the market is going to go based on how many contracts traded and the huge bid in Bobl. So no one wants to be the one who sells the low of that move in either Bund or Bobl. So everything is telling you to buy. So you go long 122.54 or even 122.53 if you were lucky to get filled. Then Bobl is offered 116.64 for some, still no one wants to sell 116.63. Then you see 116.64 offering 1500 contracts to bully long traders into panicing and taking out that huge bid of 2500 on 116.63. It works: some one sells 50 contracts into 116.63 and its bid only 1000. But remember there is one guy who just bought 11,000 contracts in Bobl and probably a few thousand also in Bund and he was bidding 2500 below that. So the big guy cancelled 1500 contracts because some one sold only 50 contracts? No, because half a second after he cancelled his 1500 contracts he just lifts the entire offer at 116.64. Get it? He didn't really want to get filled on 116.63. He just posted this bid to keep the price up. And when he got challenged by the big offer, he quickly made sure that no one who was long had to worry about his position thereby avoiding traders puking into his bid and making him lose. Sure enough, everyone who was short and saw that knows their fucked and start puking. Market goes higher. This is the momentum the market needed to break the high of the day that I was waiting for. I know that after having traded so many contracts and having seen what I have seen that the market should move about 10 ticks. I don't remember the price in Bobl, but I do see a huge offer in Bobl a few ticks away and at the same price level in Bund (122.65) also. And sure enough it trades 5000 contracts at 122.64 and a few on 122.65 making it the high of the day for the next 15 minutes trading in a narrow range (where the long big guy probably dumbed his position). See, I risked 1 tick to make 10. Talk about risk/reward ratio. And I was sure it was going up. It did trade even higher (trading 166.77 now) but I don't care, I reached my daily target. This is what you have to look for. This is what goes on in my head. See why it's so hard to describe using words?

It's all psychology. Who has the most money? When are traders going to puke? If they do, how far will that move the market?

[subterfuge 10]

Thanks for the example.

 

I'll be honest, maybe I didn't give it long enough, although I never asked for a refund like some!

 

I gave it about 3 weeks of looking at it from 9am-7pm, mainly looking at the ES, and the 6B (GPBUSD) in the mornings (im in the UK)

Maybe I threw the towel in too quickly, but I honestly felt as though i was getting nowhere.

 

I think the concept is probably very hard to put into words with a few snapshots as is demonstrated in teh book. I think your chances of understanding would increase ten-fold if you could sit next to someone for a few weeks who could explain things as they happen.

 

I actually read part of the book again today, on teh back of this thread.

Ill give it another shot at some point.

[SunTrader 10]

I don't care who the trader or book author is - without sitting down with someone else side-by-side watching the market together they can't give an opinion on the chance of some else's success or failure.

 

As someone else said previously there are so many ways to win or lose in the markets. Pick one that suits you and go with it.

[Nemesis 10]

X2.

 

I read a thread similar to this a long long time ago, advising me to turn everything off and 'stare at the DOM' etc.

 

Well....nothing happened. Just chaotic randomness! Sometimes there was huge size in the bid and the market crashed. Sometimes there was again huge size on the bid and the market instead rallied. Lots of trades going off on the buy side and it carried on going up. Lots of trades going thtough on the buy side and the market dropped off! Sad to say that i I didn't gain anything from it.

 

like the poster above said, it just made me more confused!

 

Maybe we need to know exactly what we are supposed to be looking for before it can aid in our trading decisions.

 

Unfortunately, most traders don't come ego free, whether they are good or bad. When you see claims like this unless they are substantially backed with screenshots and explanations, just ignore them. You know how many posts of that kind you will come across ? Implement this rule, unless you can backtest the so called hints yourself, don't play scientist looking for answers. You could had been on the right track and random stuff like that derails you. There is nothing on the DOM but small little numbers cruising by.

 

If someone is going to offer help, unless the person is acting like an open book, just cruise by, you are better off on your own.

[macdfx 10]

Isn't the DOM nothing more than Liar's Poker?

Edited April 12, 2010 by macdfx
dbl post; continued below

[macdfx 10]

With folks like Paul Rotter in the bund, and HFTs in the Level II equities, it's a wonder anyone relies on the DOM anymore as a barometer of price action.

 

Time and sales prints or trades on a chart are the best determinant of price action, without a doubt. Nothing wrong with indicators, except that they can introduce lag into your trading of price action.

[AgeKay 10]

I gave it about 3 weeks of looking at it from 9am-7pm, mainly looking at the ES, and the 6B (GPBUSD) in the mornings (im in the UK)

Maybe I threw the towel in too quickly, but I honestly felt as though i was getting nowhere.

 

3 weeks is definitely not enough, especially if you don't know exactly what to look for. Do you really expect to learn a profession in just a few weeks that has basically unlimited income potential? On day one you're up against the best traders of the world that have the best hardware, the best software, the best internet connection, the best staff, many years of experience and most importantly millions of dollars/euros/pounds. This is the NFL/NBA/WSOP/FIFA World Cup/Grand Slam/Formula 1/Olympics of speculation.

 

Your choice of markets was probably also not the best. I don't think the DOM is going to help at all with Forex. The futures probably just follow the spot market and the spot market has no centralized DOM that you can look at. I've not looked at the ES, but I am not sure the DOM is going to be very helpful there either. ES is probably the most arbitraged market in the world and there are so many trades that occur because something else is happening in another market by hedgers, pair traders and large mutual investment funds. You have the mini futures, the big S&P 500 futures, ETFs, the underlying stocks, other highly correlated stock indexes with their own ETFs, underlying stock indexes and futures. I've told you that you should look at a market where you know that it's leading the market you're trading. I recommend Bund (looking at Bobl) or Dax (looking at EuroStoxx) if you trade from UK. You could also try the U.S. Treasuries if you like to trade in the afternoon.

 

With folks like Paul Rotter in the bund, and HFTs in the Level II equities, it's a wonder anyone relies on the DOM anymore as a barometer of price action.

 

I like that large traders like Paul Rotter are there. They move the markets and they have a certain way of doing it. If it wasn't for them, it would be just a random mess of buying and selling of many smaller traders.

[BlowFish 10]

I'm really not sure which side of the fence I am on this.Over the years I have stared (I choose that word over studied) at the DOM for hundred of hours. The reason I say stared is because whilst I have a general idea of what I am looking at I am not sure I really 'get it'.

 

I still feel that there is sense to be made of it I just haven't managed to. I also wonder if I am capable of it. I have good spacial awareness and a good intrinsic feel for magnitude. I am not particularly numerate though (odd as I just about come from a generation where a slide rule was used for maths rather than a caculator).

 

If you think about it as a market for physical goods oranges and lemons say. And sellers place their goods for sale out on stalls (though they may have more under the counter and can add or remove cases of oranges from the stall). Not only that you can see how many oranges are bought by punters.

 

Conveniently the stalls are ordered by price, the more expensive further along the line.

 

On the other side of the room are buyers, on there tables are empty boxes advertising how many oranges they are prepared to buy. Again they can add or remove boxes and you can see how many sales are made (with oranges being dropped into the boxes).

 

In brief you can see how much is bought and sold and you can see how much is advertised (even if that does go up and down). Can one judge the short term sentiment from this? Seems more than plausible to me the problem (for me) is it all happens quite fast and there is a lot of information to take in.

[AgeKay 10]

I wouldn't try to compare it to a physical market. Futures trading is quite different from real markets. First, speculators don't care about price. There is nothing like "expensive" or "cheap" in Futures. You always put up the same amount of margin. I am even more likely to buy when the market went up ("is more expensive") because I know traders will be puking at some point. In a real market, you don't have to sell your oranges back to the farmer. In trading you also have double auctions. Try to visualize that in a real market.

 

No one said that scalping is any easier than other approaches to trading. You have to be really fast and there is a lot of information you have to pay attention to. You can be very consistent though and achieve very high percentage returns.

[BlowFish 10]

I wouldn't try to compare it to a physical market. Futures trading is quite different from real markets. First, speculators don't care about price. There is nothing like "expensive" or "cheap" in Futures. You always put up the same amount of margin. I am even more likely to buy when the market went up ("is more expensive") because I know traders will be puking at some point. In a real market, you don't have to sell your oranges back to the farmer. In trading you also have double auctions. Try to visualize that in a real market.

 

No one said that scalping is any easier than other approaches to trading. You have to be really fast and there is a lot of information you have to pay attention to. You can be very consistent though and achieve very high percentage returns.

 

I don't think there is any difference myself Futures contracts are only options to buy physical goods in the future after all. There is no 'cheap' or 'expensive' when buying corn just as there is not when buying corn futures. (Having said that if you can buy corn at less than the current futures price + delivery cost you might say it is relatively cheap but arbitrage is a different topic altogether). It's all determined by who's prepared to bid up the price. Futures traders do care about price the price they got in at and the price they can get out at. Anyway lets agree to differ on that one rather than get into another rambling debate.

 

That was not my point anyway (obviously I was not being clear). I was attempting to point out the amount of information that is available to a futures trader and hopefully to get the naysayers to reconsider whether it might be helpful in determining short term order flow.

 

As to whether scalping is 'easy' again I guess I wasn't clear. I wonder whether I have the mental agility and numeracy to learn the skill? Could anyone who applies themselves learn it? And just to be clear I do mean learn the skill and not successfully apply the skill. Obviously many who manage the former will not manage to apply it successfully:(

 

P.S. Bough the book stuck it on the Kindle and took off for a couple of days with that and the laptop. Enjoying it so far.

[DugDug 10]

day traders care about price but they dont care about value (cheap or expensive).

[AgeKay 10]

Futures traders do care about price the price they got in at and the price they can get out at. Anyway lets agree to differ on that one rather than get into another rambling debate.

 

No, I do agree with you. I used the wrong word, I meant value as DugDug pointed out. It's obvious that we care about entry and exit prices just not necessarily what these prices mean. I still don't know what the price of the Bund means when it's trading at 122.05 with regards to the interest rate or whatever, and I don't need to.

 

I wonder whether I have the mental agility and numeracy to learn the skill? Could anyone who applies themselves learn it? And just to be clear I do mean learn the skill and not successfully apply the skill. Obviously many who manage the former will not manage to apply it successfully:(

 

I do think anyone could learn the skill. Even though it might seem very subjective, almost everything can be described objectively and logically and should thus be relatively easy to learn/understand. All we try to do is try to read supply/demand and apply logic/psychology. No matter what traders base their decisions on, it has to go through the order book, so we see everything (even if that means that there is too much information).

 

Applying the skill shouldn't be much different than using other trading approaches. It's still mostly discipline, i.e. cutting losses quickly when you're wrong although most of the time you know you're wrong before it goes against you. One thing that might be different is that you do have to be very quick and be willing to exit or even reverse positions at a drop of hat, so having no opinion at all times definitely helps. I even use a gamepad that is mapped to MD Trader's keyboard shortcuts to be able to execute very quickly and modify orders on both sides (bid/offer) at the same time. PM if you want to know what gamepad I use and how I have set it up. A low latency internet connection is also required as you'll be trying to hit market prices just as they leave or enter limit orders just as they get taken out to get the "edge".

[BlowFish 10]

day traders care about price but they dont care about value (cheap or expensive).

 

Succinctly put.

 

(puts my waffle to shame)