I have learned to apply strategies by doing a single clip. I manage the trade tick-by-tick depending on the price action that appears. I will always exit out for the entire size because I've changed my decision. If you enter a trade with a clear reason and enough practice, you should definitely start to see what it looks like when it works and when it doesn't work. Something to note: Many traders want to have 80-95% win rates (outright or spread). Let's remember that you can still be Green 18/20 days of the month with a 40-50% win rate. With proper risk metrics and enough trades in the day, you can definitely come out ahead. This is all provided you have enough execution edge (referring to entries & exits) and context edge (referring to timing and overall understanding of the day and variables at play). What I noticed most high win-rate chasers do is collect prices/regions/levels, and compound risk in a certain area which forms their 'view'. They do this until they feel they are wrong. The difference between someone succeeding and failing is usually how they treat the word "feel". It all comes down to risk and reward on every trade. If you don't feel like getting out for a loss today, it could give you a drawdown of a week, fortnight or a month, but come back enough times to make this strategy work. Most people who never really learn the true danger of skewing risk, will always be prone to giving back a week or month on a nasty trade. This is all because they are chasing the high win-rate and the "win at all costs" mentality with every trade. I want a high win rate too, but I don't want to be risking half a month (or entire month) when things get a bit hairy. I have done this for most of my career and it definitely takes years off your life. Compared to when I started trading, I have noticed that more and more algorithms are coded to the news headlines, and more are volume-trigger bots which aggressively attack markets through levels. But even with all that, I have concrete belief that every trade is independent from each other provided enough time has passed and you are not playing the same 'move' anymore. Therefore, I don't change anything based on win rate or stop. The key is to get into a rhythm where you believe in the Day or Week instead of the trade. What this means is, to keep taking your loss or scratch when things aren't working, because the next 'clear' market sequence is just around the corner.
Just a question on collecting Sommi... In some markets it is near impossible to get filled at a certain level (due to the usual culprits...hft, internalization, stacked book etc) so do you or your team just cross the spread when you want to start collecting at a certain level? Thanks for sharing your perspective on what's working in the markets today. It is much appreciated.
Hey Sommi When the Vix/Vstoxx hits the 20 mark and we get these wide ranging days in equities. How do you adjust your strategy to compensate with the increase in volatility? I've noticed during these times that open drives after the open don't tend to pullback to allow you a decent r:r entry. Are you just hitting the offer/bid and riding the momentum to an auctionable target like a previous day high... or like me yesterday attempting to ride the FESX to a few ticks in front of the ATH in the ES. When the market does retrace after it's parabolic openings, how are you picking your spot for any secondary move in the same direction that may occur? Even Mid/Vwap trades don't seem to hold when volatility increases. It's also tricky to spot the reversals in such wide ranges unless there is a massive shift in the delta and we've retraced more 50% of the move. Appreciate your thoughts as always.
Good question. I remember asking someone higher up this question and they give me a bullsh*t answer for whatever reason they chose to be a filthy dog. "Sometimes you just got to feel it." More like feel my fist in your a$$. If you are trading something every day, you are rewarded with experience and an identifiable range of the market. Experience always pays off. Let me give two examples one with Outright the other with Spreads; Outright Example The Nikkei-mini was pumping high today early on. It eventually broke the high by 3-ticks and was in no mans land during the Cash session. For the first 4 prices on the way up, the buy amounts were only like 500, 500, 500, 500 as it punched higher. Someone eventually bought big and you could see a seller absorb 2200 Nikkei-mini at one price (17555). After a few seconds, it began trading under that price. The seller stopped the momentum momentarily. But I did not pay down because of experience; when a market is in no mans land you really do not want to rushing ahead to instantly pay down (or pay up) because you need enough time and volume to settle before the market wants to go the other way. This is just something I have noticed in the past month as I trade outright. Now, had the market gone up there, sat for 15-minutes, and then did this, I most certainly would have paid down. Time and context always play an important role. In addition, there is no competition for fills because I am not enormous in the Nikkei-mini. It was just a matter of timing and understanding the game the day. This is significantly different to the next example; Spread example The Australian 10-year bond vs. the U.S. Treasury Note was pumping higher yesterday during the U.S. session. An Aussie Bond buyer was pretty strong and taking it to previous levels. However, from experience, you know that at any time, someone can just wipe the price (onside or offside) and be uncontested. Therefore, it is important to be mindful of scaling into positions as a necessity to get in. So after rising 2 basis points with bids and offers being 300/300 inside market, someone made the high with 600 bid. In one swoop and for no reason, a hungry seller made it 800 offer. And that was the high. Only someone with an auto-spreader or trading automation would've started to collect there. I was happy with the level anyway, and wanted to pay down. This is because I know that even if the chart says the price is currently the same in 30-minutes from now, you cannot get filled on the bids and offers because of limited liquidity. Therefore, you have to execute with a way to scale some in based off a chart. I ended up paying down after this order because I felt the price was worth it to start scaling (but not go all-in). The reason why I paid down is because it is a bond spread, at a certain time of the day, with certain characters that make it conducive to fading the area after it had gone 2 basis points. So my penalty for this is that I did not get full-size on the trade. You have to settle with less with chart trading but at least it is positive EV and a step in the right direction. This all happens because you are effectively chart trading with limited liquidity. Therefore, probability is in your favor if you incorporate charts more than price action. If you are missing trades because of a bot stack at a level, remember that you are effectively giving money away. If you focused on trades which give at least a 1:1 risk reward then you will in-front of your strategy has edge. Is paying down an enormous slippage cost for you in that product? For me, it depends on the product. But the way I see it, if I'm not willing to pay down it means I didn't really want it for long anyway. Once again, understanding context of the market you trading is important. Incorporating into your style So I just gave you two examples. But the most important part comes now; how did I know when to pay down and when not to? Time of the day, data, volume, levels, recent volatility, price action.. all of these help form your experience to click the button. The bots you are competing against may not have better edge than you so you have to believe that your risk/reward is going to net you positive. They are all in it for their 60% win rate because they are scattering this strategy everywhere. I had to battle with spreads that reduced volatility by 50% for a long time, and I was barely getting filled. What I basically did was just use a few Bollinger Bands and altered the standard deviation measure. This is not a rule-of-thumb indicator, but it helped show me on the chart that the Level I want to get at, is already pumping a certain standard deviation and worth paying down if it's going to work. This helped me tremendously because I was still stuck in the previous market cycle pattern of volatility. I will say one thing, sometimes there is absolutely no chance I will cross the spread because that is my entire edge in the average trade gone already. Remember, even someone who has big up days will still probably net average just a few ticks in a spread..
Adjusting strategy for volatility Trump getting elected was exactly like Brexit in terms of volatility; Extreme volatility on the first day, half of that on the next day with very dangerous sweeps, and then almost gone by the third day. What I noticed was, the first day of volatility was very fluid. But as every hour passes, more people wake up into the game and start doing their panic orders with sweeps. The chop is more vicious, but sometimes order flow is more obvious. Now, on the second day of these big triggered events I've seen in the past few years, there are late-game players who come in and have no idea what they are doing. I saw very dangerous weird sh*t in the Aussie SPI, the Japanese Nikkei, the Chinese H-Share, the U.S. T-notes and the S&P500 Mini. My theory is that people who have no idea how to trade, are now forced to trade on that day and at a much higher frequency than normal. Therefore, there are more splashes, icebergs, and things that don't make logical sense happening in a dangerous fashion. Spreads blow out and go one way because a whole host of portfolios are adjusting, and most participants have no idea how to work an order so they just start clipping market to get things done. For me and you, this means it's very easy to have the best day or the worst day of your month or year. I also think many people have wishful thinking... waiting for another GFC-like moment where there is no market for 4 months or something. This is never going to happen for precisely this reason; every bottom-feeder with an algorithm who is auto-trading will eventually have to go through a losing period where they never turn their bot off. This would be an entire 12-months potentially. They will not turn them all off on one day. This is just the nature of markets and algorithmic trading. So, not only do you have garbage price action and market rhythm being ignored, you have these bottom-feeder algorithms who have just halved their size and keep participating as normal. This makes it ever so important to get out immediately when you are wrong. Adjusting size is about the best thing you can do along with sitting on your hands early I learned from Brexit to halve my size immediately if bids and offers have dropped and volume is significantly higher. Instead of a 100 clip it will now become 50 clip. Instead of taking a tick loss, it becomes two. Instead of winning 2, it becomes 4. The Trump Day is over and it seems like volatility has halved each day moving forward. I have no interest in binking the after-math day (which I know is dangerous in terms of chop) but some others like having a go at this dream. Some win trophies, others bleed to death. How much do you value your career? Realistically on this day, it seems like most people are risking 1-3 months to make 1-4 weeks. Unfortunately, you don't get another shot at this tomorrow. Also, as you were attempting to ride the Eurostoxx yesterday so was my good friend. I could hear him on the microphone with extreme frustration because the pull-backs were insanely rough. I trust you both that the action was indeed consistent with dumb-ass brokers and traders who have no idea how to trade, now being forced to execute panic amounts of orders and portfolio adjustments. On top of this, you have algorithms in there auto-exiting in a thinner market. For this reason, I label the Eurostoxx and Dax both dirty sl*ts. I noticed that in every single market, Equity and Bond, when the reversals came, they just ignored everything on the way up and everything on the way down. I copped a beating before the European and U.S. opens even began whilst trading the early Asia session, so I could see just how dangerous the sweeps and reversals were. I knew it wasn't just a "Chinese market" thing, but an Every-Market thing. On the bright side, you now have the experience and to me that is worth a lot to a traders career. I can't tell you how many times I have been caught the day after an event, in a spread, because it just doesn't work and everything is f*cked. What I found in these rare days, is that Charts play the most important role. They just seem to work and hold, potentially because everyone is looking at them and doing everything at the same time. As the day went on, I noticed that there was no established 'range' or guidance for any market. They really did not give a f*ck where they want, be it Equity or Bonds. So now, you have to ask yourself, how much do you value your account and your career? Because, let me tell you of the truth; you only hear of the people with the Biggest Up Days for these periods. The guys with the Biggest Down Days put their heads down and disappear into the shadows. Because I have lived both of these scenarios, let me lay them out here; Imagine what you feel like tomorrow if you had your Best Up Day? What if you had your Worst Down Day? You won't be retiring from trading if you had your biggest up day, but you'll have everyone masturbating to the fact that you got creamed beyond imagination trying to bink it. This is why I halved my size, locked my computer early and played games when the danger signs appeared.
Appreciated Sommi. We had so much accumaltation in the IB in FESX yesterday that the break out to the IB extensions was pretty extreme. From seeing this previously and depending on delta, open type and where all 3 major indexes are auctioning to. I'm seeing that hitting the offer on the initial extension is worth the R:R as the pay off for holding to a major level like a round number or weekly high can be pretty good - sometimes 4:1. It's hard to determine when to play a buy side pullback to a previous area of resistance on a trending move or to hit the offer and risk being hung. You're right about the mind fuck we all received the last 2 days. Had a solid hold of mid/vwap yesterday for a later morning pullback 20 tick retest of YH in FESX and it just blew through 8 ticksafter 20 mins of accumulation. Before then making its final move up to VAH before the reversal. Uuuugly.
I'm just rereading all of your posts. I'm taking another crack at trading (mostly swing trading) and these posts are absolutely gold.
I've been expanding aggressively across the board for bonds and spreads. If you're giving trading another crack then I strongly suggest: 1. Do Spreads 2. Do not place a trade without doing hand-research of the spread high/low distances travelled. I can't stress this enough. It is pure gambling to go around clicking the button without some research (2-4 months is actually enough) 3. Ask someone about which spread you want to do and what to look at, watch, etc.
Just wanted to extend this thread...here is a link that I've found useful: https://www.curveadvisor.com/forums/topic/basic-eurodollar-analytics/ It was recommended in another thread but I can't recall by which member. The forums cover a lot of material that s0mmi talks about and in greater detail. Not very technical. It will probably save s0mmi from answering a lot of basic questions