Futures Trader, Excellent thread. Thanks for the great exposition on reading the DOM and scalping tactics in general. May I ask some other questions, that hopefully will not go off topic too much? 1. Have you looked at other EUREX products - Stoxx, Bund, Bobl? How did you fare? 2. You mention in previous posts, that you average into positions. Does this imply you will average a loser? 3. I understand you use TT as your primary interface. Have you ever used ECCO or RTS? I have just started to use ECCO and like it a lot. I don't think many people on the forum have even heard of it. 4. In other posts you have emphasized the need for direct connectivity, if you do indeed move away from Chicago would that not compromise a low latency? I assume your clearer is connected directly to the EUREX hub? 4. I am making the transition from the floor to the screen. The above advice is really solid and apart from hard work (lots!) are there any other nuggets that you can pass on. Regards, G.
I traded STOXX 50 for a while until the liquidity went way up and the volatility way down. It just got too thick for me to scalp efficiently. There were days where it only had a 14 tick range for the entire 11 hour session. I made my first net $1,000 in the STOXX. I also traded the bund for a while as a secondary market, but I just don't like products that are too liquid. The bund, however, had some good moves when it went. Never, if I can help it. That is by far the worst move a scalper can make. The mind does not work the same way when a position is already on while scalping. One has to accept that the perspective changes and our perception of the market is not the same when a position is on. Hence, I will get out for a 2-tick max whenever I can before initiating another position even if I am "certain" that I'm right. If I'm wrong, then I've caught what could have been a bad loser. If I'm right, then I will make those 2 ticks up when the move happens. I don't really average into a position. I scale in. Depending on the move, I will take several price levels to get size on that I'm comfortable with. I help generate momentum by doing that. Unfortunately, I sometime end up buying too much too high in a choppy market, but it is a risk worth taking for me. It happens that a move looks like a massive rally or sell off and then it only goes 3 ticks before turning. I take a good loser and use that as an indicator that I need to cut size or take what I can at the first price. I tried ECCOware. I didn't like it because it was unfamiliar and cost almost the same. I also didn't like that my local machine acts as the gateway server. For me, this presents unnecessary risk. With TT, the gateway server is independent. This means that my same account is accessible through any other computer with TT on it. Hence, if my computer implodes ( ), I can log onto TT from my CQG machine or another computer and still be able to see and cancel my orders and continue trading. Also, I can quickly call the risk manager who can just hit one button to trade me out and cancel my orders. With Ecco, it sends the orders directly from my trading machine and any emergency procedures will have to involve the exchanges as if it is a system-wide failure. Besides, Ecco is missing some key features that I like in X-Trader. They are working on incorporating many of my suggestions, but not fast enough. Yes. My clearer is an FCM with a direct connection via a channelized T-1 to the Chicago access point to Eurex. I will be running a dedicated private line over fiber using WilTel once I move to the DC area. My current latency from my trading machine through the local network to the Eurex access point in Chicago is 16 ms. From my new location, the total latency will be 30 ms. That is very acceptable. Besides, my reason for coming to ET is to learn what others are doing and find something that will help me move away from needing such latencies, etc. I think I will be a scalper for a long time to come, but I would prefer not to have to depend on latency to maximize my profits. Time shall reveal all. I have traded with others who have transitioned from the floor. I can honestly tell you that they were the worst traders I have seen when they first make the move. Very few survive it. They often come with some seriously bad habits and issues relating to the ego. They believe that because they have made money on the floor, that they are different and don't really need to start with 1-lots. I know a guy who lost $550,000 before throwing up his hands. He would average losers down and go to market to initiate a move not realizing that he is missing 75% of the signals he used to get from the other traders. My suggestion is to start from scratch and you will only have to think "small" for a couple of months. There is a different flow on the computer screen. Come up with an extremely good risk plan that you believe in. Not one that you copied and don't really care for. Ingrain in your mind that the market is a reflection of your attitude, your ego, your discipline and the quality of your plan. I have had days where my entire group would be losing money and one guy, who is normally not exceptional, would be having his best days in the same products. It goes to show that it is in the mind and what we expect from the markets. The market is the master and you just have to accept what it gives you rather than tell it what you want and try to force it out. It will ultimately show you who is the boss. Watch the DOM and tape for a while before starting live to get a read on your product's pulse. You will have to establish the flow of your product and try to merge in with it like you do driving onto a highway from a local road. What products did you trade on the floor and what product will you transition to? Best wishes and good luck.
I've been following your posts on this thread with interest. I've got a question if your answer is not going to reveal more than you would like. In which case I understand. If I've read correctly you don't do DOM analysis per se and instead focus on the prints at the bid or offer. Your analogy makes perfect sense BTW. You did mention however that you do notice the DOM and that for example your long and the cumulative bid is larger than the offer your looking to exit. What if your get long and as the market is rising in your favor and the ask sizes are getting increasingly larger than the bid. Are you ignoring this and focusing only on the size of the prints? I'm asking because I've noticed that sometimes a larger ask size seems to, at least temporarily, stop an advance and other times it seems to make no difference. The price keeps climbing regardless. Sometimes it seems to matter whether price is trending or ranging. Or am I "seeing" things that aren't there? Or maybe that's why your largely ignoring the DOM to start with. Thanks
You are most welcome. My education is a work in progress. I hope you can take what you get from this and turn it into $$.
It is important to have a flow with your market. Having a flow means that you are connected with its movement. You can almost "feel" what it wants to do. I'm sorry I can't describe it better. Again, the prints on the offer (even if it is a big offer) are important. Who cares if there is a 5,000 offer if the market is chewing through it with size? It will get through. I do pay attention to that though and I'm ready to bail when the prints on the offer aren't aggressive enough. Sometimes, the ask is increasing because participants are throwing out their offers to get out (all the more incentive for the market to go to those offers). I don't really ignore anything. I am scanning the DOM up and down to see what is going on. My attention is particularly focused on the prints though (many times my finger is subconsciously reacting). For someone to lift the offer with size, they can't be spoofing because it is an actual execution. They are either buying more or covering shorts. Either way, we are going up, so I buy more in anticipation of others being caught off guard or getting in to catch the move. This further pushes the market my way. This is the reason I skip trading on roll over week. The prints aren't a result of market participation in a move. Rather, they are possibly orders to roll and with size, so it doesn't give me good signals. Additionally, during roll over, the exchanges allow calendar spreads where the size is completely hidden in the DOM unless it is the best bid/offer. These have a way of completely halting moves. On Eurex, the contract trades until its expiration day (the CME rolls over the Thursday before expiration). Therefore, if the contract expires Friday, Wednesday onwards are pretty much untradable for me with a good risk/reward. This last roll over I was in South Cancun while the guys who traded went through a stressful but not very profitable week (FOMC and expiration are a deadly roll over). Once the contract expires on Friday, it reverts back to a good trade. Roll over is a forced break for me that I welcome. The point is: It depends. It depends on your product, the kind of day it is (trending/choppy), the kind of events that effect your product, etc. This is why you can't jump into a market and make money right away scalping. You have to develop a flow with the product and understand its character. It is like working with a new boss. You have to know what makes him/her tick and how it interacts with the traders. Scalping is hardly not as much a mechanical process as other styles of trading. So one can't say that as long as there are prints on the offer, one should keep buying. After trading it and watching your product for a while, you will know much like a baseball player knows if he will make contact with an almost invisible ball going at 98 miles per hour in a split second. I hope that answers your question.
Hi Futures Trader, Again thanks so much for a lucid and informative post. I do have some additional comments and some follow-up questions, if I may:
No sweat. I do exercise very tight discipline. It is the only way to scalp the way I do (when I lose it, it gets ugly). You can scratch nowadays in the dax. It has gotten thick enough. You have to do it before others have panicked and must bail out as well. You just have to be on your game when trading it. You are right. The liquidity lets you get out with lower slippage. However, I don't have the risk tolerance or patience to sit with an open position and a stop. I need immediate confirmation and I will accept a loser just as well as a winner. Higher volatility takes a while for momentum to be generated, so I don't like that too much. The dax presents the best tick value for the volatility. You can get size on and still have a 5 pt whoosh that will pay big (relatively speaking). Actually, I don't watch the cash. I try to minimize the amount of input. My charts also have very little on them (just a standard bar/candlestick with volume underneath and OBV). I trade the US session only. I don't feel the need to trade the first 2 hours of the open. If I did, I would need to have the cash tapes of the major players and reacquiant myself with the bund as an additional indicator. The dax US session is a different animal from the opening session. I have traded both. I will forgoe the additional income from the opening session to enjoy a better lifestyle. Not really. The latency is in the line between your access point and Eurex. The difference between ECCO and TT is that the gateway is on your trading machine versus a server in front of the MISS device to Eurex. They didn't have the average price when I tested it. You had to look at your fills to figure out what your average price is. They also didn't have a good way to center the markets. On TT, you can center-click to recenter across all markets. That is important for my style. I didn't like their T&S tape. I think many of these have already been incorporated already in the latest release. The latency to the exchange and back is fixed. I can do anything about that, so I just worry about latency to the access point. The roundtrip to Frankfurt is around 200ms. I have had extensive meetings with the main techs and managers at Eurex (we were having delayed fills, etc for a while). The quotes are throttled but the fills are live. There are 2 channels to Eurex. One is for quotes running with a delay and one realtime with orders. I apologize. I didn't word it the way I intended. I was referring only to the floor traders who I was trading with. It was not a remark for floor traders in general. They didn't accept that they don't have the visual queues on the screen that are available on the floor. FIFO exists for almost all futures contracts, so being queued well is important in a liquid product. The same discipline needed to make money on the floor will be necessary on the screen except that there is a much lower margin of error. You won't feel the cold sweat soon when you develop a flow with your product. You are in the right mindset. Start small like you are doing. Don't make the mistake of averaging losers. Set limits for yourself per trade and on a daily basis. There are a few books that give you tidbits that you would have to mix together to come up with what will work for you. There is no published material on being a floor trader either. One just has to be in it to get it. The important factor is longevity and that is why I emphasized that risk plan in the last posting. Watch the Depth of Market and tape for a while and your mind will begin to assimilate patterns. You might suggest that to Baron. I think that the existing scalping journals are in the right place, but I would certainly try to be a contributor.
Easily the most intellectually gripping read on ET! Full of fascinating angles. Please keep it up gentlemen. Also, FT71 please remember your project of shooting a Camtasia journal. From a low-tech perspective, I agree it is much more important to know where the flow of market orders is going (to the bid or the ask) and impossible to see this by looking just at the stock of orders on the book, which is polluted by spoof orders and dynamically changing too. I have found it useful to put a bid/ask volume split on the chart, on an interval of a few seconds. It is a lagging indicator, but it helps develop a sense of whether the market is going towards size, or whether weight of orders is pushing the market (exhausting liquidity).
Interesting concept. I use OBV (fancy OBV) on the chart of the product I trade to see what the balance is between sellers and buyers. That's as far as I have taken it though.
Here's a study that mignt be of interest to you. I don't have it, but's it's only $15. It appears they looked for "U" shaped patterns. Hee-Joon Ahn, and Yan-Leung Cheung