About volatility

There is one big realization that came to be lately: market can have an ordinary volatility and extra-ordinary volatility and its behavior is totally different among them. Ordinary volatility can be higher or lower, and price generally follows market structure fundamentals, you can plan stops and take profits adjusted to the volatility and trade same strategy. However, during extra-ordinary volatility, there is pretty much no market structure to anchor to, trading strategies aimed to ordinary volatility times perform badly and, unlike ordinary volatility times when markets are fractal and repetitive, extra-ordinary volatility markets are one-off events, providing almost unique price action every time, making it very difficult to trade with any structure-concision strategy (pullbacks, consolidations, breakouts, etc), and the only choice is hoping to ride momentum.

So the revelation is, if you limit your trading to the ordinary volatility markets and learn to by-pass extra-ordinary volatility market, you will do very well.

Talking about ordinary volatility. I have found out, that it is very well worth it to trade less volatile market state from lower time frame, and more volatile market state (still orderly market) from higher time frame. Currently I use 30 second and 3 minute time frame for trading. I use ATR(20) to determine volatility. Anything above 6 points on 30 seconds makes me stop trading (as stop will be above 7 points) it and wait either to have market to calm down, or to get an entry from 3 minute time frame off its market structure. Same time I won't take a trade off 3 minute frame is low volatility market, let's say if ATR(20) on 3M is less than 10 points. Because while it still likely to work, there is no sufficient reward potential to justify trading off this timeframe, so it is better to focus on smaller time frame. Since I had automated entry detection, I have filters that let out unsuitable conditions for each time frame.

Back to live

So I am back to trading live, after spending a lot of time again back testing and adjusting my trading strategies to the changing market.

The level trading strategy is great but the volume is lately so bad it just doesn't give any decent setups for weeks. As Mario threw more and more funny money hot from the presses to financial cartel we can only expect DAX to keep pushing up. Looking at QE history in US and ES behavior, we can expect dull, low volume markets for a very long time. 

So there is a necessity to have a strategy that can trade it. I had developed such a strategy and more over, we put it into an indicator over the weekend and tested it real time yesterday, making final adjustments and bug fixing. It's not a holy grail but good one.

So I went live today, with a plan to trade just from 9 to 11, taking advantage of an initial trading move and a possible reversal of it. So I allow one direction change only: long and then short, or short and then long. Max 3 losses net.

As luck would have it, as strategy netted over 70 points yesterday according to a strict rule book, I only took 2 losses today, down approx 20 points. No biggie, especially as I trade 2 contracts. Strategy requires to scale out first contract fairly soon. No chance of it today.

Here is how it looks.

I am sure better days will come sooner than my account will come to an end But, recalling my news/impulse trading days, it's not all roses along the way. You have to eat some dirt from time to time

one more trade, fully confirmed, and at least target 1 is hit and target 2 is very close to get hit

Timing is totally off, this is a lunch hour when traders in Frankfurt are stuffing their faces with pretzels and frankfurters, but market is moving instead? Has London decided to hold on to fish and chips and gobble more bulls' tears instead?

ps it's a little bit frustrating to see winning trades going without you, but it is far more warming to see system works even if I had to eat some loss today

edit: target 2 is taken as well

And finally some more trades for the EU session (which I call to an end at 1400, as US news starts to come out and mess things).

One winner for 6+22 points and one loser for -5.5x2 points, net +17 points.

Total today for fully confirmed trades as per rules: from 9 to 11 total net -20 points from two losing trades and from 11 to 14 total net +57 points with 3 winning trades and one losing. Too bad 11 to 14 wasn't traded, merely observed.

Maybe I will need to review scenarios like that - recognize I have been duped into a false reversal and accept initial direction move for extended hours if it keeps moving like today. I won't consider anything past 1400 though.

Last update of the day.

Time to draw some conclusions. Let's count all the trades if taken as is:

0900 - 1100 total -20

1100 - 1400 total +68 (3 wins and one break even - it should not be a loss after all)

1400 - 1515 total -8 -11 +6 = -13

1545 - 2000 total +13 + 0 + 36 -9 + 13 +0 = +53

My personal observations were it is usually best FDAX market to trader from 9 till 11 and them perhaps from 12 to 14, then don't touch it until after US Cash open and let some 15 minutes to settle down until it can be traded to Frankfurt close and sometimes on more active days until 8 PM.

Apparently today confirms it. First window wasn't good and too bad I catched it. Then market was really good until 2 PM. Then another weak stretch and finally a somewhat shaky period improved by one excellent trade and two decent ones.

All in all, it makes sense to adjust the plan to following:

- primarily trade 9 to 11 always, assume one direction change during this period

- if market remains active trade till 2 PM, either from 11 or 12 depending on activity of 11-12 hour, treat it as a separate session with 1 internal direction change, however look for price moving beyond 9-11 corridor to trade, in order to avoid being chopped for lunch

- if market is particularly good and directional trade from 3-15 till 5-30 or till 8 PM, depending on activity, again one direction change is allowed

Today we had pretty much a range after 5 PM, but this method works in flats well if only the range width is not too narrow and allows price to fluctuate, which is did today.

Obviously, an indicator I use is not a replacement for trader's brain, it's just an odds enhancer allowing to quickly examine generic market parameters, but trader is still responsible in judging overall sentiment and direction, forming strong support and resistance zones, time and ecostats calendar factors.

I hope I will improve, but my fault today was to follow the rule that wasn't yet put to test far too strictly and allowing fantastic profits to pass by in front of my eyes. I am operating on a very thin risk margin and can't allow too much draw down. This is the biggest hurdle I have in my trading for last year and half and apparently the biggest obstacle in my development. But, I feel enough confidence now in my approach by making it quantifiable to commit to adding funds to my risk capital if the draw down will require it.

On the other note, my level trade setups horrendously malperformed today, depsite quick good volume. The only trade that worked was a very first setup in pre-market, giving 9 points profit with 5 points stop. Then good trades did not give an entry (run-away bar entry maybe?) and any that did got stopped. 

That would be a run-away trade for +17, a regular trade for -10.5, 0, run-away for +8.5, regular for -10. 

Since 1 PM volume was above 100%, so perhaps only run-away entries should be considered?

In this case the total would be: +17, -10, 0, +8.5, cutting short last trade, totaling +15.5 which is not bad really. Including a pre-market trade it should be +24.5 which is decent result for an uneasy day.

Day review

Okay. There was money to be made. Lotsa. But I have got so tired from doubting its every move since the morning so I had left half past four. But in any case, I did not have any setup to enter the short. Again, it was just that relentless stop push, squeezing accumulated longs.

Today so far

Is much worse than even yesterday. We have got a weak impulse up, new ATHs on very low volume, no way to enter into this jagged action, the first possible entry called for bailing out after no impulse resumption followed. Then it collapsed. No entry at low range as the correct entry would be an MA entry so no follow up and fading accelerating down move.

Yesterday's review

I had reviewed yesterday's chart and marked it up in a more streamlined and rule-based fashion. Now it looks like a repeatable procedure.

Difficult range/impulse day

So we have had only one decent opportunity, either taken from MA or from confirmed 3T entry few tick lower, but it is one trade basically. Next we had one entry off MA that would not be filled as price missed it by few ticks, and one 3T confirmed entry that would be filled and not stopped out. That trade attempted to go to profit but pulled back and would be stopped at BE.

Then there is a no-fill at higher range BB, that would not hit a target and be stopped at BE instead, hence no attempt to take a second trade off higher range until LL or HL produced.

3T gave a confirmed trade, but that would be a loser for 8 points.

Since I missed a good trade, I became very cautious in joining trades as market progresses in same direction, as probability of win decreases. So in order to continue trading today, I need to see some reset in motions, another impulse, down or up.

How to trade a range day - 25th February primer

Friday's musings

Another range day and then a big race for a higher and higher ATH in DAX. Took it on demo only, as volume was lower than a permissible level for my level trading strategy and I wanted to put more testing into range-bound strategy. I have put my observations into a previous post about GUTT, and here is how I traded it.

Made two mistakes: a first is that I held that long trade (very first trade) and let the profits evaporate and hit a stop loss, and a second mistake was to take immediately another long, when short was looming.

Grand Unified Theory of Trading (GUTT)

Here is my take on putting it all together.

Market can be in 3 modes:

1. Range/channel

2. Trend

3. Impulse

Type 1 usually volume 50-70%, no or small channel incline (less than 3/2 Gann angle), traded at 2nd standard deviation levels as a fade, in a direction of 20/50 MA cross.

Type 2 volume 70-90%, a well-inclined channel with 3/1 or 3/2 Gann angle, protruding BB, pullbacks to EMA20/50. Should be traded at EMA20 and 3T setups with confirmation (entry after third bar on a pullback).

Type 3 volume above 90%, near vertical, pushing through BB during whole impulse duration, can only be traded on breakout with volume, 3T setups either on 3rd bar or on a breakout with volume 2nd bar close.

Very sound advices

Even 100 years ago

Back!

Well well well

So I will be back to blogging here. You may have noticed, I have bought a dedicated domain name, and have aligned my Twitter profile with it too. So it is riskdealer.com and @riskdealer on Twitter.

I will be doing AT LEAST weekly relapses, and possibly daily posts if there is something important.

I will be starting a new lifestyle blog too, mostly video blogging, but more a little bit later. It is a work in progress.

So after a year of neglecting I am back to blogging. I must admit I was blogging on and off at Big Mike, but there I have some feedback and it is more rewarding to post. But I want to keep my blog permanently, as a document of my trading legacy, to comfortably relapse later.

Monday 10.03.2014

It's been a very tough day today in DAX. We have opened with a medium size gap down and proceeded to sell off during the pre-market. Once cash got opened, market reversed and started to climb. I had come to my trading station around 9-30 CET, so it was very much on its way up.





During this run there were hardly any entries up, plus I was looking for a short once gap gets closed. I was targeting area 9400. But it never got there. It printed double high there but it was too volatile for me to enter. I could not get an entry for my risk of 15 ticks.

I had a feeling it could climb up more, so was looking for long entries. The first stop did not give me a setup. The second one printed a setup as per my system, but I could not get in. I had a pending bid at 9333 and it came to 1 tick off it. I was way too careful with this entry. It never made a great runner but had plenty of exit points and would be a safe trade.

Market made another leg down but I was still looking for a long. After an impulse up I was committed to enter on a long. Once it pulled back it printed a quite decent entry long. I took it.



It made just 1 tick of draw down and came into profit. It had produced 7 tick profit or so, it was way too early for me to put to break even, but I could have reduced my risk, moving stop to the recent lows. But I kept it at default 15. Then it came roaring down, giving hardly any opportunity to limit my risk. It stopped me out and gave 2 ticks of slippage for -17.

At this point I could see the exhaustion of the move up and started to look for shorts. Last impulse down was larger than a previous one and I called for a resumption of a down trend. A short setup came along the way. I was decent.




The only problem with it could be that we did not get any break of the pullback TL, but it printed multiple top high consolidation and usually it is a very good entry point for a pullback when contracting triangles don't break on their flat part but reverse. But no chance here. It went straight into red and gave no chance to reduce the risk. It proceeded to my stop, slipped me 1 tick and reversed there. Even if I had an entry 2 ticks higher and would be still in the trade, it wasn't a runner I was looking for. But it would give 20-something ticks and would certainly not be a loser.

By this time I could see a range developed in the POC region and was sitting on my hands keeping powder in my last bullet dry. I waited till the US cash open and some initial indecisiveness, and then saw DAX taking a turn lower, with ES going lower as well. We broke consolidation and then took out lows and printed momentum candles on so decent volume.

So I have decided to look for a short entry in the momentum market. The setup came along soon.



We've got a contracting triangle, lower highs, then a break of a pullback TL. I put my order in more aggressive not wanting trade to get away from me. But it came roaring into the red and quickly stopped me out and proceeded higher.

That was the end of trading today.

I went for a walk. When I came back and checked the market, I could see next two entries were all niceness and first would give 25 ticks and second was good for 60. Volatility had reduced and entries were low risk.

Here is what I am taking from today:
1. While I might have had some confusion on direction today (and no wonder - a tough cracker of a day), I took trade in a disciplined fashion, as per technical setup and did not run a scary chicken. I was cool, my heart rate wasn't rising much (last week my pulse was all over the place when taking trades)
2. I started to implement my goal for this week - take all system trades, do not run for cover too soon (until we have an impulse in a right direction), stay cool

However there is something I need to consider:
1. Filter out excessive volatility and don't enter when market is giving very broad entry sketches like today requiring maximum risk even to get in, wait for a market to settle
2. Don't take two trades one after another too soon, unless you are getting into the same setup after a fake out stop-run and setup is confirming its validity. Otherwise - wait for an hour or wait for a next session.
3. If market is not cooperative - leave the last shot for the evening session, after the european markets close, price action becomes less volatile and usually gives some cleanest setups, while slow, that might run full distance to 60 ticks profit target.

In general I do feel good even if I lost 800 usd today. It reminds me why I should not run scared and protect too soon, take meager profits when market is going my way and instead sit through the trades and take large profits. It is to pay for the days like today when nothing seems to work and most moves are stop runs.

There will be another day tomorrow. I will prevail and come on top of this thing once again.