I've witnessed this very thing happen to traders especially those who flock to the latest and greatest hot performing trade call services or indicator based setup which were touted by others. And interesting to note those services traded in thinly instruments with very high volatility such as crude oil, DAX, Mini Russel 2000, and E-mini S&P MidCap 400. They were sitting ducks for edge evaporation.
My suggestion to somewhat mitigate this is to only trade the most liquid instruments, such as E-mini S&P 500, 10 Year U.S. Treasury Notes and Euro Bund.
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I am attaching a chart from the last 2 days on CL to demonstrate of how I use volume and order flow in my trading. I know many people on futures.io (formerly BMT) thinks volume is useless in making trading decisions, and that Wyckoff was sort of nutter. However, volume/order flow is my main analytical tool for trading, and it works for me.
To me all markets behave in the same way - people buy when they think price is low and sell when they think price is high and panic when there is a large fall. The charts reflect all of this. You can even say that charts are lagging, but it does not lag in the same way as those price derivative indicators so many people love to use when coming up with a trading strategy.
I have also attached a 60 min chart of ES to show that even in 'thick' markets, we get the same thing.
Last edited by mrmuggins; August 30th, 2015 at 08:34 PM.
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First, the market is dynamic and keeps changing and may be the edge you had is fading away and you did not notice it...
Second, we tend to try stuff other than what's working for us... I have observed it with myself, if something is working greatly in my way, I tend to deviate to something other than that and end up losing that edge I had cos I tried to manipulate my mindset...
Well generally speaking trends start and end. You can have an edge trading a trend but when it ends you're out of luck. If you go a step further and can account for the reversal your edge has more longevity. The problem is that sometimes volatility changes and internal relationships can change which can make normal trending / reversing behavior into straight chop or monolithic moves. This can throw a monkey wrench into just about anyone's edge who doesn't have the ability to change their time frames because what you'll be left with is chaos on the lower time frame.
Edge is the foundation. you work around it while the markets fluctuate: Scalp or trend, higher level risk and reward or tight risk and reward. You may chose to trade more contracts or less contracts. If the logic and cash management is good, that is what creates the edge.
I looked at CTAs that have been around over 10 years, and I assure you that they do not change methods every three months. Rather, for the most part what I have seen is a consistent application of the same method over and over.
They have also learned to trade the same during more difficult periods of drawdowns, and this is where most beginner traders fall apart. They can not go through a consecutive set of losses, and still have a belief in their system through its continuous application. It's though to apply the method when the markets eats away your cash, yet this is where the mental strength comes into place and your belief system.
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All price derived indicators are lagging - e.g - MACD, RSI, Moving Averages, CCI .... the list goes on. Even price bars are lagging in the time it takes for them to close. The only thing that is not lagging is the orders being transacted seen on the time and sales. However, I cannot trade off the time and sales so will use a price chart, with a GOMI ladder.
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