Here's the video. I apologize for the quality, I just upgraded to Camtasia Studio 7 and they've changed a lot of things. I don't think the smart focus zooms as much as it did in 6.

Don't forget to download it, it's 18 minutes and if you view online you can only see the first 7 minutes in bad quality.

Let me know if you have comments or suggestions. Personally I think it's too long so let me know what you think.

20100331 Dax Recap Video

I agree, its a fascinating subject and I don't pretend to be even close to an expert. To be clear, my experience is within fixed income instruments and the fund is not a market maker but a macro fund. This is a whole different ball game to the day trading done here. I have traded market moving size though so I have experience in how markets can react. Manipulation of markets is well documented. Separating manipulation and then determining the directional bias of that manipulation is extremely difficult. Doing this consistently is even more so. Algos playing other algos for ticks. Algos could be building positions during the entire day's trading range. Algos developed to find other algo trades to manipulate them. If a big player is trying to move the market to gain 50 ticks then another large player may use this opportunity to gain liquidity. Other algos have been developed to try and make it look like a volume turning point in order to get fills. With all the inter dependencies, determining what a single chunk of volume indicates is almost impossible. There are so many hugely advanced algos looking for volume information so the large money can gain liquidity that using a commercial indicator to give you the same thing is very difficult.

It is way too simplified to say generally that the market has dropped 50 points and therefore the large money is not going to enter. Very large money will get liquidity across a range of prices. And when time is of the essence you get liquidity wherever you can get it. In the time it takes to set up your hedge the market can drop easily by 50 points. The market isn't going to sit still while you work on the hedge. Its not simply a matter of pulling the trigger. It can take hours and if that hedge needs to be done then you cant simply wait for the market to move back your 50 points. In 5 minutes the market may move another 100 against you. Markets move and if you could orchestrate every one with large money then there would never be any Jerome Kerviels.

It is difficult to look at a hedge example and say this is 2 market participants doing x,y,z. We dont know who is involved in the hedge and what direction that hedge is. It could be a combination of multiple hedges, speculation and investing performed by Algos getting the liquidity wherever they can get it. If liquidity can be found when markets are currently moving against you you will take it if your strategic outcome is in 2 weeks.

Prop desks and specialist funds will take advantage of those 50 point moves. But if you are trading in really big size it is extremely difficult to utilize that move to gain any sort of profit. I'm not saying it cant be done but I can assure you they are not going to blatantly tell the market what they are doing. The funds with the large money - trades that will be picked up by volume analysis - often wont have the liquidity to utilize the move and will be spanked if they try. So when you see a HVC and then another after 50 ticks its not necessarily the same fund. It could be one of many market participants doing something that is completely different from what you expect. Thats why you still see HVC in places you wouldn't expect. Markets also dont do as expected after a trade. If a market moving trade was executed the market often moved in completely the opposite direction as expected, or didnt move significantly at all. Those trades would have been picked up by HVC.

What I am getting at is using the information to consistently gain an edge as a day trader. If you can find a way for it to help you then that is fantastic. I find it very interesting looking at your charts with the volume analysis and I dont want to write something off based on my experiences in different markets using very different strategies. Again, my experience is not with equity Index futures so I cant say what large players are doing there. What I have found to be universal though, is that traders across all markets do not want to show the market their hand.

The fund is over a decade old and consistently outperforms during both bull and bear markets.

cunparis 

This is an interesting discussion. I like exploring this issue. Let's say price is going down from 80.62 to 80.12. You want to put on a hedge and sell CL. The trader who takes the opposite side can be another hedger or a speculator. Overall the hedgers and speculators tend to be opposite of each other but at the micro level anything can happen. In the case where the speculator is on the other side, the speculator accepts the risk that the hedger doesn't want to take in exchange for the opportunity to make a profit. I think a "smart money" professional oil speculator would be very careful about when he trades. The hedger isn't trading CL to make a profit, but the speculator is. So in this case my money is with the trader taking the other side of the hedge which supports a long. As an aside, remember this is just one element in a complex puzzle of reading the market action. I wouldn't trade off only this indicator. In fact I did that for a week as a test of the TPO and I traded it mechanically. It was pretty much breakeven. I think with a bit of discretion it could be profitable but not as profitable as a good trader who looks at the entire picture. Let's say your hedger is buying CL after the 50 tick drop. That means the speculator is taking the other side and is chasing CL. He's probably not going to be very profitable doing this. So in this case my money is with the hedger which supports a long. In both cases, hedger selling or buying, my money is on the long. So my conclusion is this: It doesn't matter whether it's hedging or spreading or anything else. If I see a lot of professional activity after a 50 tick drop I'm betting on the opposite side. I'm not sure if my theory is that convincing, if it's not then we can approach it from a different angle. Let's say that the indicators signaling professional activity doesn't mean the smart money is trading. Can we come up with another explanation for what could be going on here? And before that even, we would have to agree that these indicator signals do in fact occur leading up to and at turning points. For if we don't agree on the latter then the entire discussion is moot. I'm going to offer a precision to my statement. Let me define "smart money": consistently profitable professional traders who trade large size and are capable of moving the markets. In my original statement I want to specify that by "pro's" I mean smart money. Because any trader at any firm can do anything. Like the guy from Société Generale who lost millions. Professional? Yes. Smart money? No. So the question I'm getting at is did the fund you worked for consistently make money over a long period of time?

WestBeach 

The funds with the large money - trades that will be picked up by volume analysis - often wont have the liquidity to utilize the move and will be spanked if they try. So when you see a HVC and then another after 50 ticks its not necessarily the same fund.

There's one more point I want to make. Smart Money can't buy when the market is going up because that will push the market up higher and they'll get slippage. That's something they don't want to do. So to buy they need to buy into selling. This is why I say they take the opposite side of the move. And that's what we detect with the volume analysis. That's why we get the blue bars leading into a turning point. That's the professionals taking advantage of the liquidity to scale in and out of trades.

All that is my opinion of course. It definitely works for me. Could be completely coincidence but that's ok. I'm certainly open to any proof that it doesn't work.

I didn't trade the crude inventory news, but you can see warning signs ahead of time that it would move down. Turning point signaled and then two bars before we get everything going blue. Coincidence? Maybe.

Whoops. Was up $350 and then 3 losses wiped it all out. Very frustrating.

A friend told me today that maybe he will "go back to ES". He said he wasn't finding success with CL. My results have been mixed. But I have found a pattern: I very often get +$300 or so and then lose it all. I need to process all my trades in excel to confirm this but I think there is something going on here. I noticed this back in September when I first started trading CL.

So I get an "F" today.

What went wrong?

Three things that I see: CL was either extremely fast and violent or it was very choppy. It was alternating between the two. And neither are good trading conditions for my method. The third is I took too many trades and racked up $225 in commissions.

So I'm wondering if I should try ES for a week. I'm going to go over this week's charts and see what I can find. I like CL because it's like dax and I can trade them the same way, whereas ES is quite different (more like FESX). More to come..

So I'm quitting early to do some analysis..

March totals (including commissions):

dax scalping: 1024 euros
dax non-scalp: -1221 euros

cl scalping: -$500
cl non-scalping: -$864

A bit depressing but the optimist in me says I'm close to being breakeven which is the first step towards profitability. Also I think i've improved quite a bit in the last few weeks. And finally, I have not yet implemented a daily goal & loss limit. I'll be putting those into place tomorrow for April.

maybe ES 9 - 11 NY time, CL for rest of day?

A very good point and ideally that is certainly the case. At times though you have no choice but to accept slippage on your trades. You are not breaking any of the funds best execution rules by doing so. When you place large trades they will always be in separate blocks (to prevent things like HVC). If you can place those trades across the market without spooking it then thats great. Sometimes the market will catch on if you are pinging different brokers and prices may move against you. Funds have very strict position compliance rules so you cant just say well fine then I wont trade until I find a different price. If you have a major capital inflow or stock lending going on then you have to trade today otherwise you have major problems that will cost you far more than slippage. Secondly, you may expect prices to move rapidly in the near future so the slippage you have to accept now is minimal compared to to what you lose if you do not trade now at sub optimal prices.

This doesn't all apply to index futures but it does highlight that trades can and will be taken when the market is moving against you.

cunparis 

There's one more point I want to make. Smart Money can't buy when the market is going up because that will push the market up higher and they'll get slippage. That's something they don't want to do. So to buy they need to buy into selling. This is why I say they take the opposite side of the move. And that's what we detect with the volume analysis. That's why we get the blue bars leading into a turning point. That's the professionals taking advantage of the liquidity to scale in and out of trades. All that is my opinion of course. It definitely works for me. Could be completely coincidence but that's ok. I'm certainly open to any proof that it doesn't work. I didn't trade the crude inventory news, but you can see warning signs ahead of time that it would move down. Turning point signaled and then two bars before we get everything going blue. Coincidence? Maybe.

WestBeach 

This doesn't all apply to index futures but it does highlight that trades can and will be taken when the market is moving against you.

In what percentage of the time do you think this happens?

cory 

maybe ES 9 - 11 NY time, CL for rest of day?

I like your idea but my wife wouldn't go for it. My day is finished at 11:30 (that's 5:30pm here).

I'm toying with the idea of trading Euro from 8-9 or maybe even later. The NY forex starts at 8am. Euro is best from 8-11am when NY & London overlap. That would give me an extra hour of trading, and if profitable would take pressure off for CL, and even allow me to skip CL if I want. Only problem is there is often news at 8:30..

Or maybe just focus on the dax and use my afternoon to study my trades and practice??

Just brainstorming here.

cunparis 

A bit depressing but the optimist in me says I'm close to being breakeven which is the first step towards profitability. Also I think i've improved quite a bit in the last few weeks. And finally, I have not yet implemented a daily goal & loss limit. I'll be putting those into place tomorrow for April.

And the pessimist in me says to forget daytrading and just focus on swing trading ES!!!!