Nice job today CP

It's very difficult to say what the professionals/funds are doing at any given moment. Hedging strategies can be very complex and multiple hedges may be undertaken by the dealers in both directions to accommodate compliance issues with portfolios of the same firm. The movement after a hedge is of no consequence as the opposing position will reflect the move, and the slide before may have been in their favor. Although I have no professional experience in equities, I have traded professionally for a fixed income fund where positions where taken off charts. 50 ticks or daily moves for that matter were often irrelevant depending on the strategy and position size. Granted, these positions where taken in the context of macro strategies amongst a lot else. I did speak to a lot of professional equity derivative traders and strategists though who traded off charts. A lot else would have been into account though.

cunparis 

Excellent point. I'm sure that is happening, but it'd probably be happening throughout the day. When these indicators detect higher professional activity than usual, then I have to assume price is more attractive to them than usual and they're taking advantage of it. For higher timeframes.. professionals don't trade off charts, that was in an earlier post and since no one disagreed I assume everyone agrees. So they're not entering on an hourly bar or whatever. They're entering at a specific price level. That price level can be determined in any number of ways, I gave an example in my post about this. For hedgers.. I think if they were going short as a hedge they'd do it before a 50 tick slide. These guys are professionals after all. Even if the theory may be difficult to accept, we then have to look at empirical evidence. I'm convinced that when these indicators signal blue bars it's often at turning points. I'm hoping my theory will hold up to the challenges of everyone here. Professionals aren't always right, sometimes they're early (as in my failed long) but overall I think the odds are much better if one takes these signals into account.

WestBeach 

It's very difficult to say what the professionals/funds are doing at any given moment. Hedging strategies can be very complex and multiple hedges may be undertaken by the dealers in both directions to accommodate compliance issues with portfolios of the same firm. The movement after a hedge is of no consequence as the opposing position will reflect the move, and the slide before may have been in their favor.

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.

Quoting 

Although I have no professional experience in equities, I have traded professionally for a fixed income fund where positions where taken off charts. 50 ticks or daily moves for that matter were often irrelevant depending on the strategy and position size.

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?

cunparis 

I think a "smart money" professional oil speculator would be very careful about when he trades.

... and that's the crux of it. No matter what kind of positional adjustment is being made, and no matter what time horizon it has, the smartest speculators would squeeze as much profit as they can out of a transaction. That's fundamental to being "smart." So, in normal circumstances, they would get short before a drop, and long after a drop... not the other way around!

cunparis 

This is an interesting discussion. I like exploring this issue. .... 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?

that was nothing as compare to Yasuo Hamanaka, Hamanaka is believed to have controlled approximately 5% of the world copper market, attempted to corner the international copper market over a ten year period leading up to 1996. As his scheme collapsed, Sumitomo was left with large positions in the copper market, ultimately losing US$2.6 billion.

cory 

that was nothing as compare to Yasuo Hamanaka, Hamanaka is believed to have controlled approximately 5% of the world copper market, attempted to corner the international copper market over a ten year period leading up to 1996. As his scheme collapsed, Sumitomo was left with large positions in the copper market, ultimately losing US$2.6 billion.

Did I say "millions"? I meant billions! Jerome Kerviel lost 4.9 billion euros which at today's rate is over 6.6 billion USD. See:

Jérôme Kerviel - Wikipedia, the free encyclopedia

There is some pride in being French. We got that Japanese guy beat!

In the middle chart the circled area on the right, there are indications of professional activity. Yet price continued higher. What do you think happened?

You can see my trade in ninja chart behind my tradestation chart. I didn't like what i saw and got out with -1 tick (*3 contracts).

Well today was a bit weird. I made a video but I'm having trouble rendering it. I'm going to upgrade to Camtasia 7 which was just released and see if that fixes my problem. If I have to I'll post it full size. Look for that in a bit.

The summary is I missed the best trade of the day because it happened before the cash open. From now on I'll be ready to trade 10 minutes before the cash open. That's the first time that's happened to me. A real bummer as it was a beautiful trade that would have made around 450 euros (almost $600 USD). That seems to be a common story with me lately, I'm missing the big moves. But I'm learning from my mistakes.

I missed the 2nd best trade because I didn't get a low-risk high probability setup on the ladder. I tried a 2nd entry after a small pullback but was too slow and didn't get filled. I'm getting quicker but apparently not quick enough.

I took a couple shots and kept the losses small. My biggest loss was 1 tick and the biggest MAE was 3 ticks. All good stuff.

The last attachment is the chart for my last trade. That'll make more sense after you see the video cause in the video I talk about how I missed it and well patience paid off I waited and got in on the pullback / retest.

My runner got stopped out by 1 tick. That sucks and that shows the importance of getting a really great entry. If the entry is not good then a BE stop will get taken out. That's 3 times in 2 days.

Overall I'm making progress towards my goals and I was very patient today, waiting for a good setup.

PS: I forgot to group the trades for the P/L, I took 3 trades. But the stats are really similar so I won't redo it..

Hello Cunparis,

just another mean day on the DAX, isn't it. No real movement so far. I noticed that I and also you have majority of the trades in counter trend direction. (If we could call this crap a trend)
It is not only today. Why is that? Isn't that wrong timing or what?

hinode 

Hello Cunparis, just another mean day on the DAX, isn't it. No real movement so far. I noticed that I and also you have majority of the trades in counter trend direction. (If we could call this crap a trend) It is not only today. Why is that? Isn't that wrong timing or what?

First congrats on being positive.

I don't like to use the term trend. I'm trying to trade when cycles line up, preferably in the direction of the cycle on the highest timeframe (450 tick for me). If the two smaller timeframes line up and I get confirmation & confluence (MP levels, volume, ladder setup, etc.) then i'll take a trade counter to the large timeframe cycle. In my trades today you'll see that it didn't work and waiting for the high timeframe cycle to complete would have been best. That is often the case (but not always!).

So forget trend. The move up will have a correction and that's what I was looking for with the shorts. Had I got the first trade of the day I would have been long during some of that move up.

I'm producing the video now, it'll explain everything. I'm going to go for a run in the park.