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Finessing the entry....
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Finessing the entry....

  #11 (permalink)
Market Wizard
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My apologies for the delay - I had this webinar thingy to prep for.

The second type of iceberg is the type where they refresh but they keep the amount of contracts displayed fairly high - 800,900,1000, 1100 - that sort of thing.

At the risk of stating the obvious, if they show over 1000 and you join then you have a much lower chance of getting a fill because there's so many contracts ahead of you.

If your trade premise is incorrect - you will be filled every time. By that I mean if there's 1000 bid initially and you see 3000 go through and it's still bidding 1000. If you join the bid (go long), then when the trade fails (price drops) you will always get a fill. On the other hand, if the market moves up from here, it's 50/50 whether it'll fill before it moves up.

In my opinion, I don't think that joining a bid side iceberg where the bids are high is a good idea. I think you are better off waiting for the offers to diminish and then hitting them just before it leaves to the upside. This is based on nothing more than the fact there's a good chance you wont get filled if you are right and a 100% chance you will get filled if you are wrong.

The other thing that puts me off icebergs is when the size builds and builds at the level, especially when it's on both sides. If you end up with 5000 hitting the bid and 5000 hitting the offer with icebergs on both sides, then at that point, you really don't have the "1 tick edge" we are looking for.

What you want is for the market to be selling off into an iceberg and get like 3-4000 contracts hitting the bid and just 1000 or so hitting the offer. Then you aren't looking at 2 sided trading, you are looking at absorption on the bid and sellers not getting what they need out of their shorts.

If you stay at any level for a while (and it often takes several minutes to chew through an iceberg) you'll always have trades hitting both sides. If you are looking to go long, you don't really want buy market orders hitting into the offer in size. That sounds odd because you'd think you'd want buyers hitting the offer. The problem is - if you are focused on selling into an bid-side iceberg, then you may well be oblivious to the fact that exactly the same thing is happening on the offers. In other words - icebergs on both sides.

If your premise for a long is correct, then when buyers start hitting the offers - the offer should get out of the way and price should tick up. If that's not the case, then you have to be neutral on what will happen next from this price.

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  #12 (permalink)
Market Wizard
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Which Tick Next?

OK - so how to put this to use?

To some extent, this could be a bit of a party trick for you. How about if I told you that you could be right about the inside bid/offer moving up or down 80% of the time you decide to make a call.

That'd be fantastic, right?

OK - so how about if I told you that this wouldn't actually make you any money?

This party trick allows you to do nothing more than be in a trade at break-even momentarily, it does not guarantee follow through. On the other hand, if you practice this, you will become quite adept at reading order flow and you will see a lot of other things in the process.

The process is this:

You watch the DOM of a market with reasonable to thick liquidity (ES, US Treasuries, NQ, 6E, Eurex Interest Rates, EuroStoxx etc. etc)
Each time the bid/offer moves you make a call - up or down
This call can come at any time
You can also decide to not make a call

Each time you make a call, write a plus/minus or an up/down arrow on a piece of paper.
After the market moves, you put a cross or a check-mark to say if you were right or wrong
You can put the plus/minus sign on even if the market moves after you made the decision but before you had chance to write it down.

If you are savvy or nerdy, you could use a spreadsheet.

Once you get to 50, stop and see how many you got right (or 100 or 200 - up to you).
Don't spend more than 90 minutes doing this at a time, it will be counterproductive.

So you just watch both sides, look at what's trading and make a call when you are ready. If it is not clear, then stand aside. If it's not clear, you could also go with whatever it did last time.

You will find that your ability to predict the next tick improves and it's usually fairly rapid. It's not a trading technique in it's own right but it is a piece of the puzzle.

What is also quite fun is to actually put on a SIM trade once you decided. No market orders, just limit orders. For buys you can put a limit order at the bid to join the bid for an iceberg OR you can put in a limit buy order at the inside offer price to hit the offer. With the latter, if you are too late the market will move without filling you. When you do this, you will find that the game gets slightly harder because whilst you made the mental decision, you did it too late to take advantage off it.

That's pretty much it. I won't extol the benefits of this, you'll see it if you try it.

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  #13 (permalink)
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Drills are quite common when it comes to reading the depth. Many amateurs say "just watch the screen for 6 months and you'll see it". I'm not a pioneer, so that would never have worked for me.

Prop shops don't work that way, they get people engaged with drills that get you engaged and focused.

Both Futex and Propex teach the Cut & Reverse Drill and I've heard from both Canadian and American prop traders that were taught it too...

Here's a video from Propex on Cut & Reverse. Again, it is not a trading method, the skills you acquire through it are useful for trading but it is not a method in it's own right.



This drill is more about staying in a trade as long as momentum is on your side than finessing an entry.

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  #14 (permalink)
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Interesting info, thanks for posting. I like the drill idea, I am going to try doing that on SIM after my time stop or loss limit takes me out.

The drills actually sound like fun.

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  #15 (permalink)
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@DionysusToast

Interesting drills...

By the way, have you traded in Propex and Futex?

Do you recommend these prop trading firms?

Regards

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  #16 (permalink)
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joselopezde View Post
@DionysusToast

Interesting drills...

By the way, have you traded in Propex and Futex?

Do you recommend these prop trading firms?

Regards

Both are real prop firms but I have seen signs that Futex want to get into giving paid training programs for people that aren't interns - I wouldn't recommend that if you could get an internship.

If you can get an interview with either and pass their rigorous interview process to get an internship, then I think you are way ahead of any retail trader in terms of making progress.

Most of the Propex traders I met were from Singapore and the Futex traders I knew (none of them are still with Futex) are English and there's a big difference in attitude and professionalism between Singapore and the UK, so it's pretty tough to compare the 2 firms based on what the people there said about them.

Given a choice, I'd prefer Propex, purely because of the location!

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  #17 (permalink)
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DionysusToast View Post
Both are real prop firms but I have seen signs that Futex want to get into giving paid training programs for people that aren't interns - I wouldn't recommend that if you could get an internship.

If you can get an interview with either and pass their rigorous interview process to get an internship, then I think you are way ahead of any retail trader in terms of making progress.

Most of the Propex traders I met were from Singapore and the Futex traders I knew (none of them are still with Futex) are English and there's a big difference in attitude and professionalism between Singapore and the UK, so it's pretty tough to compare the 2 firms based on what the people there said about them.

Given a choice, I'd prefer Propex, purely because of the location!

Thanks for the reply Peter

I am currently studying a degree in Business Administration.

When I finish the degree (in two years), I'd like to get into a prop trading firm (until now the two I prefer are Propex and Futex)

By the way, I live in Spain (and I think I need to improve my English)...

Regards!!

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  #18 (permalink)
Market Wizard
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Propex Australia or Singapore would be better for a Spaniard.

Unless you like crappy weather and miserable people. If you do - London is perfect.

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