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Can you be profitable day trading futures solely off of charts?
Of course anything is possible. You could be profitable flipping a coin with some luck. I think the more appropriate question is how more or less likely is one to be profitable with or without order flow? On this we do not have any empirical data. I would venture to guess though that the failure rate for traders using order flow type methods is probably just as high as for any other method.
I can tell you that professional traders definitely do use the DOM, but they also have very different needs from a retail trader. They are primarily concerned about being able to fill their clients orders, and aren't exactly trying to make a directional call. Here the ease of execution, and the ability to more easily watch multiple instruments is more of an advantage to them.
The thing that is unique about order flow at the moment is that it's probably the most recent area that we've seen famous retail or proprietary traders make money in futures. For instance, Paul Rotter aka The Flipper who made money trading the depth of market. However, I would also point out that Paul now trades in Singapore, and his exploits were a long time ago. There's also the story of Navinder Singh Sarao who is known for starting the flash crash. He also made money market making on the DOM, and it sounds like he started order stuffing because the robots were taking his business. Which suggests to me that perhaps the edge they were gaining with the DOM is no longer very profitable in US markets. We've had robots dominating these markets for a good ten years now, and it makes sense that perhaps they just caught on to most of the tricks.
I would further note that I do not find the presence of large orders or iceberg orders to be all that helpful on their own. These things get talked about because they attract a lot of attention. It is therefore easier to market education materials and trading software off these types of events. Instead I believe the true power of the dom is in watching the liquidity on offer, how much actually trades at that area, and then correlating it with what we know about the current context to identify how informed the order flow at that given moment is. For instance, there's 3000 placed at every price, and it moves 3 ticks up on only 500 contracts. Why did the market makers pull their orders? A move like that has a higher chance of indicating informed trading. I can then look at things like key levels, time of day, and breaking news to decipher why that trade might have happened. With potential causes in hand I can then make a determination on if that is a move I want to follow.
There is no known indicator that predicts the probability of a particular strategy being successful in the future. Quantopian researched hard on this, and never found anything. The best you can do is try to exploit inefficiencies based on your current understanding of the market. From this perspective I think the order flow traders have a leg up. They understand a lot more about what is really going on in the market than many other retail traders, and there's still more to learn. Market microstructure is still an active area of developing academic research. But that doesn't mean there can't be other inefficiencies yet to be discovered that don't require data on resting orders to find.
Hi Guys,
I would like to add something "crucial" to this debate by mentioning the "MORAVEC'S PARADOX"
This is a paradox that was introduced in the concept of artificial intelligence. Basically it says that robots are a lot better than human in doing whatever is easy to describe with language.
The idea behind the paradox is that the skills that humans developed later in their evolution are easier to be delegated to robots, compared to the ones that humans developed earlier.
For instance everything that is "pure thinking" is easier to translate into a software than a movement. That's why it is very difficult to make a robot that makes facial expressions or that walks flawlessly, compared to a robot that plays chess.
Now back to trading. The implications of this are the more your trading is mechanical the better it is to completely delegate it to a robot.
You cannot teach a robot gut feeling or systemic perception.... but you can teach it easily to sell once a MACD crosses whatever value you want.
So I venture to say that in a few years you will be more profitable if you use only charts and rely on some intuition type of signal, than if your trading rely on some complicated indicator. What looks complicated for you is easy to translate into robots' language, so your edge will be lost in favor of algos.
Trading without looking in the Chart or other strategy is like playing roulette and put the money on pair or unpaired the Chances are 50:50.
But even when you look on the market from the last day you can make a decision withe the result. Thats the technique from the back-testers. So when you really are interested in making money with the marked by your own you have to work with strategies or you will fail.
I know where (which area) I will scalp looking at my charts.
I enter with a DOM, adjust stop and limit depending on chart and DOM.
Regarding typical Order Flow, I am not a fan (Auction Vista or Bookmap style). On the other hand, I always look at the "flow of orders on a ladder" or a DOM, when ready to enter or exit.
So, I very recently bought a Jigsaw license because I was looking for a "stable and smarter DOM". I also watched a YouTube video regarding the Jigsaw tools and I was very impressed indeed by the very smart DOM they offer. I didn't change my methodologies. It is just easier and this gives me better information.
Best!
Hi most traders I know includong me don't use just trade of charts it's not necessary although can help if you know what orders are waiting to enter the marker especially the big orders.
If you interested in that have a look at book map it's good but for me no benefit.
They use a indicator they call Order Prints...but its nothing more than a FootPrint chart with some extra stuff added in. You could just have this added by a programmer here on one of the already free FootPrint Charts. @mk77ch made a really nice one and its in the download section.
Also, once the free 30 days is over, it costs nearly $300.00 a month for their subscription. @ $3,600.00 a year, That's a lot of modifications you could have programed!
But save your money... Darrel Martin is not a profitable trader, and none of his systems will make you money anyways.
