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Need a little help with a few things


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Need a little help with a few things

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  #1 (permalink)
bavan666
Mumbai, India
 
 
Posts: 25 since Dec 2021
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So, I've been trying to come up with a trading strategy, I'm using market profiles (on the 30 min charts) to basically get a market overview and mark out all the key reference areas (buying/selling tails, poc, value area high/lows, etc) and using that along with the recent market development of previous day profiles to come up with a trading system.

After I've marked out the reference areas, I plan on going on a lower time frame(like the 5-minute charts) to see if these reference areas are being rejected or accepted and taking trades on the basis of that.

So my question is, what should I use to time my entries on the lower time frame? I plan on learning footprint charts, but I've seen some people use the price ladder for it, what's the advantage of using one over the other? does it make sense to use both? is there another way for timing the entries that is better? does my strategy make sense? Any criticism is greatly appreciated since I'm still trying to learn all this stuff.

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 matthew28 
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bavan666 View Post
So, I've been trying to come up with a trading strategy, I'm using market profiles (on the 30 min charts) to basically get a market overview and mark out all the key reference areas ......

After I've marked out the reference areas, I plan on going on a lower time frame(like the 5-minute charts) to see if these reference areas are being rejected or accepted and taking trades on the basis of that.

This is basically what I am doing now. A Market Profile chart on one screen showing the past few days which gives me big picture context as you say, such as: open in relation to previous day closing buying selling spikes, targets of very prominent POCs etc.
Then a short term chart. In my case I like the NQ so I have a 1 minute chart rather than 5 minutes as price could go a very long way in that time. Areas of consolidation can be seen on the one minute chart also and I have a moving average just to help with trend direction which would take a very long time to move on a five minutes chart.

I have used a DOM for a long time as I like the fact it is tall and thin and takes up little space. The Jigsaw DOM also has current trades on it, similar to a Time and Sales running on the DOM so one can see the order book and transacted volume together and the volume is overwritten as price comes back to an area so I just see the current information.

The Footprint chart I have tried but never got along with as it takes up so much space and I just find myself comparing one bar to another and changing time frames or Point and Figure reversal sizes and struggling to make a decision. (Same with heat maps like Bookmap or Jigsaw Vista where the orderbook is visible and I am looking for support or resistance to aid a decision. Again too much information which means I wait too long for confirmation).

I have now given up with all those orderflow tools and now just use the MP and 1 minute chart mentioned above. The only thing I still use from Jigsaw is a Time and Sales so that I can see excess emotion in the market at points, such as a final flush of aggressive buyers running price up through a level when the MP chart gives me bigger picture context that I want to be short, then I sell. (This ties in to the part of my reply related to empathy and emotions in your previous Trader Experience/Psychology thread)

There is a saying that new traders start off changing and adding lots of indicators and tools, then as intuition develops, they often start removing and simplifying their layouts. One can look online and easily find successful traders who conversely have very "busy" layouts and a lot of tools, but personally I am doing better now that I have ditched all the orderflow/orderbook stuff, except the tape which is now really just a sentiment tool, often to fade.

At the end of the day we are simply waiting for price to come to an area of interest and then looking to either buy or sell if we think we have a slightly higher probability of success doing the one at this moment in time, and we can make more than we risk if the trade goes to our logical target.
More information is just more things to look at and more likely a larger amount of information that will slightly be conflicting and won't all align until price has moved a long way back in the direction you had originally been planning for. But for likely long term success in terms of overall expectancy the risk is now realistically too high compared to the reward. My conclusion is that good trade location is much better than confirmation because that will be too late ("just take the f**king trade").

Having said all that of course, trading's difficult because we all have to find our own way and what works for us individually so take what happens to be "flavour of the month" for me with a pinch of salt.
(I realise that I have written reasonably lengthy replies to your last two posts. This in no way suggests I am trying to be a Guru or have any special knowledge, just my own personal experiences.
I have added a final paragraph to my previous post which among other things highlights that point.
Also I won't be trading before the FOMC Announcement today so have lots of time to write/think out loud which helps me probably more than it helps anybody else).

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 bobwest 
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matthew28 View Post
Also I won't be trading before the FOMC Announcement today so have lots of time to write/think out loud which helps me probably more than it helps anybody else).

On the contrary, this is a very well-thought-out post that is helpful to everyone.

Thanks for taking the time to do it.

Bob.

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bavan666
Mumbai, India
 
 
Posts: 25 since Dec 2021
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matthew28 View Post
This is basically what I am doing now. A Market Profile chart on one screen showing the past few days which gives me big picture context as you say, such as: open in relation to previous day closing buying selling spikes, targets of very prominent POCs etc.
Then a short term chart. In my case I like the NQ so I have a 1 minute chart rather than 5 minutes as price could go a very long way in that time. Areas of consolidation can be seen on the one minute chart also and I have a moving average just to help with trend direction which would take a very long time to move on a five minutes chart.

I have used a DOM for a long time as I like the fact it is tall and thin and takes up little space. The Jigsaw DOM also has current trades on it, similar to a Time and Sales running on the DOM so one can see the order book and transacted volume together and the volume is overwritten as price comes back to an area so I just see the current information.

The Footprint chart I have tried but never got along with as it takes up so much space and I just find myself comparing one bar to another and changing time frames or Point and Figure reversal sizes and struggling to make a decision. (Same with heat maps like Bookmap or Jigsaw Vista where the orderbook is visible and I am looking for support or resistance to aid a decision. Again too much information which means I wait too long for confirmation).

I have now given up with all those orderflow tools and now just use the MP and 1 minute chart mentioned above. The only thing I still use from Jigsaw is a Time and Sales so that I can see excess emotion in the market at points, such as a final flush of aggressive buyers running price up through a level when the MP chart gives me bigger picture context that I want to be short, then I sell. (This ties in to the part of my reply related to empathy and emotions in your previous Trader Experience/Psychology thread)

There is a saying that new traders start off changing and adding lots of indicators and tools, then as intuition develops, they often start removing and simplifying their layouts. One can look online and easily find successful traders who conversely have very "busy" layouts and a lot of tools, but personally I am doing better now that I have ditched all the orderflow/orderbook stuff, except the tape which is now really just a sentiment tool, often to fade.

At the end of the day we are simply waiting for price to come to an area of interest and then looking to either buy or sell if we think we have a slightly higher probability of success doing the one at this moment in time, and we can make more than we risk if the trade goes to our logical target.
More information is just more things to look at and more likely a larger amount of information that will slightly be conflicting and won't all align until price has moved a long way back in the direction you had originally been planning for. But for likely long term success in terms of overall expectancy the risk is now realistically too high compared to the reward. My conclusion is that good trade location is much better than confirmation because that will be too late ("just take the f**king trade").

Having said all that of course, trading's difficult because we all have to find our own way and what works for us individually so take what happens to be "flavour of the month" for me with a pinch of salt.
(I realise that I have written reasonably lengthy replies to your last two posts. This in no way suggests I am trying to be a Guru or have any special knowledge, just my own personal experiences.
I have added a final paragraph to my previous post which among other things highlights that point.
Also I won't be trading before the FOMC Announcement today so have lots of time to write/think out loud which helps me probably more than it helps anybody else).

Your posts help so much I have read them 4 times each to grasp each and every gold nugget you've dropped in there, thank you so much for your time, I had another question, how do you include volatility into your trading? I've been trying to find a correlation between the VIX and different types of profile shapes (Trend day, normal day, etc) but couldn't find anything substantial, do you look at the volatility index? and how do you use it in this style of trading?

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 matthew28 
Legendary Elite_Member
Wiltshire, United Kingdom
 
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Thanks @bobwest and bavan666 for your kind words.


bavan666 View Post
I had another question, how do you include volatility into your trading? I've been trying to find a correlation between the VIX and different types of profile shapes (Trend day, normal day, etc) but couldn't find anything substantial, do you look at the volatility index? and how do you use it in this style of trading?

In my journal I make a note of the VIX reading at the beginning of the week (I used to screenshot a graph and put that in but now I just note the reading). To be honest I don't do anything with that other than mentally note that, eg: it is a lot higher than last week, it's very high, very low, been low for ages etc.

I also have a screenshot of the Daily chart each day and can again just get a basic feel of the mood of the market participants, eg: the days are low volatility grinding higher and people are looking to buy the shallow dips, price can't go higher and has been chopping in a high volatility range for a few weeks unable to break and hold lower or push higher, price has broken lower and is breaking support levels and feels panicky etc.

Like you have found, I wouldn't have thought trying to find a correlation between the VIX and profile shapes would produce anything decisive that can be used before the session. Market context plays such a big part, eg, After Monday's big down day and then reversal one could perhaps expect that the market would then be unsure what to do and that nobody would be eager to initiate a new large position before the important FOMC on Wednesday. So Tuesday was a relatively large rotational day but inside the previous day and leaving a value area and POC similar to Monday as the market waits for Wednesday afternoon FOMC.

Back to the VIX, if it is high I tend to think we might have more range and the market might move more freely, but that is about it.
On my small timeframe chart, the 1 minute with the NQ I have a moving average to I suppose, help me view volatility. If price is chopping around the moving average I do nothing. I find that is a nice easy way to avoid taking trades thinking something is about to happen when actually there is no evident commitment to drive price either way. I like to wait to see some separation in price from the SMA, either pushing higher or lower to show me that the market is moving with decent directional participation.
(I use a 33 SMA on a 1 minute chart. Not because I think it is special or have done any back testing, but I used to use a 2 minutes chart with a 20 SMA but then preferred the one minute because consolidation was clearer to me, so then tried the 40 SMA on a 1 minute but that felt too long, so compromised on the 33. And SMA over EMA as the EMA hugged price too much. So pretty random and just personal preference. (I remember a discretionary trader trading educator being asked if he had done any back testing of his methodology, and he said " the only back testing I do is asking myself, 'did this work yesterday'")).

I suppose my style trading could be summed up as: most people fail at this, they buy the high and sell the low with emotional chasing of price. I have done that and can see them doing it. That doesn't mean I should simplistically do the opposite of what my impulse tells me to do, but that I should try to monitor how I feel emotionally to gauge when those people are stuck too long or too short and then use my intuition to guide me to at what point exactly to go the other way. (Acting on intuition should feel calm whereas being driven by impulse will feel energised and urgent).

There was a quote I liked from a Jim Dalton Market Profile webinar where he mentioned that one of his institutional clients had been looking at shorter term trading and remarked that "day trading is just inventory going from one extreme to the other", meaning the market gets too long or too short then corrects. (As all market movement is in a fractal nature, small moves within larger moves within large moves, but day trading you can potentially get a few opportunities in a day).
That doesn't mean trying to fade a market driving higher or lower with strength, I often find selling below the MA, vice versa is better and feels like the path of least resistance, with the first or second pull back a good potential area, ideally with confluence like failed support becoming resistance there.

Like most people I don't like sitting in a negative position so the trade should go my way or fail quickly and should have enough directional commitment to at least get back to the previous low/high, and ideally continue.
Another reason why I like the NQ, as it can be thin it can get over extended and then revert and have enough room to have more profit potential than risk. Listening to the Topstep Podcast this week Dan Hodgman, mentioned that he is looking at the NQ rather than the ES now and although he is finding it very volatile and fast moving, he is working on trading it because in his professional experience the ES is heavily traded by professional prop shops and institutions and the NQ isn't very much. Therefore he can potentially be a more competent trader in that product compared to the perhaps more typical competition.

I started on topic then drifted off in to some thoughts I wanted to consider myself. Sorry
Good luck.

Trading, ideally structured, is a vehicle for expanding consciousness, not damaging it. - Brett Steenbarger
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