Jan 052018
 

Wasn’t that a Kevin Bacon movie in the 80’s? Up up and away we go once again. I realize most members don’t like the idea of trading ‘into air’ with no prior structure to lean on, but of course if so you’ve got to be prepared to sit on your hands when this happens – or, run a model variant that adapts to it contextually. We all know there is nothing as strong as prior known market structure in terms of its ability to attract players on both sides in very pinpoint ranges. And by now hopefully you all realize that in of itself does nothing to identify directional wins but instead provides for a tight line to keep risk to the stop point small relative to reward IF you happen to be right on that individual event. Over time these advantages can add up to significant edges of course, but they won’t be linear and you won’t be able to predict when and where they happen.

Case in point today we did have just one prior structure, and that was the YH 14’s obviously. And for the bulls there was a hard rejecting shallow PB after firm break above but you had to be at your desk early to catch it if you are in the US. Note size leading out hard in the stats on that last attempt back down in light blue. But if you were a bull and did catch the only structure based long for the day where did you stalk scaling/flattening with no prior structure to lean on? Does your model adapt by just using price action and flow when there is nothing else purely price and volume based? Or do you use zones based on things like Fib extensions or floor pivots or standard deviation, or something else? I mentioned in the room that when plotting a Fib extension between the former super major R line 98’s and the YH 14’s, the 50% extension on that distance just happened to land in the 22’s. I also mentioned the R1 with one most popular calculation method landed in the 19’s. Was it a coincidence that the thickest flow battles above in both the pink and red rotational pushes occurred right around those exact prices? You be the judge but in a practical sense all traders are human beings looking for something, anything familiar to lean on. And one could certainly make a strong case that is why in the absence of prior market structure these very popular indicator metrics seem to get much greater respect. Food for thought…

Anyway for those who got long from the hard rejecting PB’s in light blue or in dark blue off the cash open certainly the absorption flow along around the 19’s and/or 22’s respectively would have been enough to warrant scaling or flattening – even if you were completely unaware of the said indicator metrics. Likewise if you were a bear today either spot could have certainly made a strong case for betting on a rotation against the rally. It WILL end at some point obviously and never forget that any and all price action and/or orderflow is simply telling you the net of what was happening then, not what will be happening X minutes or hours from then. Nothing can predict an uncertain future in a constantly changing environment. Case in point note that on both pushes up in pink and red size was netting out hard to the short side as of the end of those rotations. In either spot bears were able to cost themselves very little risk wise for a shot at a reversal back to the Globex high 17’s and/or on to the 14’s. Sure, bears lost those fights today, but over a series getting 2-3-5:1 on the risk or whatever over time they don’t have to be ‘right’ all that often. Same goes for the bulls obviously, but I’m just trying to restate the same old broken record message. And that is whatever your strategy specifics are all you can do is plan ahead of time for what you seek to stalk, execute when you see it and see what unfolds after you do on any one trade occurrence. Your edge, if you find one, will be found over GROUPS of trades not one trade at a time. This is a very hard concept to grasp for many because they are used to all other things in their lives having 1:1 right/wrong – correct/incorrect feedback. When you are gambling (which is what all trading is folks, get used to it), your performance good and bad should be judged over an iteration. .02

About the Author

Discovery Trading Group is a unique dojo focused on mentoring aspiring futures traders since 2010. It’s emphasis is on guidance in building bespoke processes and risk overlays rooted in market structure, price action and orderflow, with sound adaptable risk management as a priority.

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