Interview with a Market Delta Trader

PM: = Paul Mullen
CK: = Christopher Koozekanani

PM: Welcome Chris and thank you for giving your time today. Can I start by asking how long have you been in the industry, and how did you get started?

CK: I guess even since a young child, I have always been very interested in current affairs, what’s going on in the world economies, and that sort of thing. That’s always been in my mind. My initial career path after high school was I went to Embry-Riddle Aeronautical University, got a degree in aeronautical science, and then immediately went into the army. In the army, I flew AH-1S Cobra attack helicopters and was also involved in a maintenance officer type of capacity, so I was flying and I was helping to coordinate and get maintenance done in our unit. I was in the First Calvary Division, and this was in the 1980’s.

That entire time, when I was in the military and flying, I always did pay attention to the markets. It was kind of interesting. We had just come out of recession in the early 1980’s, Reagan was in office and people were talking about the markets and if there would be recovery. I was always kind of jacked into all that type of activity. It was probably about 1998 when I first started getting involved with trading. It was initially stocks. The market was running pretty decent at the time, and I was getting into the stock market, analyzing, and initially getting exposed to technical analysis, and fundamental analysis of stocks. At the time I really knew nothing about options or futures, I had never traded them. I’d kind of always heard that they were more of a highly leveraged instrument, and until you’re successful at stocks, it wouldn’t make sense going over to futures.

That was also the time that the Eminis started to become prominent. It wasn’t too long after that, that I started taking a look at the Emini products, mainly the S&P 500 because it made sense to me to have a futures tracking instrument of a broad group of issues. That would be a safer way at the time, I thought, to trade futures versus trading oil, soybeans, corn or something like that which can have very major volatile swings.

PM: What made you specifically decide that the S&P futures was a good instrument to trade, as opposed to the commodities ?

CK: I guess for me, right away, I saw the potential that an index-type derivative, having coverage of 500 different issues within the stock market, in my mind at the time, I thought it would be a more packaged or diversified way of trading a particular futures instrument, versus just trading corn or just trading oil.

I had the perception at the time, that if I was going to get into futures, that would be a safe way to go about it because obviously, unless all 500 companies are suddenly getting pummeled one day during the trade day, or they’re all suddenly advancing due to great news, the movements of the instrument should be somewhat “manageable”. That was my perception in the beginning, when I first started to look the S&P Emini.

PM: Was this on an intraday or end-of-day basis?

CK: Actually it was totally intraday. When everybody talks about trading, you’re either controlled by fear or greed. I guess in the beginning, I had zero fear which was probably a problem, so I had enough fear to be concerned about what kind of instrument I was going to trade, but as far as trading, I was very much interested in the swings intraday, and getting involved with trying to catch portions of each day’s intraday movement. The intraday was always what I was interested in. I was never an end-of-day type trader.

PM: Did you goshort as well as go long, at that time as well?

CK: Yes, actually I probably found out something about myself very early on. I am a self-proclaimed “shortologist”. I actually love shorting things. Very early on, I found out that can be good but it can also be bad. I don’t know what it is; it’s just my psychology. I thoroughly enjoyed shorting things and a lot of that developed from trading, getting into 1998 and later, into trading the S&P 500.

I also felt more comfortable holding short positions overnight. If I was holding longer term trades, I felt more comfortable holding those types of positions than if I was holding long positions. I always felt if I was holding long positions, I definitely, for sure, 100% of the time had to have a hedge in the overnight session, whereas holding short positions, putting a hedge on was something – to tell you the truth, I would rarely do.

PM: So how profitable were you in the early days?

CK: Back then, I wasn’t fearful. I wasn’t worried about losing money. I had plenty of money at the time and was making good money in the airline industry. I had multiple homes and rental properties so the money side of it, I didn’t get into it big with hundreds of thousands of dollars. I did get into it and literally, in the first 6 to 9 months, having no fear, I blew out about a $38 thousand initial account experimenting with different things.

What I kind of found out about myself was that I was a boom and buster. I would make a lot of money in a short period of time and then I would lose a lot of money in a short period of time. That was something I learned about my initial psychology and my first venture into trading futures. In stocks, I’d always been fairly successful.

PM: Was that in buying stocks or in shorting stocks as well?

CK: My losses, blowing out an initial $38 thousand account was all in futures. In stocks at the time, I was continuing to make money but I didn’t like the process in stocks of always trying to figure out what I was going to trade the next day, having to always look at the news in the morning. All that seemed like an inefficient way to trade. To me, the thought of just turning on your platform, you’re charting, boom – you’re trading the Eminis and not really caring about what this company or that company did as an individual company. I pretty much shifted my trading focus away from stocks as we got into 1999 and 2000. But, by 1999 and 2000, I was finally learning ways to start becoming somewhat profitable with the futures side of trading.

PM: So in 1999 and 2000, having blown a $38 thousand account, which would actually put a lot of traders off for life, but you said you have a diversity of income streams; how did it progress from that point forward? You said you started making a profit after about 2 years after starting. In what way did that profit actually come about or what did you learn about yourself that allowed that to happen?

CK: Two major things happened. You could say one was perhaps luck, as the market started tanking in 2000. We started having the selloff in March of 2000 and I just happened to be heavily short at the time, kind of starting to push position size because I was just starting to do well and to become profitable. That obviously, in my opinion, had some luck to play.

The second thing is I had started to develop a methodology of order entry and exits, what I call “cycling in and out positions” where I would trade around a core position. It was digging in and building up that capability for myself. That’s what eventually started to get me to where I had consistently profitable months and pretty much 2000, 2001, I would say are the kind of years where my consistency was very solid. Going forward from that point, I’ve had very good years since then.

PM: You just spoke a little bit about cycling in and out of positions. Do you want to say a bit more about how you became aware of that?

CK: It just seemed to me that there was no way, after what I’d been reading or watching in the market, that commercials or institutional entities that were getting in and out of the market were not in my mind, getting into the market with a static entry, with a static stop, and one or two static profit targets. In other words, they weren’t putting on one position and then waiting and letting the trade play out. It seemed to me, and it made sense to me that these bigger entities were cycling in, and buying and selling constantly, in what I call “dynamic positions”, always cognizant of trying to manage and improve, on a daily basis, the cost basis of their held position. That really put in my mind kind of the drive to dig and dig and find a way to trade that way myself.

At the time, I didn’t have a lot of factual evidence that commercial or institutional trading entities traded that way; it just seemed like with the type of liquidity they were working with and what there was available in the markets to learn about that type of trade activity at the institutional level, it just seemed to me that all of the evidence pointed in the direction that dynamic positions were the way to go to have long-term, very consistently profitable months or trading periods. That was important to me, learning how to trade with dynamic positions.

PM: You talked a bit about how all the evidence pointed towards that. Do you want to say a bit about what evidence you may have had that suggested that’s how they were doing it, or were you just growing in awareness?

CK: I did start to meet and talk to traders in other forums, some that had worked with and at the institutional level, maybe prior to going to Prop jobs, or becoming successful and trading for themselves. I made a point to dig and to go out, seek information, and even on the TV shows back then, like the business news channels; you could hear various fund managers doing interviews and talking about areas of price where they were buying positions.

All the evidence that I kept accruing was pointing to yes, these institutional players, for the most part, for the majority of their trading they’re building dynamic positions, always managing the cost basis. As the markets make movements in their intended directions, they’re scaling out portions of these positions and locking in profits. When the markets return to areas of “price improvement” or back to the areas they’d bought before, these entities were then going back in and re-adding new liquidity, and constantly playing off the cycles of price, until they eventually caught a bigger move in the issue they were trading, to then reap the bigger rewards of the trade they had initiated.

PM: This is around 2001 and 2002, so you’d been trading 3 to 4 years by then. You picked up on something that you think the institutions were doing. All the evidence seemed to be suggesting that. Do you want to say a bit more about how this then developed further?

CK: I think it was by September of 2003, I was spending a lot of time on a trading forum that most traders know about. Some like the forums and some don’t. It’s had good times, it’s had bad times. I know a lot of traders spent a lot of time there: stock traders, futures traders, options traders, and they had a trading competition. I think it was September 26, 2003.

At the time, in my mind, I had fully completed the development of what I considered “dynamic position”, entering, managing, and using those types of trading order management methods to make money. I guess I had almost less interest on direction. I was even trading in both directions, in separate accounts, at the same time. I was researching all different, various methods of extracting as much profit as possible, or finding the highest probability way with dynamic positions, to make money for periods of time, intraday, and then shut the system down and keep what profits were made for the day.

Anyhow, there was a trading competition. I think by lunch time, I’d been scaling in positions constantly. As the market ran up, I was scaling in shorts. As the market ran down, I was scaling in longs. By the end of the day, I had a very significant return and from a day percentage return, I was way ahead of the other participants. Basically, from that day forward, I had kind of solidified for myself that this works, but it’s kind of an “out-of-the-box” mentality that is not being taught everywhere, so keep working on. Just because it worked today doesn’t mean it’s guaranteed to work going forward. This type of trading takes more attentiveness.

From that trading competition, calling out all trades live, real time, all throughout the day, kind of pushed into my mind that this really works. You could see the potential of it, but don’t stop here; keep working on it and keep developing this method of building and trading dynamic positions. This, in itself, can be a really good edge if you can keep developing it.

PM: So this competition presumably was on the “Elite Trader”, I guess?

CK: Yes, I was trying to be nice.

PM: You can mention it as it’s not a problem. You did very well in this competition. It seemed to confirm the fact that you’d got an edge, most of the traders wouldn’t do it. You’ve obviously taken it beyond this stage now. This is 2003; you’d been trading for about 5 years. Do you want to talk about how it’s actually developed to what it is now?

CK: One other good thing that happened to me in 2003 was getting involved with learning auction market theory. I give a lot of credit to Bill Duryea, from Institute of Auction Market Theory. I was in a trading office in Austin, Texas at the time. I had a good trader friend of mine, Kyle, who is now working with me at He was a member of Bill Duryea’s chat room, learning market profile and auction market theory.

To be honest with you, the market profile aspect of it just never clicked with me. In my mind, I kept thinking, “I really don’t care how long price traded, as far as time goes, at certain tick levels.” I guess that didn’t click with me. What I started digging into from the auction market theory side was if I could find out where the volume is at these levels, where distribution is taking place, where accumulation is taking place; if I could find a way to track that, then it is something that would appeal to me, and as a byproduct of learning what I call the street level mentality of auction market theory, that Bill Duryea is very good at teaching, the thought patterns of buyers and sellers and what they’re looking at as the market is trading highs of the range or lows of the range; I think Billy does a very good job of presenting the psychology of the mindsets of the players in the market.

What he started to get driving in me was how could I track the order flow? I thought if I could start tracking the order flow of that auction market theory activity, then maybe then – I noticed I didn’t see anybody else doing it, being more of an out-of-the-box type of guy, I thought it was good that I didn’t see anybody else doing it. I wanted to dig into that to see if there was something there.

Not too long after that, came out with their cumulative delta through footprint charts, and investor RT and then had the volume breakdown tool, where a person could set up a cumulative delta bar. Right away, I started using investor RT so I could have the cumulative delta bars and that is when I really started having expanding success. I was digging in and learning how to track and use cumulative delta. That, in my mind, was the ultimate breakthrough.

PM: Can you say a bit more about what cumulative delta is? Obviously, people who are going to be reading this are not going to be sure what that is. Could you expand on that a little bit?

CK: Sure, and I love the fact that you bring that up. It shows me, and I have noticed; there is such a void of information available in the trading community telling traders, especially futures traders, “Hey guys, did you know there is a way you can actually track the order flow?” Cumulative delta is basically a differential between “trade at the ask” and “trade at the bid” or what I like to say, I’m kind of comparing those entering the market with market orders, and I’m not counting those entering the market with limit orders.

The way I see that in my mind is I’m measuring the difference between the buyers and sellers of the market, using market orders. Those are traders that are trying to get in the market right now, so it’s more important to them to get into the market right now, with the market order, versus clicking on a certain price level with a limit order and waiting for price to come to their tick level and get filled.

To me, that shows that people getting into the market with market orders will tend to have more conviction, and the conviction could be they’re bailing on positions so they’re capitulating and covering, or they’re initiating new positions. The cumulative delta is a parsed volume study and it’s only counting the order flow of those getting in and out of the market at the Bid and Ask with market orders.

PM: That has explained what my understanding was and it will be good for people to actually see that themselves. Obviously, you’ve developed this even further so do you want to say a bit more about this?

CK: These past years, mainly my good friend Kyle has said, “Chris there is nobody out here in the trading community showing or presenting cumulative delta” the way that over these 6 years, I’ve spent a lot of screen time tracking the order flow. I have literally been obsessed with it because I see the value to the information, not only for intraday trading, but for long-term trading.

Now, the quest I had after I learned auction market theory is I wanted to see if I could find out areas where positions were being accumulated or positions were being distributed, and now in my mind, I’ve found that. Watching cumulative delta these last 6 years, I’ve developed through watching it with all the screen time, a significant group of repeating patterns in the order flow, and what I call the “cumulative delta volume distribution”.

Intraday, or at the end of each day, or looking at several days put together, I can look at the cumulative delta plot, from the cumulative delta bars, and I draw numerous horizontal indexing lines, and I use that information to make trade decisions, both long-term trading and intraday trading, based upon watching price in relation to where price traded before when accumulation or distribution took place.

For me, it gives me a roadmap to know where the actual or real support or resistance is in the market. For me, the real support and resistance in the market is where there are zones of resting inventory. The zones of resting inventory, I have now found ways to measure, which are significant, which are most likely commercials positions. There are some 620 commercials trading in the CME, for instance, and they tend to buy and sell areas at the same time, and they do accumulate very large short and long positions, throughout the trade days, and I trade based around that information.

PM: Thanks Chris for explaining a trading approach that is quite different to the traditional methods used by most traders.

More information on the methodology to track cumulative delta order flow and delta volume distribution can be found at Fulcrumtrader