New to Short Term Trading - My Game Plan

[Shooter7]

Looking for some advice and comments here...this will be pretty long...

I have been in and out of trading for years. For the most part...I quit in the late 90's before the bubble crash. I was always a TA guy...chasing the impossible indicator, etc...holding trades for longer periods of time. Generally running around in circles. I knew enough about trading small that I never blew up. (Thank you Jack Schwager for writing the MW books...and talking about trade sizing...)

I am also generally skeptical about the overall sustainability and stability of our financial/credit system (we are at the peak of the worlds largest credit bubble...RIGHT NOW). I saw it 10 years ago. I saw the housing bubble coming a mile away.

This is generally NOT a good 'vision' to have when you are trading longer term...as it biases you in a way that makes trading impossible. THAT is one reason I quit. My natural skepticism made it impossible to really trade.

In the 00s..I got into playing poker, and could make some money at it....but it is not really convenient for me, given where I live. Understanding poker (incomplete information...expectation...variance...and most of all...the mindset) has really improved my understanding of the markets. I recall that in Jack Schwager's original book, one of the traders he interviewed went on and on about how no limit poker required the same mindset as trading...especially floor trading.

Part of it comes down to is this. When you get all your money in a huge favorite..and you get sucked out on...you still need to be happy even though you got stacked. I think it is the same with trading. If you put on a good trade that has proven to be a good reward to risk...and the market goes against you...you MUST be pleased. In the long run...you just MADE MONEY (assuming you judgment about the risk to reward was correct). If you are faced with the same situation....you must be eager to do it again. Key point is you must develop robust and simple strategies that are indeed good risk to reward situations. Robust and simple means NOT optimized. If you can not do this...then your mindset wont save you. So in this way...trading is HARDER than poker.

I am looking to trade the EMini intra-day. Very short term. Trading short term takes away my natural biases about the system. I think it is the only way I can trade and make money. I plan on trading discretionary based on DOM understanding. I have no idea if I can develop the vision...but I am determined to give it a try. Basically....I want to get an account set up with a token amount (..say $20K)....and a good DOM platform with low costs...and just study the tape (DOM). When I can start to see the people behind the tape...and I see the moves they are making....then I can start to recognize good entry exit points. But you have to be able to see the big players trading size, and the games they play. That is it.

I have decided that you have to walk before you run....and this type of trading ability is walking. If you can not do this...then there is no sense going ANY further. It is kind of like learning to splash around in a lot of pots playing poker. If you can not do that (tactical ability)...they you can not operate at the higher level (strategically).

So, if learning the order flow is my goal, I want to pick a platform that will serve me well if I really give this a go. I was thinking of NinjaTrader with the DOMSphere AddOn. I will just buy a permanent license, so there will be no ongoing software expense. DOMSphere is $50 per month. Will there be an additional data feed feed from the broker...or is that covered? I am not sure I understand how this all works. Give the REFCO and MFG disasters...I am also concerned about broker safety. Any way to judge that...? I also want to have the best realtime data. In that respect...the Ninja Trader with Zen-Fire package looks good (but who are Mirus and AMP Futures....) The whole futures brokerage industry seems such a mess...

Just trying to get a handle to a good, affordable package, good data, safe broker with competitive commissions. I just can not stomach $650 a month for X-trader....

Am I on the right track. Any suggestions for platform choice would be appreciated. I am going to be spending a lot of time staring at the screen I choose... Any broker suggestions are welcomed as well...

Thanks!

 

[DionysusToast]

You are on the right track.

If you plan on trading purely off the DOM, then you might struggle with the ES. You'd be better off trading US treasuries if you are purely trading off the DOM.

With the ES, the chart helps by giving you directional bias. I'll explain....

One of the things to look out for on the DOM is the prescence of an iceberg order. Or simply the fact that a lot of trades are going off but the price isn't moving any more. Either way, whether it is visible or not, there is liquidity at the level and market orders cannot consume it.

You will see this happen over & over again. If you have a short bias and you see signs of a large amount of liquidity on the bid side, the chances are it will not hold the market. You'll see thousands of trades hit the bid, eat through it and carry on down. On the other hand, if you have a short bias and you see this type of activity on the offer side (aka a pullback), then this is exactly the sort of activity that will end the short-term counter bias move and allow you to get short with low risk.

 

[Shooter7]

DT...

Thanks....so on the ES...some external 'context' is useful. I will definitely keep that in mind when it comes time to pull the trigger. For the short term however...I plan on just watching...studying...etc.

There is a reason that some of the best poker players are ex dealers.... The have seen so many many hands. I need to see a LOT of hands before I can see what is going on. There is simply no substitute for putting in this work. This is my initial goal. When I can see what is going on...and I see a situation which I have seen a dozen times before...then I might be ready to put on some trades.

My goals or conditions before I put on a trade would the following:
*Recognize a pattern or situation that is indicative of certain big moves being made.
*Has to be a move I have seen a lot of times.
*Also has to be a move I have seen fail sometimes...so I know what it looks like when it has likely failed.

If I can not see these things...then I am not playing. Now...I could still see these things...and lose...for one of two reasons...
1. It failed in a way I have seen before...oh well sometimes you get sucked out on. Long run I just made money.
2. It fails in a way that is different from what I have ever seen. If this happens more that once...then start to question whether I have seen this situation enough times. Have I recognized a real pattern...?

My goal at this point...is to learn to SEE.

 

[DionysusToast]

If you search around, there's some good resources out there on the art of reading DOM/Tape.

Before you go ahead and just watch, consider that it's a good idea to first know what to look for.

There are 'setups' that occur on the DOM. The best source for info on that aspect is John Grady's book "No BS DayTrading" - it's $40 for a book & video. The video will go over your head at first but as you watch it, things will click.

Setups in this context are really referring to a large player gaming the DOM to take advantage of other players. It plays out in a different way each time but you can get a read on some of the behaviours that will tip your hand to the activities of a large player.

On the 'non-setup' side, many moves just fade and die. You get to a price and it doesn't get traded. This isn't a setup per se but it is just as important to be able to read. As above, a move can also end because someone steps in the way of it. As well as setups, the pace and flow of the trading is very important to watch.

So - if you don't see it, do keep watching but be aware you should have some idea of what to look for before you burn hours watching this.

 

[Shooter7]

Thanks DT...I have Grady's info. It was the catalyst for me deciding to give this go again. It just makes so much sense. I remember reading Tom Baldwins interview in 1993...and wondering what the heck he was talking about. Being an Engineer in the western US...I never had the opportunity to do something like floor trading...and learn to 'read the tape'. 20 years ago...this info was just no there for anyone who was not in the pit....

 

[Gendo]

Velocity Futures offers X Trader for free

 

[DionysusToast]

Not free by any means... they charge an extra dollar per round turn...

 

[Shooter7]

Not free by any means... they charge an extra dollar per round turn...

DT,

That is the same that CTS charges for T4.... Except they cap it at $500 per month. IF DeepDiscount Trading would offer that structure...I would go for it....especially while starting. If you are not trading much...just going to school...then the cost would be minimal. Stroking $700 per month for X-Trader, however, while you are not even trading...is hard to swallow. That is a lot of tuition....

 

[wackypete2]

You are on the right track.

If you plan on trading purely off the DOM, then you might struggle with the ES. You'd be better off trading US treasuries if you are purely trading off the DOM.

Out of curiosity why would you say that is? Fewer iceberg orders? If I were to trade a low volume futures market, say currencies, I'd think there'd be less gamesmanship in the DOM and therefore easier to read...or am I out in left field?

Peter

 

[DionysusToast]

Out of curiosity why would you say that is? Fewer iceberg orders? If I were to trade a low volume futures market, say currencies, I'd think there'd be less gamesmanship in the DOM and therefore easier to read...or am I out in left field?

Peter

Mostly because it's thicker & fewer intra-day swings.

The thicker something is, the more games played. Thin markets dont see the same sort of games because you can't really spoof a thin market as you might just get filled.

For me - I can't see how anyone trades very thin instruments - CL, YM on the DOM alone. With the thicker instruments, you literally have a handful of meaningful price points on the volume profile and that is more than enough to work off.

 

[DionysusToast]

DT,

That is the same that CTS charges for T4.... Except they cap it at $500 per month. IF DeepDiscount Trading would offer that structure...I would go for it....especially while starting. If you are not trading much...just going to school...then the cost would be minimal. Stroking $700 per month for X-Trader, however, while you are not even trading...is hard to swallow. That is a lot of tuition....

Yeah but $5 per r/t on the ES is a very tough game to play too.

 

[wackypete2]

Mostly because it's thicker & fewer intra-day swings.

The thicker something is, the more games played. Thin markets dont see the same sort of games because you can't really spoof a thin market as you might just get filled.

For me - I can't see how anyone trades very thin instruments - CL, YM on the DOM alone. With the thicker instruments, you literally have a handful of meaningful price points on the volume profile and that is more than enough to work off.

Thanks. That does make sense.

Peter