The refinements continue

In an effort to streamline and simplify, I’ve been refining my trading models and analysis over the past couple of months…leading to inconsistent blog entries since returning home from overseas.

My three latest refinements, which have not gone unquantified, are:

  • Eliminate volume profile from my analytical toolkit;
  • Move to less granular analytical perspectives; and
  • Move to price-series execution charts vs. time series execution charts.

What the hell does this mean? I’ll take each in turn.

(1) I have decided that volume profile is not necessary for trading CL, the DAX, the ES, and currencies. This is not an easy decision, because I think volume profile charts yield very important information about supply and demand. However, for my trading model they are not necessary from a statistical standpoint. So bye-bye volume profile! (And consequently a savings of $95 a month. Investor RT charts ain’t cheap.)

(2) I was also trading on a scale that was too granular — I’ve moved up to a less granular price/time scale. My stops are wider, but my profit potential is spectacular and I am not feeling as frenetic in the mornings. I think that will translate into lower transaction costs and a less frenetic equity curve as well.

I’ve researched price and volume series charts quite a bit over the last two years. I’ve settled on price series charts over both volume and time, although I still use time series charts — albeit on larger time frames than I had used previously. It should really matter whether I look at tick charts, renko charts or some median thereof. I have settled for now on Renko charts because I can more effectively manage my risk. I don’t think anything is inherently better here — but renkos work for me.

(3) When I said, “I’ve moved up to a less granular price/time scale,” I meant to say that I have incorporated key time periods during each trading session into my analysis and trading rules. I’ve always paid attention to sessions — I started my trading journey as a short term spot currency trader, after all, where the session is (or should be) the cornerstone of any trading strategy. They are:

  • The Overnight Range (OR) — typically from 1730-0530 PST;
  • The Asian session — 1730-2300 PST;
  • The Frankfurt/London session — 2300-0530 PST;
  • The NYMEX pit open — 0600-0630 PST, which I look at in combination with the OR for an early bias;
  • The Opening Range (OR) — 0630-0700 PST, which I use as the opening range (OR) for crude instead of the actual NYMEX pit open (if you care, I’ll just say that it work for me); and
  • The US session — 0630-1315 PST, but I no longer trade after 11am PST without a prepared idea for doing so.

I mentioned “early bias” above. I am consciously engaged — through the filtered lens of a consistently applied analytical framework and trading model — in disproving my thesis from 0500 through 11:30 PST, because the market maker’s job is to take my money. If you trade crude, you have to be ready to flip your view on a dime — which as it turns out is ten cents for me…at the moment.

Slowly paring away unnecessary analytical tools and other encumbrances brings a strange, unsettling feeling at first. It’s something I should have done a long time ago. Adapting to the market — not in a whimsical way, but in a studied, procedural way — is a new paradigm for me. I can’t count the number of times I’ve read statements urging new traders to never change trading rules or tools. I’m now mature enough as a trader to know better.

I’m also slowly paring away my reliance on time series charts. While time is an essential component of my trading, I suspect time series charts distract from seeing price clearly. I admire people who can look at a 5 or 15 minute chart and understand, instantly, what the hell is going on there. I just can’t do it. I’ve been trading on a combination of Daily, hourly and Renko charts. This seems to be doing the trick for now.

I’ve also revised my statistical studies of a myriad of instruments. Up to now, I have only posted numbers for CL, but will be incorporating more as I refine and automate my processes. It’s time consuming to post these studies on the blog and finding a way to do this more efficiently is a smaller project that I’ll get to in time.

These statistical studes are my framework for the day’s market view. What is the previous day’s pattern? What is the average range for the day of the week? What is the range of the overnight session? Where are the range targets, given the day’s projected ranges and their probabilities? And if I’m executing a trade, where am I in relation to those targets and how does this impact my risk profile? This ultimately tells me if I want to take the trade or not.

Current projects include volatility and options studies, optimization, and ATS coding.

If anyone wants to assist in refining my quantitative tools and building automated models, ping me at L O N E L Y T R A D E R AT GMAIL DOT COM.


2 thoughts on “The refinements continue

  1. Hey if it isn’t my favorite criminal mind!

    I don’t like the rat race at all. To me a rat race is trading off the DOM with time and sales to support. I did that for a few years. It’s manic. I like it in some ways, but mostly for emotional reasons. I’m trying to filter out the noise and the emotional swings…

    I think I’ve found something that will work over the long term and allow me to anjoy a more civilized morning. Even on the losing days. I’ll write more about risk profiling, playbooks and structure (daily and the big picture) soon.

    Hope you’re doing well.


  2. It is a must to constantly evolve. I like your approach of remodelling your focus towards the higher clarity in trading although one cannot forget what are the corner stones and basic principles he believes in. Otherwise we are going to end up stuck in a rats race. Most of a trader’s work is just about repeating the rational approach which works for you over and over again.

    I would like to hear your opinions on risk profiling, trading playbook, daily market structures and how you incorporate a big picture into your daily trades.


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