We are a group of professional traders and principals of a quantitative portfolio research/strategy architecture firm specializing in modeling risk management tools for use in institutional sized portfolios. Our own internal process involves using private areas in this webspace as a collective resource for sharing both discretionary information during intraday trading sessions, as well as a sort of virtual think tank for our quant research. In the spring of 2010, we opened up a portion of this blog devoted to our discretionary order flow based trading to aspiring retail traders as a sort of experiment. Since we have always attributed our own success to the very process by which we use this space to flesh out ideas and share with each other, we wondered if it might be even more beneficial to increase the sheer numbers of those participating in this process so critical to our own advancement. By any measure, the experiment has been almost unfathomably successful for us in terms of it’s indirect contribution to both our discretionary trading and quantitative work. Sharing our thoughts with the greater numbers continues to spark new ideas as well as serve to cement the ones already implemented. In fact, many times simple questions or requests for clarification about ideas we share coming from outside our team has ultimately been the catalyst for us understanding them well enough to implement them. That we can also give back to the trading brotherhood by way of helping like minded aspiring traders in the process makes our little experiment a huge win on all fronts in our book. For information about the type of trading that is the foundation for what we share here, follow this link:
RG did another impromptu talk today in the live trade-room to offer his opinion in response to posts about the logic of trading from low volume areas (LVNs) versus high volume areas (HVNs). Using today’s price action, RG pointed out scenarios where he would and would not consider trading pullbacks and fade trades using volume density as a guide. He also touches on directional bias for pullback trading and the need to understand that your bias can change as the day unfolds.
FatFish has become the go-to guy for capturing RG’s spontaneous trade-room monologues. So thanks once again to FatFish for displaying and recording his desktop and providing us with this video.
Financial stocks weighed on the ES overnight. German Chancellor Merkel made a public statement that Germany would not bail out Deutsche Bank after they were fined $17B USD. Last Thursday’s 2172.25 high marks a potential major high failure for the ES and could become important if the ES drops into the teens and then below 2100. On deck today is New Home Sales @ 10am EST. We also have the wild cards of ECB President Draghi speaking a European Parliament committee starting @ 11:05 am EST and FOMC Governor Tarullo gives a speech at Yale @ 11:45am EST. Volatility has picked up some as price moved down overnight. I still expect downside volatility to be higher than upside volatility. Size bias is short into the US session open.
The ES continued its anemic volatility overnight on light news flow. European PMI data from France and Germany came in mixed, giving traders little to work with. The ES has climbed back into its upper echelon under its all-time high where its grinded in low volatility since July. Without a change in trader expectations, expect upside volatility to be muted with a larger potential for downside volatility. No tier one data on deck for the US session, although there’s Flash Manufacturing PMI @ 9:45am EST which sometimes moves the markets on a miss. Size bias is down on very light volume into the US session open.