Most traders fail because they’re undercapitalized and don’t a have trading edge. Meanwhile, it’s easier than ever to access the markets using CME micros, Event Contracts & evaluation programs.
MakeTicks is a team of experienced futures traders staying really close to what can affect our trading: platforms & tools; trading evaluators; exchanges and brokers. Stay updated with our opinions, reviews and trading tales…
Right & Wrong Markets
Trading occurs on a centralized exchange giving you visibility of everything that’s trading.
- Risk management
With the right techniques you can use very tight stops and have very quick trades reducing your exposure to market moves.
Micro contracts have low margin requirements and small tick sizes.
Futures trade on regulated exchanges.
- Lack of transparency
Forex is decentralised. You only see the volume at your broker. Maybe not even that. Equities have multiple trading venues and dark pools.
If volume is hidden, you’re trading blind.
- Middlemen with vested interests
Some Forex & CFD brokers trade against your orders or adjust the spread in their favor.
Equities brokers can sell your order flow to HFT institutional traders. Your broker should be making money from your activity, not beating you at their game.
- Financial considerations
Pattern day trader rules require large account balances to be maintained. Depending upon your jurisdiction, futures can be the most tax-favorable products to trade.
Technical analysis holds so much appeal for retail traders. Candlestick pattens. Indicators. Plentiful add-ons for trading platforms from vendors that promise miracles. It seems so easy.
This approach does not work.
If you do not understand what some wavy line on a chart is actually doing, it should not be there. Most indicators are derived from price, therefore they lag what is happening.
Price moves because of volume traded.
Read that again.
If you do not consider the volume that has traded at every price, you are imprecise and late. Period. The pioneers of stock market trading: Livermore; Dow; Wyckoff made their living by ‘trading the tape’ – reading the volume that traded and getting a picture of supply and demand.
If you throw magic indicators at a chart looking for patterns; crossovers; divergences; magic buy/sell arrows and other holy grail signs you are fooling yourself. Throw all of this away and learn to read supply and demand based upon the volume that trades at every price.
- hotel rooms & flights are more expensive during peak season… there is more demand than supply
- DVD movies are cheap… nobody buys physical media any more… there’s more supply than demand
- you didn’t pay the asking price for your car (did you??)… There were multiple dealers with similar cars eager for your business to meet their targets
This is how you make buying and selling decisions in your daily life. You are not making these decisions on moving average crossovers or mysterious calculations.
Computers came along but exchanges were not broadly publishing real time traded volume. Clever math guys created formulas to analyze price into wavy lines trying to predict future price movement. It caught on with retail traders as PCs became readily accessible in the 1980s and 1990s.
Meanwhile, the traders in the Chicago pits were still trading with hand signals and shouting at each other making decisions using the number of contracts bought and sold. The forces that moved price hadn’t changed. The trading pits are gone but we all have good access to real time traded volume information and computers to interpret it. If you’re not considering volume at price in your trading decisions, you’re making decisions using methods from 25+ years ago while others have moved on…
Order Flow Trading is about:
- keeping track of the quantities that have been bought & sold at different prices
- using this information to identify patterns in supply & demand – we can note price levels showing this
- seeing whether these levels hold or break
We can see volume that’s traded at each price using Footprint charts and Volume Profiles. It takes time to learn how to read significant patterns from the data in these visualizations but it’s an important skill. Once you have it, you can start to invest in tools to make this pattern recognition and level tracking quicker and easier.
You’ll end up being able to read the context of the market; make evidence-based trading plans and manage risk with precision.
Our Head TickMaker used to visit Las Vegas for conventions. 35+ trips. Too many. Rather than pay for pre-dinner cocktails, he used the understanding of probability inherited from his bookmaker grandfather to play Blackjack using basic strategy combined with a simple card counting method. This changes the game’s odds from around 1% in the casino’s favor to 0.5% in the player’s favor. More importantly, you can get free drinks without losing too much money over time and you may make a little too.
Once you learn how to read the structure of futures markets – repeating behaviors – you can start to apply similar probability analysis to your trading. Constrain your trade setups to statistically frequent occurrences – this is like playing perfect blackjack – and then gain an edge on these setups by using order flow to trade only when conditions are optimal,
Now you can stack the deck in your favour
(and understand why our logo features playing cards…)
This handsome fellow is Kimba. He’s a monkey. Put a pile of bananas in front of him and he’ll eat them. Does what he wants. No regard for anything. Lives in the moment.
He’s inside us all. Monkey brain. Lack of discipline and acting on emotional decisions is the undoing of most traders. You can have all the theoretical knowledge in the world, the best trading playbook, the largest account, but if you can’t control Kimba, you’re out of the game.
Kimba’s part of our branding as our constant reminder that we have to keep him in his cage.
- Develop a playbook of trade setups that are based on favorable probability
- Use order flow to stack the deck and refine trade entries and exits
- Don’t deviate
- Eating one or two small bananas every day is better than gorging on a monster banana and throwing up for the rest of the day (and week)…