Wednesday, August 20, 2008

The factor of dominant flow

When I miss a big trade, my mind tends to be in the chase mode. I try to be conscious about rationals behind the next trade. By 10:55 the ES was having an increasingly difficult time facilitating business above yesterdays value. While I entered the next trade @ 10:56 based on order flow (higher highs but -ve delta), thinking that there could be a normal variation to the downside of the balance, I was not sure if I had entered this trade in chase mode. It was almost exactly at that point that the Trin make a big spike and validated my rational to stay in the trade. It was like a gust of tail wind right after you took a tee shot.

The important point here though is the target. The sell off was impressive but a slow grind. My entry was 68.75 which was near the I period high but not the greatest location. I got a lucky tailwind. My constant scan for any ground breaking events did not yeild much except for crude making modest gains. Initially G period low was the target for a scale out, but the orderflow gave the oppurtunity to stay. in. I set the second target at above LOD. I then remembered the buy response in the morning and took all the contracts out @ 4.75 pts when we failed to break and the odds of a balanced day increased(see the big trades at bid but price stagnant). The trin did not make any higher highs as well. It turned out to be a good decision as it also allowed me to enter at the edge for long trade that yielded 6-12 pts depending on how long you stayed in (6 for me)

The point I wanted to share is - remember the dominant flow of the day ( especially intial balance) and use it in the analysis. Secondly, dont be fixed with a target if the kind of day cannot offer you one. The target depends on the kind of day it is, as well as where your trade is located.

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