Good news.

I’m releasing a video series all about DOM trading and best of all it’s completely free.

I’ve been asked hundreds of times for a trading course and video training – however I really don’t like the idea of selling a course.

So I thought I would put some videos together and release them all for free.

Simply head over to: Trading Course

• Volume Profile
• Trading the Open
• Levels
• Trade Setups

I’ve had a few people recently tell me that even after they went through the bootcamp, they still didn’t have a trading plan put together.

So I wanted to change that today and help you get started with yours right away.

A trading plan is basic fundamental and simply can’t be ignored.

While it’s great to experiment as you do trading drills and get a feel for trading, as you grow and improve, we need an objective way of measuring just how successful our attempts have been.

Hence the plan.

So what I want everyone to do, is to make sure they are able to clearly outline and quantify a few key areas:

1. Why are you trading?
2. What are your trading goals? Daily and longer term.
3. Outline your daily routine.
4. What’s your daily stop loss – the maximum you lose in a day before you switch off the screens.
5. Build a timeline for your success.
6. And of course… outlining your trade setups.

Usually it’s the last one of those that people are most interested in, but they all need to work together.

Becoming a profitable trader is a process and you need to continue to set goals, improve and then reset them once again. It’s always on-going.

Only when we know what we are hoping to achieve can we outline our setups.

So hopefully you’ve all been through my bootcamp – if not you can start with week 1.

From there we have a pretty good outline of what might be our first profitable trading setup.

This is how I would outline it in my trading plan.

Range Play

Scenario – A Market Profile range has developed and we have a clearly defined, ‘ledge’ in place. The ledge is at least 5 ticks away from the sessions high or low. And we see size printing into the area around the ledge and the bid or offer holding.

Stop Loss – 3 ticks – scratch if it comes back to you after being +3.

Profit Target – Ideally 5-6+ ticks, but we can accept a minimum of 3. Our target should be the highest level of volume profile, or the opposite side of the MP range. But we trade until price is printing in the opposite direction.

Comments – Avoid entering close to the current high or low of the session as there is a good chance of price testing those levels, especially if there is volume around. We ideally want our correlated markets to be confirming the direction of our trade.

This is an actual trade that you can go out and start using.

It’s what we’ve developed through the bootcamp exercises and should form the foundation of your trading.

But it’s important to just not use this example.

You need to go through the planning yourself and write down your setups, for your markets, in your own words.

As always, please don’t hesitate to get in touch if there’s anything I can help you with.

Good Trading.

Rowan.

Welcome back to week 4 of my futures trading bootcamp.

If you haven’t already, you can read week 1, week 2 and week 3, and start building your DOM trading skills.

This week we are focusing on the less glamorous, but no less important topic of setting stops.

There’s a saying that you’d all know, “A dollar saved, is a dollar earned”.

I like to translate this into trading speak and say, “A tick saved, is a tick earned.”

And there’s no better way of illustrating this than with setting stops.

Conventional wisdom suggests that if you have a set stop loss, you simply use a market order and exit.

However when we’re using a DOM we need to use a little more finesse.

Because the truth of the matter is that when we reach our stop level, we have a few considerations that we need to take into account:

1. How liquid is our market?
2. How urgent do we need exit?
3. Where is our exit order likely to be in the queue?

So let’s address these.

In terms of liquidity, if you’re trading a very thin market like the DAX, then your only option might be to exit with a market order.

If you don’t you risk your position going 20 ticks offside and that single trade destroying your day, week or even month.

If however, you’re trading a slow moving bond, then you are likely going to have every chance to simple work a limit order and save that extra tick.

This is also affected by the urgency in which we need to exit.

If it’s a news based move, for example something has occurred by coincidence and not related to our initial trade idea, then we might want to exit immediately.

If the position has simple ground against us slowly and our setup is now, “void”, so to speak, then we can likely work an exit.

Finally we need to use our DOM skills to access to likelihood of getting a fill if we use a limit order to exit.

If the market is thick and slow moving, but there is a lot of volume going through each of the price levels, then you should really consider working an exit.

If you’re stuck at the back of the queue and you’re unlikely to get a fill, then you might need to consider exiting at market.

The reality of the situation is that this is a bit of a look and feel process.

It’s going to be up to you to access your market firstly, then the reason behind the stop being triggered. And finally the likelihood of a fill.

Again practice makes perfect.

Exercise

Continue with our exercise on spotting setups using order flow, volume ledges and now correlations.

But this week put a real focus on setting stops.

You want to really set a level that you feel comfortable with.

I personally use a set level, in something like the ZN.

So that might be 3-4 ticks.

But that might change with market conditions and your personality.

Stop size will have a direct correlation with the amount of winning trades we have.

As a general rule I like to be right around 2/3rds of the time.

So we need to have a level that lets our trades breath, but not so much that they are costing us too much on the losers.

So practice and try different levels and focus on trying to exit at that level using a limit order if you can.

It’s a good idea now even in practice to record every trade, even on a simulator.

Make an excel document and record the reason for the setup, the exit level etc and start to build an objective measure of your winging and losing trades, so it becomes clear where your strengths and weakness are.

From there you can start to refine and build on your setups and exits.

Remember, “A tick saved, is a tick earned.”

Welcome back to part 3 of my month long Futures Trading Bootcamp.

If you haven’t already, you can read week 1 and week 2, and start building your DOM trading skills.

In the previous two weeks, our goal has been to adjust our eyes to the DOM and to start being able to spot areas where there is buying and selling going on.

We covered some interesting concepts that centered largely on the idea of volume being traded at each price level.

This week we will be continuing with our exercises and building on what we have learnt.

This week our focus is on correlations.

Hopefully it shouldn’t come as a surprise to you that different markets are related to one another.

Sometimes those relationships are obvious, sometimes they are not so obvious.

A good example might be relationship between stocks and bonds.

Conventional wisdom would suggest that when stocks go up bonds go down – or vice versa. Bonds represent safety – stocks represent risk. However while this relationship has held true for a number of years, in recent times we’ve seen bond prices trade upward along with stock prices and that historical relationship has become distorted.

Another example of a related or correlated market is a currency and equity index. For example the Australian stock market should have a strong level of correlation between itself and its currency. Drivers of the economy will have an impact on both stocks and the currency.

However correlations are not always forever and they’re certainly not always perfect.

But the good news for us is that they don’t have to be.

So how does this help us with our DOM trading? Well we can use correlations to help improve our entries and exits, which is ultimately our goal.

Exercise

This week your task is to look for a market that is correlated to the one you have been trading. If you’ve been trading the US 10-year note (ZN) then your task is easy. You can see very clearly that there is a very strong correlation between the ZN,  ZB and ZT. All the bond futures in reality.

You can continue with last weeks exercise – spoting buying and selling areas where there are high volume profile ledges and levels – however now I want you to add in the correlated market as a pseudo indicator.

I want you to look how all two or three markets are trading, in terms of where they are in relation to the high and low of the day.

For example, let’s say you spot a volume profile ledge in the ZN toward the bottom of the days range. You also see that there is buying going on and 3-4 times the size of the bid has traded at the price.

However when you look at the ZB you see that in fact it has broken through the low of day and is trading toward the very bottom of its range.

Now because these markets are correlated we can assume that the fact that the correlated market is pointing in one direction and we are looking to trade in another might cause an issue.

For the point of the exercise I want you to observe what happens when the correlated market is headed in the same direction as your potential trade vs when it’s headed in the opposite direction.

It’s important at this point to not try and read the DOM on the correlated market. It’s hard enough getting used to reading one DOM, let alone multiple. All I want you to do is to use the correlated market/s as an indicator. Think about it like a clock. Is it pointing up or is it pointing down?

How does that impact my trade?

Now it’s also important to keep trading a lot. Keep taking all trades where there is a significant volume profile level and size printing at the bid or offer. The goal is to give you as many opportunities to trade as possible and the more the better. Don’t worry about being right during the exercises.

What we are doing with this weeks exercise is just building on that.

You are just making mental notes this week about how the correlated market – or it’s current direction – impacts our main market.

It’s like our own special indicator.

Things to note about correlated markets

Unfortunately correlations aren’t always there and are not always perfect – but they sure do help.

If you’re trading the bonds then there is a pretty good chance the correlations will be there and will be strong. You’ll see the same thing with the Bund/Bobl/Schatz on Eurex.

If you’re trading equities look at the EuroStoxx/ Dax.

In the US test out the ES/YM.

Try the Aussie SPI/AUD.

Find one that is correlated and have it there as an indicator and watch how it impacts your chosen market.

As always if you need to clarify the exercise a bit more please feel free to leave a comment and I’ll be more than happy to help.

I’m back with week 2 of my month long Futures Trading Bootcamp.

You can find my week 1 post here.

Hopefully you’ve been able to start conditioning your eyes and you are starting to see the way in which orders are executed using the orderbook. It’s not an easy process as I’ve said before and the learning curve is steep. However the rewards will certainly be there if you can stick it out.

So now onto this weeks exercise and it’s one that builds on last week.

I want to again take you back to thinking about what a large trader might do when they execute an order. Theoretically, we said that if you had a large number of contracts to execute you’d likely do it slowly and try to disguise what you were doing.

So what if there was another tool we could use to identify a place where there is likely to be a large amount of buying and selling going on.

Enter our next tool – Volume Profile.

Week 2

Now if you look on our DOM in the image we can see the volume profile on the very right had side. It is showing the cumulative contracts that have traded in that session. Last week we were mostly focused on the contracts that had just been trading recently. Volume profile is really just the total of all those trades.

So why is that useful to us? Well it’s really showing us where there has been a large amount of buying and selling that have been going on at a given level. And if there has been a lot of volume at a given price level previously, then there is a fair chance that there will be more action next time around when we get back to that level.

But how do we identify the levels of interest?

I like to look for what I call a volume profile ledge.

It’s a ledge in the sense that there is a significant difference between two price levels. So at one level (tick) below, there is perhaps only a small amount of contracts that have traded and at the level above or below (depending on the direction) there are a lot.

You can see the volume profile either as a number on the DOM, or you can actually bring it up on a chart. For the point of this article I’ll show you on a chart so it is a bit clearer. Note there is also a mini histogram you can bring up on the XTrader DOM too.

As you can see, on the chart there is a significant difference between the number of contracts traded at 5429 and 5428. Now the actual number of contracts aren’t all that important. What is important is that there is a significant difference between the two levels.

So imagine once again what has been going on here.

What we are seeing is that every time price has traded back down to these levels, a buyer has stepped in and started buying.

Does that sound like a familiar concept?

To me that is the definition of support. However I would suggest that this is a far more accurate idea of what support is than simply drawing lines on charts.

So how can we use this support level – our volume profile ledge – to help improve our DOM trading?

Well we can incorporate our ability to spot the buying and selling that we learnt last week, with these significant volume profile levels.

Exercise

Watch the DOM in the opening 2 hours of trading on your chosen market as you did in week 1.

As the session progresses, the volume profile areas will slowly start to develop.

Look for price levels that have significantly higher volume. Ideally there would be a ledge in place, but if not focus on the high volume levels. When price starts trading at these high volume levels and there is 3-4 times the size of the bid or offer trading (as we did in week 1), enter a limit order and try and get filled.

Hold the trade until it goes in your favour and exit when 3-4 times the size of the bid or offer trade in the opposite direction.

If the trade goes against you by 3-4 ticks exit and look for the next trade.

Bonus Points

As you become more comfortable identifying the high volume areas start making a note of how price begins to react in specific areas.

What happens when the volume ledge is close to the high or the low of the day? What happens when it’s a long way away?

What happens if there is a volume ledge but price has been trading in a very small range compared to a wide range?

What happens when price trades at the highest volume level – also know as the high volume node?

What happens when price meets a volume ledge early in the session compared to later?

These are questions that you can start to ask yourself and will be important going forward. You’ll quickly start seeing patterns so I suggest you start making a few notes in a notebook or with Word. This will be helpful in week 4.

As ever please leave a comment if I haven’t been clear enough with what you need to do and I’m more than happy to help.

I’ll be back soon with the next exercise which will again build on this one.

Good luck.