Tuesday, April 24, 2007


  • I'm just a very small trader!
  • I don't trade a Multi-Million Dollar Account
  • I trade with the back against the Grand Canyon
  • One step back and I'm out

Still I like to trade. It's a passion. I don't mind thinking about new ways to display the information needed to gain insight into the markets. I like to trade Futures, but that means taking higher risks, than my account allows for. One futures contract is worth something between 45,000 and 150,000 USD. I would feel fine having 50% of that amount in my account for trading to be on the safe side. I have not and it keeps me on my toes. It also means I have to focus my attention on the small details. Mike (see last post) suggested going down from daily to 5 minute charts for signals. I can't trade futures on a daily chart, the risks are too high. So for me, who is trading intraday only, that would mean going from 9 minute charts downto 30 second charts. Clearly in the chop zone where signals tend to get blurry. At the open of a market I now tend to trade from a 2 minute chart switching to 9 minutes later in the day.

But having survived a 5 year learning curve always trading real I have gained some insights and I've come to a point where I do trust the implementation of a new idea. I said in my last post I'm looking for ways to be 1 bar early on a signal. What signal? First let's define, what I look for when taking a trade.

I trade reversals. I can't afford buying the break of a top or selling the break of a bottom. If it's a fake it's just too expensive for my small account. But how do reversals develop in real time?

Going down: You have lower lows and lower highs for a few bars. Then you get one or more bars, where no new lows are made, the highs might still come down as sellers are not yet giving up.
What is volume doing? The farther down we go the less sellers are there, still buyers are not yet convinced it's worth going into the market. Suddenly you see Volume increasing again, the lows are holding and we get a higher high. Relying on Volume alone that's no signal, but if there is a signal on the oscillator as well, it's worth taking the trade.

Hmm, but didn't I just one article before tell you that these dumb oscillators are always one bar late, that I want to be in at the open of the signal bar not the close.

Mike triggered the thought process leading to a new way to calculate the CCI. The standard way to calculate the CCI is using (H+L+C)/3 as the typical price. Replace that with the High or Low respectively. Do the same with the Stochastic 6,3, which I use a Turbo instead of the CCI 6, as the Sto is a lot better pointing out Slings than the CCI.
Now look at this FTSE chart

The CCI in the first subwindow is based on the High, in the second subwindow based on the Lows of a bar. Same for the Stochastic (green line) The blue dots on the zero line are Volume spike indicators. Volume decreased for 3 bars and increased on the bar with the dot. Obviously Volume alone does not give you any directional indication, but with price and the CCI it does.
As you can see, the CCI's are very similiar, but not identical. And this in itself gives me information. Both CCIs going up or down at the same time tells me we have higher highs and higher lows or vice versa, a trend, and you don't trade against a trend if you love your account. Stochastic at the bottom or at the top tells me we have just made the highest high or lowest low for the last 6 bars. Sure it can stay there for a while, but if volume is decreasing and suddenly you get a volume increase with %K reversing, you have a possible reversal at hand.

I marked one trade on the chart. A ZLR on both oscillators, a volume spike, a trade worth taking. Entry was 6490 compared to 6494 on a regular CCI.

Next steps to be done will be validating the results seen on the charts this morning with my Ensign tradesystem. Will see what that gives me for the longer picture.