April 4, 2009 Saturday Adversity is a Catalyst for Change

Due to the beating I took Friday in my day trading, it prompted me to reflect on what went wrong and what I could do to improve my trading method. I have now tweaked my trading to try to stay on the right side of the market and go with the smart money (or at least don't go against them) and stay away from over-active trading. Here is what I did. A while back I had placed the VWAP (volume weighted average price) on my 10 minute chart to use as a bias line in terms of what direction I wanted to trade in (e.g. if the price is above the VWAP and VWAP is sloping up, try to trade from the long side, and vice versa for the short side), but made it a light gold dotted line which is hard to see so I basically ignored it. Now I have VWAP on both my 10 and 3 minute charts as a double strength black line, impossible to miss. I also adding a slight coding modification to my bid/ask volume indicator (NinjaTrader(TM) has a good free indicator on its forums called BuySellVolumeTop), which shows you for each bar if there are more trades at the bid or ask and therefore if buyers or sellers are in control for any given bar, to filter out smaller lot sized trades. In other words, I changed the indicator to throw away counting up trades for lot sizes less than 50 contracts for the ES. This way when I do my volume analysis I can see when the smart money (big traders) are taking control and go with them if my other criteria are met. I tested the new tweaks to my method by hand-trading an old tick-by-tick replay I had recorded in NinjaTrader(TM) (5/8/2008) with good results. I think this should work, at least I will not do something stupid like try to short when there are big traders trading mostly at the ask and we are above the VWAP line :D