“If only I had…”

Finality produces a certain kind of clarity, of re-evaluating what has gone by.

Trading activity does not allow for much meaningful reflection. The space in which one can reflect has to be muscled around everything else; usually to take care of something — crap! The dog!  

Routine enabled reflection — usually on weekends — is one thing, yet your mind is still labouring over the other day’s mishap or that data print to come on Tuesday. You are still in the game and the minutiae of daily life clouds it over. And these are just the details. We do not care about the details. Why?

Because tomorrow you will never trade again. None of it matters. You are finished. What then?

Blind optimism — perhaps, fanatical faith — in making it in your trading career is not merely a good idea, but a minimum competitive trait. As a certain Alex Haywood once said it — how else will you keep going while you climb the mountain of bones belonging to those who once sat next to you?

You can paper over fanatical optimism and tag it as passion, yet this obscures the most important question to ask: What if I never make it?

To the passionately boisterous this sounds heretical. Watchumean — fail? Get this loser out of my face! To the constant moaners — note: secret optimists — they say this to cope. They may repeat these words but not really believe it. There! I survived saying it!

They all have a second chance, and a third, fourth and a fifth… Hope takes the shape of any container it needs to. The hope that your future self will figure it out; no big deal if the present does not. But if you cannot start figure it out now, how can you do so in the future? By having no finality on your trading, you will never have to cut the bullshit and get real.

Hope, then, will prevent you to ask the most important question, to really consider: What if I never make it? And what if the end comes tomorrow?

To really ask would be a liberating experience; liberating to cut through whatever daily life minutiae and to truly reflect. Because you accepted there really is an end, and it is a beautiful thing. Because you had the courage to ask before you actually die. If I never made it — then why?

Why was I unable to hold a routine… control myself… apply myself … learn from others — why….?

The best positively skewed trade I can take right now is to say: I bet you know exactly why you cannot make it. Why you cannot push past whatever in your trading career — to take home a few dollars; to grow your account or to re-invent yourself and make a comeback. The few that truly do not know are likely too wet behind the ears.

To answer that question is to write your trading obituary, and it is powerful since there is a finale and no further hope. The guy is dead! And to write it like an old-school newspaper obituary, since this should not be an apologist ten-page, essay-ramble. That is disguised hope. Instead, the tiny rectangular newspaper column forces brevity; just one or two main accomplishments, or infamous acts and now…. he’s dead.

And I really mean write. Reflecting while walking around is better than most, but to write is a whole other world. Even better — write with pencil; slow yourself down. Then re-type it via computer.

So, once you really convince yourself that you may never trade again, sit down and write why you failed. Ask — what killed my career? Write 200 words, then immediately scrap the first one hundred words as this will be half-hearted apologetic fluff — the real stuff comes at the end of the word limit.

See? Finality. It is a great bullshit filter.

Keep it to yourself and read it frequently. Or I would love to read your ‘trading obituary’ if you email me at bogdan@axiafutures.com. With your permission I think it would be great to anonymously discuss this in our community.  

***

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
Twitter: https://twitter.com/AxiaFutures/
YouTube: https://www.youtube.com/AxiaFutures
LinkedIn: https://www.linkedin.com/company/Axia-Futures/
Instagram: https://www.instagram.com/axiafutures/
Facebook: https://www.facebook.com/AXIAFutures/
Medium: https://medium.com/@axiafutures/

Contacts:
Demetris Mavrommatis — Co-Founder, Head of Trading
Alex Haywood — Co-Founder Head of Strategy

Much time and material is devoted to point a trader in the right direction. Yet this and future short stories aim for the opposite; learning via negativa à la Nassim Taleb.

In other words, the moral of the story can illuminate what not to do. 

———-

A collection of fishing rods lay against the side of the boat. 

The three men sat calmly beside each other as they oversaw their fishing. 

One remarked to the other about the best way to hold the fishing rods. Later, another debated the finer points of hook designs with the first fisherman. Animated by the conversation, the third fisherman spoke definatively about his revolutionary fishing techniques, boat design and the future of the profession. 

As their time drew to a close, the men withdrew their equipment and stepped out of the boat. 

Walking on to the grass, they each turned to look at their boat; comfortably balanced between a collection of boxes and an earth mound. 

Today marked the fourth year they practised fishing on dry land. How much they knew and learned since then!  

Dressed in the best and newest smocks, and bearing the finest fishing rods, hooks and freshest bait they each proclaimed their love of fishing; their dedication and smarts. It is only a matter of time until they will catch real fish. 

As they returned to town, other fishermen were mooring their boats laden with fish from today’s catch. These old fishermen, with their weathered faces, gruff beards and thick hands began unloading their catch from their battered boats. 

The three men ignored these old fishermen, just as they had too ignored their own lack of catch, and quickly moved on. They instead remarked to themselves how one day their comprehensive knowledge, hard work and passion will quickly surpass the abilities of these antiquated fishermen who remained on the pier. 

At home, the three men settled into their routines to affirm their zeal for fishing. One had cut out the latest articles and sketches from the Fisherman’s Digest to add to his scrapbook. Another practised casting his fishing rod, trialling a new technique he devised and proceeded to meticulously journal his findings. The latter pleased himself with the quality of the photographs he took of himself and his friends fishing. Energetically, he wrote letters to his friends and sent them the photographs, for everyone to admire their choice of profession. 

That evening, the trio had agreed that the following morning they would take their boat into the sea for the first time. The time had come! 

Sailing past the old fishermen in their ramshackle boats; the three men cast their fishing rods and waited to catch their fish.

Later that day they returned with no fish in hand. 

Instead the three men were only rewarded with the sun bearing down on their necks. The restless sea provided them only sickness and trepidation. Their ingenious casting techniques had only resulted in losing some of their fishing rods to the vast, salty expanse. Their expertly crafted hooks failed to attach to their fishing lines; their bait expensive and barely used.

Returning back to the pier, the three men damaged their boat as they fiddled with rope to moor her. Their fishing smocks, once pristine and fresh, had now transformed into an odorous clump. 

The trio repeated their attempts each day in the following weeks; transforming a passionate, confident group into a squabbling, miserable and reluctant mess. 

One evening they discussed their woes and mistakes. They had discussed their unjust experiences! The failure of their equipment! They decided that their studiously devised fishing techniques and boat handling must have not worked because of the nature of the sea itself. Finally, they had reached a solution. 

The next day, they heaved the boat out from the water and took it back to their well-tested and reliable earth mound. Re-energised, the three men got into the boat and cast their fishing rods, just as they had practised all these years. 

Their excitement and love for fishing came flooding back! Look at how their casting techniques now work beautifully! How stylish they look in their fishing smocks in their latest photographs. No more sickness from a rocking boat. How much more left to learn, practice and test! No more sea at last. 

The trio never caught any fish, but they were indeed — of course! — fishermen.

***

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
Twitter: https://twitter.com/AxiaFutures/
YouTube: https://www.youtube.com/AxiaFutures
LinkedIn: https://www.linkedin.com/company/Axia-Futures/
Instagram: https://www.instagram.com/axiafutures/
Facebook: https://www.facebook.com/AXIAFutures/
Medium: https://medium.com/@axiafutures/

Contacts:
Demetris Mavrommatis — Co-Founder, Head of Trading
Alex Haywood — Co-Founder Head of Strategy

In a previous article, we had briefly discussed the importance of understanding what data to draw the market and how to intuitively organize it for edge. This part served as a prelude to clarify the correct mentality needed to understand and learn how to use the footprint, but this in essence this exemplifies all of trading itself. I felt that this part warranted deeper investigation, both as a concept but also a useful opportunity to use the footprint as an example within this framework.

To reintroduce this concept, we can begin with an example where it is most apparent. From observing other new traders and remembering my own previous naive ‘rationalizations’ the issue centers around having no intuition, deep thinking or simple questioning of the trading tools that are being used. Expectations of obtaining edge are centered around just using the tool in and of itself. In other words, expectations are incorrectly set in that the scalpel is what makes a successful surgeon by merit of him picking up the tool, rather than understanding what it is used for and having the skill to use it.

As such, the wrong expectation creates the incorrect approach in learning how to use these tools. “By picking up this tool I have edge”. Using this logic the trader is doomed to frame his trading and learning through ‘Idea about Markets > Trading Tool > Observation > Edge’, where the trading tool organizes market data in a specific way for it then to be observed and traded as ‘assumed’ edge. The focal point of this mistake is that the trader first has an idea or theory about the markets first, and then looks for tools to filter this data within it. “Footprint charts help with order flow trading, where I think there is edge, so I will use footprint charts to show me the edge”.

Deductive Reasoning and (Un)Certainty

Let us go further. We have in effect stumbled upon deductive reasoning. This reasoning begins with an idea or theory first in which all following observations and conclusions are filtered through under this ‘idea umbrella’. To borrow from a common textbook example – “All men are mortal. Harry is a man. Therefore, Harry is a mortal”. Deductive reasoning is the cornerstone of much of the world – the sciences, research, academia, and games like Chess which feature complete and transparent information. For these domains, the fixed and ‘true’ information is of great use since the conclusions are absolute and therefore are used to predict an outcome of ‘virtual’ certainty – a binary conclusion.

Certainty is not a word that survives the trading domain. Shifting probabilities, incomplete information, and emergent behavior make this a qualitative business. Decision making and reasoning under probability and opaque information must be aligned with the type of domain you are operating in. To borrow from complexity theory and the Cynefin framework, as traders we deal with the ‘complex’ domain not the ‘complicated’ domain. The ‘complicated’ domain is computable, binary (right and wrong) and linear. The ‘Complex’ domain is non-linear, emergent and ‘temporarily resolvable’ with trial and error but never ‘solved’. As intra-day discretionary flow traders, we intuitively discover this along the way but not without incurring large costs of time and capital. Perhaps due to the rigidity in the schooling system, many jobs and academia are steeped in static and ‘complicated’ domains which creates a default deductive thinking mentality to approach all issues. Therefore, the inability to shift away from deductive thinking when working on a ‘complex’ domain is what creates a high failure rate.

Ants and Aerial Combat – The Complexity Domain

Conversely, inductive reasoning is appropriate for dealing with a ‘complex’ domain – that of trading. This reasoning begins with pure observation first and the subsequent patterns that are observed create a hypothesis and later theory into why something occurs. In other words, the trader would be observing markets and data by simple observation, with no pre-established ‘lens’ as he would with deductive reasoning. Due to this, inductive reasoning has a wider range of conclusions or outcomes and is open ended by nature. There is no binary outcome, rather a likely conclusion that has been ranked higher by probability than other outcomes. This bottom up, constant re-evaluation of one’s observation is what provides adaptability which is vital when operating in the ‘complex’ domain. ‘Complex’ domains almost always feature ‘emergent behavior’. Simply put, the behavior of one component in a system cannot reliably predict or model the activity of the system as a whole. In other words, modelling the behavior or understanding the properties of a single ant cannot predict or model the behavior of an entire ant colony. A singular ant is simple but once part of a colony a different behavior emerges. Moreover, changes to the ant colony’s environment would usually result in new emergent behavior which cannot be reliably modelled or anticipated in advance.

Dealing with emergent behavior or an environment that constantly ‘changes the rules of the game’ is not only an issue concerning traders and markets, but anyone involved in the complex domain like in war and conflict. To paraphrase Nassim Taleb, one should only listen to the advice and practices of those with skin in the game. Whose practices would be better to study than those whose risk their own life during wartime? A deliberate practice of this would be the ‘OODA Loop’ developed by Colonel John Boyd and implemented by the US Air Force during the Cold War. This was an approach to help a human deal with the ‘complex domain’ under stress during aerial combat in the new jet-fighter era that required split second decision making. It being an inductive approach – the fighter pilot would be in constant ‘observation’ mode and would constantly weigh new information probabilistically to understand the developing patterns that are emerging from enemy movement in order to best deal with it and win.

This meaningful shift in thinking from deductive to inductive is key in effectively learning and using the trading tools you have at hand. Essentially, the explanation above is a fleshed-out version of what was emphasized in our previous footprint article – ‘To build a useful footprint chart you must have: Observation > Idea > Footprint build > Edge’. This process is inductive reasoning adapted to our needs and differs from the deductive mentality of – ‘Idea about Markets > Trading Tool > Observation > Edge’. This difference might seem insignificant at first but if a trader were to engage in deliberate re-framing of his debriefing and learning process to think inductively it would not take long to appreciate the difference. Let us illustrate this in the context of a footprint trade.

Footprint Charts, Inductive Thinking & You

One frequent ‘setup’ that seems to trap a lot of traders into the inductive vs deductive issue as described earlier is the concept of ‘finished and unfished auctions’ via the footprint charts to either enter or manage trades. To summarize this concept, we can use the market auction framework. Market participants will keep transacting (volume) at escalating prices until they become too expensive (away from value). Volume will usually taper off until the high where buyers lift the offer into a price but never sweep the price and never stack the bid at that price. This leaves such a pattern on the footprint at point A:

Here the market bid all the way until only 25 lots lifted the offer at the high, but the buyers never swept the price to lift the next price, leaving (0x25) on the footprint. Likewise, an ‘unfinished auction’ can be seen at point B where both the bid and offer were hit at that price (76×225) once the buyers swept the price and then stacked the bid at that price.  

The ‘standard’ trade setup that uses the footprint in this way usually concludes that ‘finished auctions’ are usually featured at the high or low of a move and that ‘unfinished auctions’ usually are re-traded through until another ‘finished auction’ pattern is displayed.

It is at this juncture where the outcomes of inductive vs deductive approaches become apparent. The deductive new trader approach will usually understand this by default as ‘Idea about Markets > Trading Tool > Observation > Edge’. He has learnt (heard) that finished auctions are seen at reversals, and therefore using the footprint he will watch his screens until a finished auction is spotted and trade it every time he sees it. From here his thinking is constrained linearly (A=B, but B = C, so A=C). The existence of this finished auction at an apparent reversal point on his screen confirms the initial idea that finished auctions are always the high of a reversal and therefore there is must be edge in trading this. In effect, this information is being taken at face value, where the trader will be rewarded randomly at best or come away at an overall loss at worst. Lastly, due to the outcome (failed trades) being lackluster the deductive mentality will conclude that the reverse must be true. “I had a negative outcome (no edge), so the observation (finished auctions at reversals) must be wrong, and the trading tool (footprint) doesn’t work, so this idea about markets is also incorrect”.

Let us now consider the inductive approach to the same situation. Recall that we have adapted this as ‘Observation > Idea > Footprint build > Edge’. To continue the same example, these finished and unfinished auctions are generally observable with a price ladder and nothing else. This natural price action is likely to be picked up by a new user after some screen time in some form or another. Naturally, the trader would then further develop these observations to see that the fight for price between long and short participants becomes more uncontested as prices trade higher, ultimately resulting in lower volumes with one last buyer trying to lift a higher price but progressing no further. Initiative sellers step in and take prices lower instantly. This price action is what can be summarized as a finished auction and creates the market high and subsequent reversal. This trader (through more observation) would realize that the probability for this chain of events to create a ‘reliable’ (high probability) reversal are skewed higher in certain market conditions and prices (levels) or areas.

In effect, the trader has piecemealed different market information and observations from the bottom up to then create an idea about what is currently happening. Critically, the trader has arrived at this conclusion (market reversal) through observing a chain of events with no pre-conceived idea or ‘lens’. Like John Boyd’s’ fighter pilots, this bottom up, constant re-evaluation of one’s observation is what provides adaptability which is vital when operating in the ‘complex’ domain.

Due to the trader understanding about what is likely (but not is certainly) going on he can use his trading tools to effectively summarize these observations (finished auction on the footprint). There is weight, depth, and intuition of the pattern he is seeing, he is not taking this pattern at face value like the deductively default trader. Further, the idea of the ‘footprint build’ is deliberate. The trader notices these finished auction events are happening frequently and therefore he can build a tool around this idea, and then decides that a footprint chart would be of best use to him to aid in observation consistency and speed – especially in volatile and fast conditions. Conclusively, the trader has built a tool for his purposes to help his observations and decision making which is the edge. This contrasts with our deductive default trader that would sit at his screens and just pick out ‘random’ finished auctions and walk away disillusioned at the futility of it all.

Ultimately, this footprint setup, or even the tool itself is only an example that can be interchanged with in any other since we are dealing with a general principle – and is the main takeaway of this article. For the correct usage of trading tools and general learning there must be weight and depth behind what you are observing. Place deliberate emphasis on inductive questioning and observation in your trading domain to ensure adaptability to the current market environment. Constantly prune through your trading plans and debrief approaches to make sure there is no ‘face-value’ and shallow deductive-like assumptions that likely create blind spots in your own process.

Good trading to you all,

Bogdan

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
Facebook: https://www.facebook.com/AXIAFutures/
YouTube: https://www.youtube.com/AxiaFutures
LinkedIn: https://www.linkedin.com/company/Axia-Futures/

Contacts:
Demetris Mavrommatis – Co-Founder, Head of Trading
Alex Haywood – Co-Founder Head of Strategy

Pyrros Dimas is a legendary figure in Olympic Weightlifting.  A frequent favourite among weightlifting fans, the Greek lifter is known for his showmanship, physique and dominance on the lifting platform at a time when the competition was razor sharp and unforgiving. As a multiple gold World and Olympic champion, he would prove inspirational to both professional and amateur lifters alike, myself included among the latter.

A more recent documentary, produced by The Two Doctors, provides a wonderful overview of Dimas’ life and evolution as a lifter. While I previously devoured this documentary when I had been training for weightlifting, I recently rediscovered it again during a period in my own trading path when it was not moving in the right direction.

One central concept had struck me during the entire documentary – as Dimas’ puts it he had found ‘the right system at the right time’ which propelled him to his first Olympic Gold medal.

What was the right system, why was it the right time and how is any of this related to trading?

Consider the development path of Dimas in his own weightlifting career. All barbell sports attempt to address the issue of periodization – how to best train the body over a period of time to make it capable of lifting a specific amount of weight of a lift on competition day.

With Olympic Weightlifting much of successful periodization was dominated by the Russian or Soviet approach since the 1950s until somewhat recently. This approach was slow and gradual that featured many exercises as variations of the competition lifts. Training frequency, volume of work and the weight on the bar would be extremely modular, finely tuned and very dependent on what kind of weightlifter you are training. New weightlifters (often children) would often combine different sports and occasional light weightlifting with heavy emphasis on technique development. This would then dramatically change overtime in the 6-10 year development cycle of a weightlifter’s career until he would be competitive enough for the world championships.

This generically termed and wide ranging ‘Russian’ system of periodization was the gold standard of training until the 1980s when a new system rose to prominence – the ‘Bulgarian’ system. This new system was a complete paradigm shift in both training and results, enabling lifters to lift bigger weights at lower weight classes than ever thought possible.  This system was the complete opposite to the Russian one. Training was year-round and took place 2-3 times a day. It featured only a maximum of 5 exercises that eventually were cut to 3. There were no planned attempts and modulated volume of work or weight on the bar. The sole objective was to lift the maximum weight you can for a single repetition of these 5 exercises, two of which were the exact competition lifts (snatch & clean and jerk). If you lifted your maximum weight you would attempt more no matter how long it took.

Due to the complete contrast in training philosophy and the issue of the outsider looking in, many new weightlifters, often self-taught, assume these two training systems are mutually exclusive and one can never cross over to the other. During the time I was training for weightlifting myself, I often saw a trend for new weightlifters to directly jump into the Bulgarian system while they were still very raw. They had bad technique, their bodies have not had any time to adapt to the sport itself both in long term stress and short-term adaptations. They did not understand the individual and somewhat unique ways their body responds to training stimulus.  

Why was this the case? Firstly, there is an allure to the Bulgarian system as a quick, dramatic, and flashy way to train and progress. Secondly, the time investment to successfully learn how to apply the long-term development cycle of the Russian system was not palatable. In effect, the classic immediate gratification, desire for quick success, quick results mentality had struck again.

More innocently, these new lifters would observe how the top lifters are training right now and attempt to mimic them completely. They assumed that this is how they always trained, that they got to the top level by doing the same thing as they always did. There was no realisation or consideration that these top lifters in fact may have trained completely different when they started, and their training evolved overtime.

Dimas himself mentions this in the documentary that without his “previous base” he would have been “injured in the system” and wouldn’t be able to “stand up to that stress”. This ‘previous base’ was the Russian periodization system which he trained under for most his life until he started to compete for Greece. Once training started with the Greek team the “Bulgarian approach was what worked for [him]…. made [him] a champion” yet he had the “benefit of years of repetition as a base underneath [his] belt”. Even a lifter of his experience and caliber it took him “almost four years from 1991 to 1995 only then did [he] feel the program worked well for [him] and that it was the right one”.

Dimas’ evolution mirrored the experience of other great lifters since the 1990s, in that “if we compare the two programs one being Russian… first it’s good until a specific age, this is a good way to build up an athlete but to be in the highest level I think the second program, the Bulgarian method was much better… I had the right system at the right time”. If one were to research the training evolution of many successful international lifters since the 1980s, they would find the same trend. Firstly, these lifters had built and adapted their bodies through years of workload, repetition, and technique refinement under a Russian based approach. Only once could shoot for the “highest level” their training dramatically evolved into a Bulgarian like system as their entire training and career had culminated to a point where these lifters could thrive under this system.

How about trading?

As mentioned earlier, the concept of the ‘right system at the right time’ had proved to be the final connecting idea that provided clarity on an issue I had been wrestling with year long with my own trading.

I had failed to see the mistake I made with trading which in fact I originally managed to avoid while training for weightlifting earlier in life. Previously I had understood the long development cycle a weightlifter undertakes, that top lifters trained differently when they had first started compared to now. There was obvious futility in trying to emulate their style and training, simply because they were in a different place in their career and therefore had different career goals. They possessed better skills, experience, and capabilities in competition than I had under my belt at the time. Instead I had invested much more time in developing a wider base, better technique with the aim of achieving comfortable, consistent lifting while avoiding predictable injuries compared to others who tried to short-circuit this process.

Yet with trading I had walked headfirst in trying to also emulate senior traders in the wrong way. Certainly, their advice, experience and knowledge are invaluable to one’s own trading development. At the same time, I had ignored the fact that they were in a different place in their trading career and had different career goals. A senior trader with a large trading account could withstand large swings since even a proportionally ‘small’ withdrawal from their account would still be larger than a junior trader’s best career month’s profit by a substantial magnitude.

Due to these different career goals, they could realistically take on specific trades, risk management styles and execution that is not only survivable but likely to take them to the “highest level”. This is what the Bulgarian system would be to Dimas at “the right time”.  

Yet, take a junior trader training, who is still raw and developing with a small account. Fundamentally he should recognise his career goals are fundamentally different to that of a senior trader – account building or rebuilding takes priority. Therefore, the specific trades, risk management style and execution must be centered around consistency in building frequent positive, profitable days while sacrificing strategies and styles that cause too much of a swing in profit and losses. To compare, these traders need the “benefit of years of repetition”, the consistency in their approach to “build an athlete” as Dimas and other legendary lifters had developed under a Russian approach to their young careers.

As such, I had been going down the wrong path in my personal trading journey as I had been trying emulate these senior traders in the same way I had seen new lifters naively start their weightlifting journey with the Bulgarian system. All the while I was suffering from the perspective of an outsider looking in. A perspective where inexperienced eyes often draw the wrong conclusions more of than not. My risk management system emulated that of a trader with a large account, my thinking and mentality emulated that of a trader with triple the experience that I had. My depth of understanding in certain trades or plays was superficial compared to the amount of capital I was committing to them.

I was trading with the wrong system at the wrong time – the wrong mentality, risk management and expectations at this point in my career. Innocently, too I had had a convoluted outlook on my own growth and change as a trader. The same way novice lifters would assume world level lifters have always trained the same way as they do now – I too had assumed all the senior traders are trading now like they had done at the start of their career, and that specific method, trade or market is what got them profitable. Naively then, I assumed I could short-circuit progress this way by also trying to emulate their specific method, trade, or market since they too also traded the exact same way as junior traders.

‘Wrong’ is a blunt word to describe issues, especially in a non-linear complex world like trading. Yet, by naive implication – if there is a ‘wrong’ then there is a right answer. To encapsulate this article, there is no blanket right answer but there is a personal right answer depending if it is the ‘right time’. To those at a similar stage of the trading path as myself: Consider your current career goals, where are you within your career, your account size, your necessary withdrawal rates. From there derive your objectives for appropriate risk management. What risks do you take and not take? How do you mange up and down days? Do you prioritise outright consistency at the potential cost of missing a big but low probability move?  I had answered these questions myself and found my own personal right answers since I had clarity that I am fitting them with the context of the ‘right time’, and from this clarity I have found progress.

Good trading to you all,

Bogdan

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
Facebook: https://www.facebook.com/AXIAFutures/
YouTube: https://www.youtube.com/AxiaFutures
LinkedIn: https://www.linkedin.com/company/Axia-Futures/

Contacts:
Demetris Mavrommatis – Co-Founder, Head of Trading
Alex Haywood – Co-Founder Head of Strategy

Market and volume profile charts are familiar to a larger group of traders compared to the footprint. Likewise, most charting software offers market and volume profile charts – yet Sierra Chart Market Profiles offer much greater flexibility, intuitive profile construction and quality of life features that are underutilised by its users.

Therefore, to continue our Sierra Chart tutorial series, in this post we are going to look at setting up numerous types of profile types, ranging from standard usage, useful addons, and various tricks that will weave your charts together to make its usage much more sleek.

Much of the guide is written linearly, a start to finish read through will leave you in good standing to build your own profile. However, it is worth skimming through to read relevant areas for yourself or using a search function for keywords.

The first part of this post will be an important reminder and refresh about understanding the tools that you are using.

The second part onwards discusses in detail many of the profile settings. For current Sierra Chart users who are already content with their market and volume profile charts, it would be worth reading part four. This section delves into combining your candlestick and footprint charts with profile overlays aimed at making it simpler to extract profile values efficiently. 

Part One: Understanding The Tools

As discussed, in a previous post on footprint charts, it is critical as traders to understand how edge is extracted from the tools we use.

These various information gathering tools (like profiles or footprint) are often used backwards. This mistake is created when the tool itself is seen as the ‘edge’, which gives a scripted response or trade from the user.

Consider the novice attitude of wanting to print a profile to just find out value area highs and lows and then executing trades around these prices in a ‘vacuum’ with no consideration for any other factors. In a way, this automation of providing the user with market levels to trade around is an attempt to short circuit the deeper learning experience. Perhaps this is an attempt to outsource emotional and thought accountability to an outside ‘tool’ that can then be blamed or praised for trading results. 

Not only should this issue take center stage to your trading as whole, but it is a vital consideration to understanding what you want out of your tools. What specific use is a volume profile providing you? Why are you highlighting ‘single prints’ on your profile, how does this fit into both your information gathering and your trading execution?

Simply, as you learn to build your own market and volume profiles, or any other tools first understand what you do not want from them, then further refine the features that you wish to keep. This should always keep you in good stead to make full and practical use of the tools and charts that you put in front of you.

Part Two: The ‘Standard’ Profile

NB: This guide will not reference each setting line by line. It will focus on the main and most important settings and will leave out self-explanatory settings which are not critical. If some settings are not addressed here then you can leave them as per the Sierra Chart default setting.

Sierra Chart refers to market profile as a ‘TPO Profile’. Likewise, this is what you must look for in the study menu under the ‘Analysis’ tab.

Before this guide delves into the settings proper of the TPO study. It is critical to understand the session time functionality in Sierra Chart. This is due to the time component that is the core of a market profile. (Time Price Opportunity).

As such, Sierra Chart uses your session times to highlight the initial balance, open and close prices and when to stop printing the chart all together.

Consider these settings for the ES based on London time (GMT +0).

Sierra Chart separates data and other studies based on your ‘Session Time’ and your ‘Evening’ period.

Your ‘Session Time’ should fit in with the market’s cash open and close if a study is centered around this like the market profile. In this case we are printing the TPO’s only from the ES cash open (14:30 GMT) to close (21:00)

‘Use Evening Session’ is unticked. This means we are excluding the evening session or outer hours.

This will make the initial balance print from 14:30 to 15:30 if your settings deem it as one hour. Likewise, your open TPO letter will be the first price traded at 14:30.

However, it is still useful to have your evening session as a full 24 hours. Why? You can use shortcuts to quickly flip between seeing only your ‘session’ and the full 24hrs (Ctrl+G, or Chart > Use evening/full session). This gives you a quick view of the profile over a whole 24 hours and just a cash session.

Moving on, the settings menu for the ‘TPO Profile’ is shorter and more self-explanatory than the footprint (Number Bars) however, it still can be cumbersome for new users to quickly get acquainted with these settings.

A TPO chart and a volume profile are treated as two separate studies in Sierra Chart. If you already have created your market profile and would like to attach a volume profile, skip to part three as this will be addressed further down.

To start, remember that the most important settings with any ‘study’ in Sierra Chart is always closer to the top rather than further down the menu.

Following on from popular usage and in line with Dalton and Steidlmayer’s books on the profile, you will most likely want these settings as shown above.

Letter/Block Price Increment in Ticks – is a reference to the resolution that you want each TPO and volume to match per tick. The lowest and most accurate is ‘1’.

Tip: thin and wider range markets often are quite heavy on computer resources when you zoom out and moving quickly along the chart. Consider changing this setting to ‘2’ or ‘4’ if looking back through a lot of profile charts in a hurry.

Profile Time Period Length/Length Unit – Simply this is the period displayed per profile. ‘1’ Period length and ‘Day’ length unit is the whole session per profile. Additionally, this can be changed to ‘2’ days aggregated per profile. Moreover, ‘Days’ can be changed to ‘Weeks’ for a standard weekly profile, alongside other time options.

TPO Letter/Block Time Period Length & Unit – this is a reference to each TPO letter per time frame. ‘30’ would make each letter print for 30 minutes. This can also change to seconds or different period length for more niche profiles.

Letters Always Start at Primary Session Start Time – this changes the order of your TPO letters, which can also be customized as shown later in the guide. However, for new users it is easier to set this to ‘Yes’ when starting off.

Highlight… – Self-explanatory, choose as needed. Choose ‘Yes’ if going for a standard profile.

Highlight…. Based on volume – Keep ‘No’ as a volume profile adjacent to your market profile will be better suited for this.

TPO Value Area % – What you deem the value area to be as a percentage.

Extend…  – These are useful features to highlight important profile areas. ‘Until future intersection’ will leave these prices highlighted as a horizontal line forever until the market trades back to them. ‘End of Period’ will highlight the prices but are not extended horizontally after the session has ended.

Poor High/Low – These can also be highlighted, with ‘Price Increments’ as a threshold for Sierra to determine what should be highlighted. However, its recommended to not chart this. Much of what should be considered Poor High/Lows might change overtime depending on market and volatility. Moreover, if you are new to profile you want to train your eyes to spot these areas and consider them intuitively. Highlighting them risks creating blind spots. 

Volume Value Area.. ignore as we will have a separate study.

TPO Letter/Block colors…. Single Solid colour would be a ‘standard’ option. There is support for colouring each TPO differently. Useful for making Weekly coloured profiles where each day is coloured differently. This will be discussed later in the guide.

New Period … When using Evening Profiles – This will print a profile for the overnight or evening session then start a new once the ‘day session’ begins. For example, this setting with an ES chart will print a profile from 00:00 GMT to 14:29:59 and then create a new one from 14:30 until 21:00. Importantly, this is very dependent on correct session times. Refer to the start of the guide for more information. Likewise, this setting only works if ‘Use Evening Session’ in the chart settings is ticked.

Highlight…  – Useful if needed for niche settings. Recommended to not have these activated as they will overlap the chart with too many different colours therefore obscuring the more important information.

Initial Balance Range – ‘2’ would print a 1-hour IB from your ‘Session Start Time’ in chart settings. The numbers refer to the amount of TPO prints you designated from ‘TPO Letter Period Length’. If 1 TPO letter is 30 min, and you want a 1-hour IB, then 2 would be the correct setting.

Letter/Block Color – These are the colours assigned to each consecutive TPO starting from the first print. These settings are only activated if ‘TPO Letter/Block colors’ are changed from a single colour to multiple.

TPO Letter Sequence – Right at the bottom of the menu, you can change the order in which TPO letters appear, this is also case sensitive so more letters can be used.

Colouring

Lastly, the colour settings of the profile will be just as important. These can be found in the ‘Subgraphs’ tab as per any other Sierra Chart setting.

Most of this menu will be self-explanatory. However, the are two features to consider more closely.

Some colours or settings can be visible or ignored all together under the ‘Draw Style’ menu. For example, the ‘Point of Control Color’ is under ‘Ignore’ so not printed on the chart.

Compare this to the ‘Value Area Extension Lines’ which are visible as per the ‘draw style’. Moreover ‘Value Label’ is also ticked so the exact price of the value area highs and lows are highlighted on the y-axis (price) column.

The result should a profile like this. We have a 1-hour IB printed in purple. Clear TPO value area and outside value areas. The Opening print as a red TPO. POC printed in blue. Lastly, the TPOs print A, B, C, D etc.

Sierra Chart Market Profile Manipulation

As mentioned previously, Sierra Chart has many quality of life features. Concerning the profiles, it is also easy to manipulate your charts directly through a menu without further tinkering the settings.

Firstly, however with your mouse over the profile you wish to manipulate.

Then, right-clicking on that profile should give you this menu:

Most of the options on the right-hand side are self-explanatory.

‘Letters in Own Column’, ‘Merge with Prior Profile’ and ‘Split..’ will be your most used.

If your chart becomes too disorganized, remember to use ‘Reset TPO chart’.

Part Three: Volume Profile

While optional for some, the volume profile adjacent to the market profile has become a staple if not the primary analysis tool for many traders. Sierra Chart can efficiently plot this next to your market profile chart like so:

Like the TPO chart. We have setup this volume profile to match the same prices as the TPO and to also highlight volume value areas, VPOC etc.

Importantly, the volume profile is treated as a separate tool to TPO in Sierra Chart.

To use it, First setup your TPO chart and have it ready within the settings. Then add the volume profile ‘VBP’ as Sierra Chart will auto configure this to be compatible with a TPO chart.

They should both appear in the ‘Studies to Graph’ window.

Once your TPO profile is prepared. You can look for the volume profile named as ‘Volume by Price’ in the settings window.

It is likely that the default Sierra Chart Volume by Price settings will already be suitable for immediate use. If not we can delve into the settings to make the necessary changes.

Draw Mode Leave ‘Volume Profile’ selected unless you want to chart more information like VWAP.

Ticks Per Volume Bar – Calculates the resolution of your data. ‘1’ is all the volume exactly aggregated per session at each price. ‘2’ would aggregate all the volume per two ticks etc. Leave this as ‘1’, if you need to change this due to performance issues, change the same settings in your TPO chart in stead

Set as Independent Volume Profile for TPO chart – This is the most important setting here. This should always be set to ‘No’ as it will exclude many settings, which are not needed, and save you time from changing them. This setting neatly organizes each volume profile per day as it is connected to the market profile for that session.

If the above is set as ‘No’ then the rest of the settings from ‘Time Period Type’ to ‘Maximum Volume Bar Width Type’ can be completely ignored as they will no longer affect the volume profile.

Right Align Volume Bars – Flips the direction the bars are facing

Display Volume in Bars – Can be used to numerically show total volume or delta etc.

Volume Bar Calculation Method  –

This can be kept as ‘Total Volume’ for standard volume profiles. However this can be changed to represent delta if needed.

Bid Volume and Ask Volume….

Useful like the other settings in this screenshot if you need delta to have its own colour change or representation.

Highlight Value Area – Important to activate if volume area highs/lows are needed.  

Extend Value Area – ‘Until Future Intersection’ will draw horizontal lines if that price is left untraded in the following sessions.

Value Area Percentage – as desired

Point of Control – activate as desired, using same logic for ‘extending until future intersection’ or not.

If the Setting ‘Set as Independent Volume Profile for TPO chart’ was selected as ‘No’ then all the following settings left in the menu can be ignored. It is worth doing this to save time. Likely if the rest of the settings are needed – then the volume profile fits a more niche role likely to be used for an advanced user.

Part Four: Sierra Chart Market Profiles And ‘Other’ Charts

As mentioned previously, it is noticeable that even competent Sierra Chart users may underutilize the full tools of available. In this case, we can combine our candlestick or footprint charts with a volume profile or perhaps automate the display of key profile reference points.

A general rule is that any point of reference you can find on a profile or volume chart you could transplant onto any other non-profile chart.

In this example we will aim to add a volume profile to both a candlestick and footprint. Concerning this footprint example, we can see on the right handside a volume profile is printed with a VPOC and the value area highs and lows are drawn automatically on the chart. This is especially useful for a footprint chart to not get lost easily from where we are trading if the market becomes very volatile and directional. At the very least will help save and effort when the market and your ladders require your immediate attention.

Furthermore, consider this example where we have transplanted the volume value area and VPOC onto a simple 5min candlestick chart:

Using that logic, you can find the relevant points of reference in the ‘Studies Available’ column. We wanted to add Volume Value area lines and found the study named as ‘Volume Value Area Lines’:

Lastly, consider this flexibility in charting in resolving a specific problem. Many times when a market would blip due to news you would be interested in seeing the most recent and fresh volume profile to spot specific ledges or areas to get involved. However, if the market trades back within previous prices it is likely that your current volume profile will overlap with the freshest volume traded.

As such in this example chart, the VBP (Volume by Price) study tracks the ‘Visible Bars’ in a short time frame chart. In doing so, one can quickly scroll the chart to display only the bars since the news headlines hit the wires, thereby providing a clean and quick reference to the structure that has now been separated from the aggregated volume of the whole day.

This is another good example where knowing the things you do not want from the chart, and applying your tools very specifically to your own edge should quickly provide answers on how intuitively prepare your volume and profile charts.

Good trading to you all,

Bogdan

Learn To Trade With The Profile & Other Advanced Tools

If you enjoyed this article, you might want to consider taking our market profile trading course or viewing out our full range of Trader ​Training courses. Our flagship 8 Week Career Programme can be attended live on our London Trading Floor or virtually from home as an online trading course. We offer the most comprehensive training programmes in the proprietary​ ​futures​ ​trading industry which are based​ ​upon years of successful in-house skill​s ​development​.

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
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YouTube: https://www.youtube.com/AxiaFutures
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Contacts:
Demetris Mavrommatis – Co-Founder, Head of Trading
Alex Haywood – Co-Founder Head of Strategy

As such, we will do the same here in this blog. While we will be unpacking the technical aspects of using the Sierra platform, it’s worth noting that we also offer a complete course on Footprint Trading Strategies. That said, let’s dive in.

The first part of this guide will take an existing footprint and break it down so that you can understand the different choices made when creating a footprint chart and its final results. This will be done intuitively with descriptions along the way.

The second part of this guide will then be more linear and intended as a reference. It will go over the footprint study settings so we know where to focus most of our attention and where to find all the ‘fiddly bits’ that add more quality features to your footprint chart.

Do note, the second part is not wholly inclusive of all settings. Only the most relevant settings to beginner and intermediate users will be explained. A quick search within the excellent Sierra Chart documentation on their website is always a best practice when you are trying to uncover a niche setting.

NB: The footprint study in Sierra Chart is referred to as ‘Numbers Bars’

Part One: Understanding the Sierra Chart Footprint

I will start this guide by specifically addressing new traders who are also new to Sierra Chart.

A usual pitfall for this group is that they first load up the footprint settings and attempt to assemble a chart that ‘looks good’. To put it another way – there is no intuition behind what data they want to draw from the market and how to organise it effectively for edge. In essence they are hoping the settings will ‘show’ them something with ‘edge’ straight out of the box.

This creates two problems. The first is clear – disappointment and skepticism due to not finding footprint charts useful. Secondly, this mentality severely hinders effective and logical footprint construction from the ground up. This group usually finds the many choices within the settings overwhelming because they don’t know what to exclude from the footprint chart.

Therefore, the correct way of getting started is to design a footprint around a specific activity or order flow that you have intuitively noticed and understood yourself without the need for a footprint chart. Next, you should start to piece together the footprint chart by building it specifically to help you with that basic observation. Ask yourself “How would a footprint chart best be built to filter for this data? What would be the most effective and cleanest way to display this?” And so on.

In essence, to build a useful footprint chart you must have: Observation > Idea > Footprint build > Edge (or enhancement)

This is in direct contrast to the error mentioned previously where new users expect:

Footprint > Observation > Edge

Using the rationale above, we will use it to explain how our example footprint was built, why it has certain features and why it does not have others.

Building the Sierra Chart Footprint

This footprint was built to clearly display several order flow observations that have an impact on decision making.

A – Highlight of finished and unfinished auctions.

B – Red colouring of dominant selling at that price (hitting the bid). Volume profile also compliments to quickly spot large selling volume.

C – Volume profile as background type.

This footprint was made specifically to keep track of these three observations and later trading ideas built out of these observations.

Observation A – Fished auctions (122×0) after a protracted move would create a very ‘snappy’ or ‘flicky’ low on the price ladder. Often these created the low or bounce of a move. Inversely, contested auctions (unfinished) tend to get traded through until an actual finished auction is put in (tendency to trade back).

Idea A – Could we use this observation on a footprint to further give confidence that the move is retracing. Therefore fade the move or give confidence in a pull-back? Or could we use unfinished auctions at the high in a trendy low volatility day that the pullback is temporary and the trend will continue ?

Footprint Build– ‘Highlight Nonzero BidAsk Volume at High/Low’ (Ln:115) was turned on. Easy to spot finished and unfinished auctions.

Observation B – Strong selling at one price that generated good auctioning activity to sell lower can be retested and often prove to be a pullback high. Similarly in a breakout move lower, strong bidding could try and lift the price but gets held at one price (absorption).

Idea B – We could use these prices that stick out due to the colouring and volume shape to join or rejoin a breakout move on pullbacks. These locations often provide good risk – reward.

Footprint Build – ‘Column 1 Background Coloring Method’ (ln: 18) setting changed to ‘Based on AskVol/BidVol Percentage’. This setting uses percentages to determine the difference of the volume hitting the bid vs lifting the offer and colours the proportional difference.

Observation C – Different prices generate different levels of participation. On faster moves this change can be very obvious yet easy to miss during volatility. Are there patterns in this participation change?

Idea C – We could use the volume profile shape (as opposed to none or split) to show specific patterns. That we can copy from market profile and infer from auction theory to give context to future order flow.

Footprint Build – ‘Column 1 Background Type’ (ln:17). Changed to ‘Volume Profile’

This footprint was purpose build for just these three things. Therefore since we know what we want to see, it is much easier to build this footprint from the ground up and which settings are correct within the vast option of choices. As mentioned earlier, I know which options I do not want.

For example, in regards to background type. We do not want a split bid/ask profile as this doesn’t easily show the pattern or shape of the volume as we move to generate patterns. Likewise, we also do not want a full background as there is no shape to it at all. In regards to the finished/unfinished auction highlight. I added this specific functionality due to the original observation. It wasn’t added blindly for no use or reason.

Ultimately, what has this done? This footprint build has given me: clarity of data, purpose and understanding of what we want to see, and when to see it and finally provides an enhanced edge for order flow trading.

Part Two: Footprint Study Settings

The core logic of the footprint settings in Sierra Chart is based around 3 Columns:

Correspondingly, they appear on the chart like so:

Any changes you make to the ‘Column 1’ settings will make changes to the first column. The same is true for the other two columns.

The bulk of the work involved in setting up your footprint will be done within this part of the study settings.

Much of the time, most of your footprints will only use ‘Column 1’, while completely ignoring the other two columns. Be careful to not mix-up your settings across the columns as they will display incorrectly. Keep your footprint ‘logic’ all within one column.

It would be useful to regard the remaining columns as optional, separate and side-by-side footprints for differently composed information.

The most relevant settings here are always the first 4 options. ‘Numbers Bar Text’, ‘Background Type’, ‘Background Colouring Method’, ‘Text Colouring Method’.

Each setting has a numerical reference eg: (ln:17) or (ln:23) at the end of their name. These are ordered in the settings. For example, if this guide references (ln:100) then you can scroll down to (ln:100) in the settings to easily find it.

‘Numbers Bar Text’ and ‘Background Type’ is fairly self descriptive. The background and text colouring methods rely on ‘Ranges’. These range settings are used if you choose the settings ‘Based on AskVol/BidVol Percentage’ or similar. There is a vast amount of options here which certainly is overwhelming. However the previously mentioned setting is the most easy and simple to use and covers the requirements of most footprint charts. Otherwise the Sierra Chart documentation is a very good resource to get into the small nuances of each setting.

These percentages which can be set from (ln:91). By default they will be listed as 0.25, 0.5, 0.75. These 3 refer to Range 1, Range 2 and Range 3 respectively. Therefore you can adjust the sensitivity of the colouring from this setting.

The next area with ‘Pull-back Columns’ can be ignored for now. This section involves historical pull-back data supported in Sierra Chart. This fills a niche for a specific type of footprint and likely would only interest you as an advanced user.

Moving on, the next area deals with highlights and text colour. The ‘Default Text Color’ deals with the colour of the footprint numbers if you don’t have a custom text colours based on bid/offer or volume change variables. This custom colour option is located at the beginning the ‘column settings’.

The ‘Highlight Point of Control’ will reference that footprint specifically. This is not the same as the daily POC. Moreover, as with all the highlights you need to choose what column to display it in. Ideally this will be in the same ‘column 1’ as you are referencing all the settings so far – to keep everything together.

The actual inputs for the ‘Highlight Min/Max value In’ where you would specify the values are further down the study settings. They are located as ‘Highlight Max/Min Value Based On’ located at (ln:99)

The next section deals with more formatting and quality of life (easier on the eyes) settings. To replicate other footprint software you can separate the Bid/Offer values with any character. ‘X’ to display 200×500 or perhaps ‘|’ for 200|500. The other settings are font sizes which is worth playing around with to suit your own preferences.

Lastly, towards the bottom of the settings you will find the percentage settings for the colouring of the text or the background. Make sure you correctly put this into ‘Column 1’ if that is what you are using and not the rest.

As mentioned previously, these are not the entirety of the footprint settings in Sierra Charts. However they will be the most frequently used and relevant for the vast majority of footprints unless they would require something niche.

Good trading to you all,

Bogdan

Learn To Trade With The Footprint & Other Advanced Tools

To learn to trade with the footprint chart and develop your career further as an elite trader then check out our full range of Trader ​Training courses. Our flagship 8 Week Career Programme can be attended live on our London Trading Floor or virtually from home as an online trading course. We offer the most comprehensive training programmes in the proprietary​ ​futures​ ​trading industry which are based​ ​upon years of successful in-house skill​s ​development​.

Axia Futures
4 Endsleigh Street London GB WC1H 0DS
+44 20 3880 8500
https://axiafutures.com/

Social Media:
Facebook: https://www.facebook.com/AXIAFutures/
YouTube: https://www.youtube.com/AxiaFutures
LinkedIn: https://www.linkedin.com/company/Axia-Futures/

Contacts:
Demetris Mavrommatis – Co-Founder, Head of Trading
Alex Haywood – Co-Founder Head of Strategy