Friday, 12 August 2016

Understand the System Understand required Psychology

In DP system we wait for Order Flow imbalance
Personally this was the Turning Point in my career as trader.
What is Order Flow:

How Market Moves ?
Market moves up when Bids hit the current price.
Moves Down when Ask hit the current price.

What are we looking for ?
Excessive imbalance in Bids / Ask so that Market makes a Accelerated move.

Who are Responsible for this ?
Market Consists of Day Trades, Market Makers, Long Term Traders.
For Our DP system we are interested in Day Traders.
Market Makers are not bothered how market moves they are paid by stock exchange for stabilizing market. To avoid crash moves.
Long Term Traders are seen occasionally (During Type 1 day). 

Crux of DP system:
Non Random move happen till Next DP this could be BOF/BPB.
So we initiate Trade from DP. This is the Place where traders take call 

This happens  for Just 1-2 Times in a day and for a very less Duration.

Now Coming to the point if this is how system works Let get some Metric of the System
6hours 15 minutes (9:15 - 3:30 PM) 375 M
Average Trades per Day(Few days 0 Trade, few days 1-2) 1.5
Average Time on a Trade 30 M
% percentage of time in Action 8
Decision Taking Time 30 M
% Percentage time taken to make Decision 8
Total Time where actual focus is required Decision time + Average Trade Time 60 M

Which is approx 18-20%.

Rest 80% of time you have to practice waiting. Learn the art of waiting. 
80% of your work is to wait. You have to do this properly. This has to suite you personality.
System is not for restless person.

Go through your trade logs if you are taking more than 2 trade on average per day you are not practicing patience.

Hope I am able to convey why Patience/Waiting is important in this system.
By Waiting I mean focused waiting.