Monthly Archives: January 2025

All Resource Guides, Archive, Volume Profile Guides

Market Memory

Posted on by Conor Browne

Harnessing Market Memory: A Novel Approach to Volume Analysis for Day and Swing Traders

Abstract:

This article explores a unique method for analyzing trading volume in financial markets, grounded in the concept of ‘market memory.’ Market memory, a term rooted in the works of Benoit Mandelbrot, serves as a metaphor for the lasting impact of trading events, similar to how a scar provides a record of past injury. We investigate how market memory influences price movements, aiding traders in predicting real-time price trajectories for both day and swing trading.

Introduction:

Like living organisms, financial markets bear the scars of their history. These scars are not visible on the surface but are subtly etched into the fabric of the market, leaving indelible marks known as ‘market memory.’ As Mandelbrot’s theory posits, the market doesn’t forget; it carries the memory of past events, influencing the future in a fractal, non-linear fashion. The ‘volume profile,’ an often-overlooked analytical tool, serves as a prism through which we can perceive and analyze this memory.

Volume Profile and Liquidity:

Volume profiles visually represent trading volume distributed across different price levels. High-volume nodes indicate areas of significant liquidity where the price tends to consolidate, akin to a battlefield where bulls and bears vie for supremacy. Low-volume nodes, or ‘volume wells’, represent areas of lower liquidity where the price tends to move more freely, trending in a particulardirection. Understanding these dynamics of consolidation andtrending is crucial in predicting price movements.

Persistent Volume Profile Features and Their Strength:

The strength of a volume profile feature—be it a high-volume node or a volume well—is determined by its size, longevity, and the degree of volume change at its edges. Large, well-established nodes act as robust consolidation zones, their edges representing significant support or resistance levels. Their relative strength can be visualized using color coding and line thickness on the chart. Furthermore, the relationship between parent (large) and child (small) nodes offers crucial insights into market structure and potential price movement.

Interpreting Market Memory Through Volume Profile:

A volume profile allows traders to decode market memory and develop predictive scenarios for price movements. Price behavior around volume nodes and wells provides insights into the market’s path of least resistance. Steep edges of high-volume nodes signal inflection points in the market, while the absence of volume (in volume wells) often precedes accelerated price movements. Thus, interpreting market memory through a volume profile aids traders in anticipating market behavior, arming them with a reliable tool to navigate the often-turbulent financial markets.

Conclusion:

By integrating Mandelbrot’s theory of market memory with volume profile analysis, traders can better understand market dynamics.

This innovative method provides a unique perspective on historical trading activity and a powerful predictive tool for future price movements. As traders and analysts, recognizing and understanding these ‘scars’ of the market, we are better equipped to anticipate, navigate, and ultimately profit from the intricacies of financial markets.

The final article would be much longer, with detailed sections on each topic, including practical examples, further elaborations on the theories involved, and potentially some empirical evidence of its effectiveness in real-world trading. This is an outline that broadly covers the key topics.

Here are the topics that would benefit from further detailing, along with the suggested empirical evidence:

  • Market Memory Theory: An introduction to Mandelbrot’s theory of market memory, explaining how markets, like living organisms, retain a memory of past events. Empirical evidence could include comparing past and present market events and demonstrating recurring patterns underlining the theory.
  • Understanding Volume Profile: A detailed explanation of volume profiles, including their creation and interpretation. Empirical evidence could involve presenting a volume profile chart, labeling key elements (high-volume nodes, lowvolume nodes), and explaining their significance.
  • High-Volume Nodes and Liquidity: In-depth analysis of high-volume nodes and how they represent areas of significant liquidity, influencing price movements. Empirical evidence could include specific examples of charts with highvolume nodes dictating price consolidation.
  • Low-Volume Nodes (Volume Wells) and Liquidity: A comprehensive explanation of low-volume nodes or volume wells and how they lead to more free price movement. Empirical evidence could include charts illustrating situations where price has moved freely due to low-volume nodes.
  • Strength of Volume Profile Features: An explanation of how the strength of volume profile features is determined, focusing on size, longevity, and the degree of volume change at the edges. Empirical evidence could involve charts highlighting these factors, correlating them with the strength of the price movements.
  • Parent-Child Nodes Relationship: Discuss the concept of parent (large) and child (small) nodes and how their relationship can influence price action. Empirical evidence could include charts illustrating parent-child node relationships and subsequent price action.
  • Market Memory through Volume Profile: A section on how volume profile can decode market memory, predicting price movements. Empirical evidence could include past trading charts where volume profile analysis has successfully predicted price action.
  • Real-world Case Studies: These could be a series of charts taken from various markets (equity, commodities, forex, etc.) showing how the volume profile analysis has been applied in real-world situations and the outcomes.
  • Concluding Remarks: The final section should wrap up the key findings, reinforcing the potential of this approach for traders.

While charts and case studies provide concrete examples, they should be supplemented with a robust theoretical framework to explain the concepts and validate the approach adequately

All Resource Guides, Archive, Foundational Guides

Retrospective Process

Posted on by Conor Browne

Weekly Retrospective:

Review Journal Entries:

  • Assess market conditions
  • Evaluate trade execution
  • Assess mental state during each trade
  • Evaluate the overall management of these factors

Identify Trends and Patterns:

  • Evaluate areas of strength
  • Identify areas for improvement

Develop action plans:

  • Focus on specific, measurable and actionable steps
  • Address areas for improvement

Reflect on the Process:

  • Consider lessons learned
  • Acknowledge steps taken to improve
  • Identify steps still needed to reach the desired performance level

 

Monthly Retrospective:

Review Monthly Journal Entries:

  • Assess market conditions
  • Evaluate trade execution
  • Assessment state during each trade
  • Evaluate the overall management of these factors

Identify Trends and Patterns Over the Month:

  • Evaluate areas of strength
  • Identify areas for improvement

Develop Action Plans:

  • Focus on specific, measurable and actionable steps
  • Address areas for improvement

Reflect on the Process:

  • Consider lessons learned
  • Acknowledge steps taken to improve
  • Identify steps still needed to reach the desired performance level
All Resource Guides, Archive, Foundational Guides

Make Journaling a Habit

Posted on by Conor Browne

Building the Habit: A Step-by-Step Guide to Master Trading Journaling and Continuous Improvement

To transform the daunting task of creating a habit into an approachable, step-by-step process, we’ll borrow from the wisdom of behavior science. We’ll apply the four laws of behavior change, as outlined by James Clear in his book, “Atomic Habits,” to mastering trading journaling and continuous improvement.

Step 1: Make it Obvious (Cue)

The first step to habit formation is to make the cue obvious. In this case, the cue is finishing a trade.

Action: Dedicate a specific, clutter-free space for your trading journal. This could be a physical notebook or a digital platform. Have it open on your desk or screen whenever you’re trading. Seeing the journal will remind you to log your trades immediately after they’re done.

Step 2: Make it Attractive (Craving)

The next step is to make the habit attractive. To do this, we’ll use a technique called ‘temptation bundling,’ where you link the habit you need to do with one you want to do.

Action: Pair journaling with an activity you enjoy. For example, treat yourself to your favorite beverage while journaling, or listen to a favorite piece of music. This simple reward system makes the process of journaling more appealing.

Step 3: Make it Easy (Response)

Make the habit so easy you can’t say no. The trick is to start small and gradually build up.

Action: Initially, don’t worry about detailed journal entries. Start with logging just three key details – the trade, the outcome, and one sentence on why you made the trade. Once you’re comfortable with this, slowly expand your entries to include emotions, reasoning, and lessons learned.

Step 4: Make it Satisfying (Reward)

The final step is to make the habit satisfying. We’re more likely to repeat a behavior when the experience is positive.

Action: Dedicate time each week to review your journal and reflect on your progress. Seeing your improvement in black and white is a powerful motivator.

Embrace Continuous Improvement

Now that the journaling habit is established let’s focus on the continuous improvement process:

  1. Weekly Reviews: Schedule a fixed time every week to review your journal. Look for patterns, common mistakes, or successful strategies. Use your findings to tweak your trading plan.
  2. Set Monthly Goals: Set small, achievable goals for each month based on your weekly reviews. This could be reducing a particular mistake or implementing a new strategy.
  3. Monthly Reflection: Review your progress towards your goals at the end of each month. Celebrate your wins, learn fromyour failures, and adjust your goals for the next month.

Remember, the goal isn’t overnight transformation but consistent, incremental improvement. Over time, these small steps will compound into significant growth in your trading career.

All Resource Guides, Archive, Foundational Guides

Create a Journal & Playbook

Posted on by Conor Browne

I’m sure you’ve heard me say, that if you want to become a consistently profitable, professional trader, you must keep a journal. Well, I’m going to make it easy for you by telling you exactly what should be in your journal and how you should use it every day, and evaluate it every week.

What your journal should contain…

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What your journal might look like…

Screenshot_2023-01-19_at_1.01.47_PM.png

Process for keeping this journal:

  1. Set aside time: Set aside a specific time each day, such as the end of the trading day, to update your journal.
  2. Review your trades: Review your trades for the day and fill out the template with the relevant information.
  3. Reflect on your performance: Reflect on your performance and take note of any patterns or trends that emerge.
  4. Make adjustments: Based on your progress and what you’ve learned, make adjustments to your trading process and plan accordingly.
  5. Review regularly: Review your journal regularly, such as once a week, to reflect on your progress and make any necessary adjustments.

Remember that journaling is a powerful tool for self-reflection and learning; keeping the journal requires you to be consistent and honest with yourself. It’s also critical to go over your journal on a regular basis and make any necessary changes to your plan as you go.

Process for your daily trading…

  1. Monitor market conditions: Keep an eye on the market conditions just before and after the market opens, such as the market’s direction, volatility, and any news or events that may impact the market.
  2. Identify the entry point: Identify the point at which you will enter the trade. This should be based on your trading plan and take into account the market conditions and your risk management strategy.
  3. Place the order: Once you’ve identified the entry point, place the order for the SPX OTM Butterfly. Try to get as close to a 1 to 9 risk to reward as you can. Easy way is to make the debit 1/10 the price of the spread.
  4. Manage the trade: Manage the trade in three separate periods, morning from 9:30 to 12 PM, then early afternoon from 12 noon to 2:30 pm, and then late afternoon from 2:30 pm to 4 pm, which is the close of the market. Follow your plan for exiting the trade based on the market conditions structure and your profit management strategy.
  5. Evaluate the trade: Once the trade is closed, evaluate the trade based on your plan and the market conditions. Reflect on what you did well and what you can improve for the next trade. Enter these thoughts in your journal.

Process for evaluating your trades at the end of the week:

  1. Review your trades: Review all the trades you took during the week using the trade log and journal you’ve been keeping. Pay attention to the trade type, entry, exit, result, market conditions, entry quality, mental state, and any other data points you’ve been tracking.
  2. Accumulate trade log statistics: Create a summary of the statistics for your trades, such as the total number of trades, the total profit or loss, the win-loss ratio, and the average profit or loss per trade.
  3. Reflect on your performance: Reflect on your performance for the week, and take note of any patterns or trends that emerge. Consider factors such as market conditions, entry quality, and mental state and how they may have impacted your performance.
  4. Assemble best examples: Identify the best examples of trades from the week, those that performed well and followed your plan and those that didn’t.
  5. Create a template (Your Playbook): Create a template for the best examples of trades that includes the trade type, entry, exit, result, market conditions, entry quality, and mental state, as well as any other relevant information.
  6. Organize the Playbook: Organize the playbook by the grades given to each trade from the journal. For example, you can create a section for “A” grade trades, a section for “B” grade trades, and an area for “C” grade trades. This will allow you to quickly reference the best examples of trades and see how they performed about the grades given in the journal.
  7. Update the Playbook: Make sure to update the playbook with new examples of trades at the end of each week. This will allow you to build a library of the best trades over time and to refer back to them as you continue to improve your trading process and performance.
  8. Reflect on the Playbook: Reflect on the Playbook and analyze its trades to understand what made them successful and how you can replicate them in the future.
  9. Incorporate the lessons: Incorporate the lessons learned from the best trades into your trading process and plan to improve your performance in the future.

It’s important to review your trades regularly and to be consistent in your efforts to evaluate your performance and improve your trading process. A well-organized playbook can help you to reference the best examples of trades quickly and to learn from your past performance.

All Resource Guides, Archive, Foundational Guides

Why Every Trader Needs a Journal

Posted on by Conor Browne

The Virtue of Vigilance: Why Discretionary Traders Must Prioritize Record Keeping

For anyone venturing into the world of trading, the allure often lies in the excitement of the markets, the prospect of lucrative returns, and the strategy and skill it takes to succeed. Yet, while these are integral facets of trading, there’s an unsung hero in the tale of successful trading: meticulous record-keeping. This article aims to spotlight the immense value that diligent record keeping brings, especially for discretionary traders.

  1. The Clear Mirror to Trading Performance

    Think of record keeping as a clear mirror that reflects your trading strategy’s blemishes and beauty spots. While live updates and account balances give you a sense of how you’re doing, they can’t comprehensively understand your performance. Only a well-maintained trading journal can offer that in-depth insight.

  2. The Basis for Continuous Improvement

    A trading journal isn’t just a record; it’s an essential tool for improvement. You create a robust data set by capturing the details of each trade — the strategy employed, the market conditions, the outcome, and even your emotional state. This data becomes the foundation for assessing what’s working, what’s not, and where adjustments might be needed.

  3. Quickly Spotting Patterns

    Discretionary trading, by its very nature, relies heavily on personal judgment. But how do you determine if your judgments consistently lead to gains or losses? By maintaining diligent records, both advantageous and detrimental, patterns in trading behavior become apparent. Recognizing these patterns early can be the difference between a minor setback and a significant downturn in profitability.

  4. Emotional Checkpoint

    Trading is not just a financial endeavor; it’s an emotional one. By keeping records of trades and personal reflections and emotions tied to each decision, traders can gain insights into how emotions impact their trading. Over time, this self-awareness can lead to better emotional regulation and more rational trading decisions.

  5. A Safety Net Against Overconfidence

    Success breeds confidence, which is generally beneficial. However, unchecked confidence in trading can border on recklessness. Regularly reviewing trading records ensures that a trader remains grounded, basing their confidence on tangible past performance and not mere gut feel.

  6. Legal and Tax Implications

    Beyond strategy and performance analysis, diligent record keeping is also crucial for tax purposes. With clear records, traders can ensure they comply with all necessary regulations and readily provide documentation if required.

  7. A Beacon for Future Strategy

    Your past trades, captured diligently in your records, provide insights into how different strategies fare in various market conditions. Your trading journal can guide you as the market landscape changes, illuminating which strategies best suit the prevailing conditions.

In Conclusion

Discretionary trading thrives on intuition, experience, and judgment. However, traders need to complement their skills with diligent record-keeping to achieve and maintain peak performance. The adage “you can’t improve what you don’t measure” holds profoundly true in trading. By dedicating time to record, analyze, and reflect on each trade, discretionary traders can always move forward, learn from the past, and optimize for a prosperous future.

All Resource Guides, Archive, Foundational Guides

0-DTE Fundamentals Guide

Posted on by Conor Browne

0-DTE Fundamentals

The fundamentals of the 0-DTE (Zero Days to Expiration) trading strategy are built around capturing the rapid decay of options premiums on the day of expiration through asymmetric risk-to-reward setups.

Here’s a breakdown of the core elements:

Asymmetric Risk-to-Reward:

  • The foundation of the 0-DTE strategy is to place trades with extreme asymmetric risk-to-reward ratios. The most common approach is using Out-of-the-Money (OTM) butterfly spreads. These are constructed to limit potential losses while maximizing potential rewards. The debit is kept low, usually under 10% of the width of the butterfly.

Trend Following:

  • Trades are aligned with the current market trend to increase the likelihood of capturing larger moves in the direction of that trend. Market direction is typically determined using moving averages and other technical indicators.

Options Premium Collection:

  • The strategy focuses on the rapid decay of options premiums on the expiration day (0-DTE). This decay provides an opportunity to collect options premiums efficiently, especially in highly asymmetric setups.

Agile Continuous Improvement Process:

  • There is a strong emphasis on regularly reviewing and adjustingstrategies based on performance data. This agile approach allows forcontinuous refinement and adaptation, crucial for maintaining atrading edge in ever-changing market conditions.

Market Structure Analysis:

  • Volume Profile analysis is utilized to understand the market structure and anticipate potential price behaviors. Key elements include identifying High Volume Nodes (HVNs) and Low Volume Nodes (LVNs) to mark areas of potential support and resistance, which are crucial decision points.

Profit and Risk Management Framework:

  • The strategy focuses on monitoring the highest profit achieved and making dynamic “hold or fold” decisions throughout the trading day. As the end of the trading day nears, gamma risk increases, requiring a tighter risk management approach. Scenarios are built for favorable and unfavorable price movements, allowing premeditated decisionmaking.

Strategy Variations:

The 0-DTE strategy is not limited to a single approach; it includes several variations to adapt to different market conditions:

  • OTM Butterfly: A basic long butterfly in the direction of the trend.
  • Batman Strategy: This strategy consists of two long OTM positions, effectively creating a “winged” set up to capitalize on large moves in either direction.
  • Time Warp Strategy: Involves placing both a put fly below the market and a call fly above when trends are unclear or extreme/low volatility is expected. This trade can go out to 1, 2, or 3 days to expiration to capture overnight moves.

Volatility Regime Consideration:

The strategy dynamically adjusts trade types and widths based on the current VIX level. For example:

  • Low VIX (<17): More 1, 2, and 3-DTE trades.
  • Moderate VIX (20-23): Mix of 0, 1, and 2-DTE trades.
  • High VIX (25+): Primarily 0-DTE trades.

Mental Toughness and Discipline:

  • A key component of success with the 0-DTE strategy is the mental aspect. Traders are encouraged to develop mental toughness and discipline, as no strategy or edge can be effectively executed without it. This includes sticking to the plan, executing under pressure, and continuously learning from mistakes.

Incorporation of Eastern Philosophies:

  • The strategy’s philosophy also incorporates Zen principles such as impermanence and the balance of yin and yang (soft skills like strategy and analysis vs. hard skills like mental toughness and discipline). This holistic approach helps traders maintain a balanced and focused mindset, which is crucial for navigating the uncertainties of trading.

These fundamentals combine to create a robust, adaptable trading strategy designed to thrive in various market environments while maintaining a strong focus on risk management and continuous improvement.

Archive, Zoom Daily

Daily Meeting for Tuesday January 7

Posted on by Conor Browne

Refining Execution and Adapting Strategies to Mid-Week Market Trends

• Discussion on mid-week market trends and their implications for ongoing trade setups.

• Refinements to the “big ass fly” strategy to better capitalize on sector-specific volatility.

• Analysis of trades influenced by external macroeconomic factors and adjustments to improve outcomes.

• Emphasis on dynamic position scaling to manage risks effectively during intraday fluctuations.

• Exploration of opportunities in tech and energy sectors driven by recent earnings reports and global events.

• Encouragement to maintain focus on high-probability setups while monitoring evolving market conditions.

Summary

The team evaluated mid-week market trends and their impact on active trading strategies. Ernie highlighted adjustments to the “big ass fly” strategy, emphasizing its alignment with sector-specific volatility in tech and energy markets.

The team reviewed trades influenced by external macroeconomic factors, identifying areas for improvement to optimize outcomes. Discussions focused on dynamic position scaling as a tool to manage risks during intraday price fluctuations.

Opportunities within the tech and energy sectors, driven by recent earnings reports and global developments, were explored for potential high-value trades. Ernie concluded by encouraging the team to concentrate on high-probability setups and remain adaptable to shifting market dynamics.

Archive, Zoom Daily

Daily Meeting for Monday January 6

Posted on by Conor Browne

Strategic Adjustments for Rising Volatility and Momentum Shifts

• Analysis of the market’s increased volatility and its impact on recent trade setups.

• Refinements to the “big ass fly” strategy to better align with momentum shifts in key sectors.

• Review of technical indicators signaling intraday opportunities and trend reversals.

• Introduction of a layered stop-loss approach to mitigate risks during unpredictable price movements.

• Discussion on identifying high-value setups in energy and financial sectors influenced by macroeconomic events.

• Emphasis on disciplined execution, focusing on precision in timing and adherence to predefined trade parameters.

Summary

the team addressed the challenges presented by rising market volatility and momentum shifts across key sectors. Ernie emphasized adjustments to the “big ass fly” strategy to better capture opportunities in this dynamic environment.

The session highlighted technical indicators that signal intraday opportunities and potential trend reversals, providing tools to improve execution timing. A layered stop-loss approach was introduced to better manage risks during periods of unpredictable price movements.

Energy and financial sectors were identified as high-value areas influenced by recent macroeconomic events, with discussions on aligning setups to leverage these trends. Ernie concluded by stressing the importance of disciplined execution, urging the team to maintain precision and adhere to predefined trade parameters to navigate the evolving market landscape effectively.

Archive, Zoom Daily

Sunday Retrospective for January 5

Posted on by Conor Browne

Strategic Adaptations for the New Year

• Reflection on the first week of the year, focusing on adjustments to align with emerging market trends.

• Evaluation of the “big ass fly” strategy’s performance in sectors exhibiting post-holiday recovery.

• Analysis of trades impacted by delayed execution, with actionable strategies for better timing.

• Emphasis on refining risk management practices to accommodate increased volatility in early-year trading.

• Discussion on opportunities presented by macroeconomic data releases and geopolitical developments.

• Setting goals to improve technical indicator integration and enhance execution consistency for the coming week.

Summary

the team reflected on the first trading week of the year, highlighting the challenges and opportunities presented by emerging market trends. Ernie led an evaluation of the “big ass fly” strategy, focusing on its application in sectors recovering post-holiday.

Delayed execution in certain trades was reviewed, with strategies proposed to improve timing and capitalize on future opportunities. The session emphasized the importance of refining risk management practices, particularly to address the heightened volatility seen in early-year trading.

The team also discussed macroeconomic data releases and geopolitical developments that influenced recent market behavior, identifying areas to watch in the coming weeks. Goals were set to improve the integration of technical indicators and enhance execution consistency. Ernie concluded by encouraging the team to remain disciplined and adaptive as market conditions evolve.

Archive, Zoom Daily

Daily Meeting for Friday January 3

Posted on by Conor Browne

Strategic Realignment for Early-Year Market Activity

• Discussion on market behavior trends following the New Year break, emphasizing increased activity in specific sectors.

• Refinement of the “big ass fly” strategy to capitalize on early-year sector momentum and liquidity shifts.

• Review of missed opportunities in recent trades, with focus on execution timing improvements.

• Introduction of a new risk assessment model to adapt stop-loss strategies based on intraday volatility changes.

• Exploration of macroeconomic indicators likely to influence Q1 trading patterns.

• Encouragement to prioritize high-confidence setups while maintaining flexibility in execution as market trends emerge.

Summary

the team discussed adapting strategies to align with early-year market activity, characterized by shifts in liquidity and renewed sector momentum. Ernie led a refinement of the “big ass fly” strategy to ensure it captures opportunities emerging from these transitions.

Missed opportunities in recent trades were reviewed, with emphasis on identifying ways to improve execution timing. A new risk assessment model was introduced, focusing on dynamic adjustments to stop-loss settings based on intraday volatility patterns.

Macroeconomic indicators expected to shape Q1 trading were explored, offering insights into likely sector trends. Ernie concluded by encouraging the team to focus on high-confidence setups, maintaining flexibility and adaptability as early-year market trends continue to unfold.