Episode 148 ... John Grady (83:26)

41 years old
Learned about Level 2 at prop firm in Colorado
Next worked at prop firm in Chicago
In Chicago was the first time he saw Depth of Market (DOM) for futures
[Has a southern twang, wonder where he's from?]
Look for big orders
Guys on the floor weren't geniuses, they just understood order flow
Left prop firm, on his own now for ten years
Order book also know as Depth of Market (DOM) matrix
When you see market orders wiping out limit orders, you know someone is moving size
Volume is most important, price chart doesn't represent volume as well as the DOM
Important volume to watch is at each price within the DOM (horizontal bar)
Jigsaw is the DOM he uses
Trades Treasuries exclusively
Treasuries are liquid, logical and steady ... bank-traded and the banks are trading spreads
Crude oil, for example, is thin and erratic ... easily manipulated
Can't ramp up your size trading gold, for example, you'll max your size at 10 or 20 contracts
With Treasuries you can trade 100 or 200 contracts the same way you can trade a ten lot
He trades outrights, only watches the spreads, doesn't trade them
Market context is important, depending on the regular news releases
No real average number of trades for him, can go from two to twenty trades a day
Extraordinarily boring to take three trades a day as an order flow trader, but that's the job
Trading requires tremendous patience and discipline
Almost all of his losses are the result of forcing trades out of boredom
People who trade from home need ten times the discipline (no in-office banter to distract them)
You start surfing the net out of boredom, that's the exact moment a trade sets up
When you see you've missed the trade, you chase, and end up losing (of course)
He might hold a trade for ten seconds to ten, twelve, twenty minutes
Market moves two ticks in his favor, he can always scratch the trade
On average holds trades three to twelve minutes
Retail traders try to trail a stop instead of just taking a trade off -- a mistake
If he gets out too early, he'll instantly re-enter
He figures out his trade size based on the situation
He think in terms of ticks, how many ticks will he possibly lose, sizes appropriately
Sometimes you need five ticks of leeway, just have to give it room, size appropriately
Never move your stop loss
Don't turn a planned three tick loss into an eight tick loss by pulling your stop
He always places an emergency stop loss in the market (3-5 ticks away)
Manually figures out the exit, Treasuries liquid enough to do this
He markets out, doesn't want to chase out with a limit order
He always wants to use a limit order, but often circumstances don't allow
Use a market order to get the fill, sometimes you just have to pay up
He goes all in and all out, no scaling
Don't screw up your risk reward by scaling in or scaling out
Most people screw up scaling, they average losers and minimize their winners
Big differences among markets ... must choose the right market to trade
To trade DAX you need orders in the book, it can reverse in seconds ... too thin!
Automated orders are essential in thin markets like DAX or Gold
Liquid markets like Treasuries, S&P, Bobl, Eurostoxx, can use discretion, manually adjust orders
Try to watch total amount of contracts at each price
Specialize in one market, study that one DOM and only that
Same players in the same markets every day, they behave consistently
You must record your trading screen or do market replay
Pay attention to market turning points when you're watching the replay
Fast forward, rewind, pause ... study the replay closely.
You will learn more from watching replays for a month than you will from journaling trades for a year
You need a lot of study and screen time with a good DOM
Only three good depth of market providers:

Jigsaw has inside columns, uptick/downtick splits are key column, exlcusive to them ($50 a month, stupid cheap)
TT's X_Trader
CQG

No subsititute for screen time
When learning, watch two to three hours a day, don't watch all day
Then open a live account and start trading one lots, enter the fire
Anyone trading a longer time frame doesn't need the DOM
Most people shouldn't swing trade: too many things can happen to take you out
HFT can spike things up and down in seconds
If you think you know where the market will be in two hours, you're delusional
People who understand fundamentals, that's a different kind of trading
Swing trading is the worst, just crazy that people try to do it
He's never met a successful swing trader, and he's been around awhile [me too]
You can predict the next six minutes better than you can the next sixty minutes
If you trade size, you can scalp for six cents ... sensible only with serious size
Fifteen or even ten years ago, the speed of trading very different
You could hit a big order as it was leaving, not anymore!
HFTs try to be in a breakeven trade immediately
HFTs will instantly scratch if they think they're on the wrong side [they never reveal scratch rate]
HFTs want to risk nothing to make something
You need to be able to anticipate so much more in the age of HFT
There's a lack of volatility today too, so much volume now, nothing can run anymore
His edge is in his discretion
If AI develops that can replicate that human discretion, the human traders will not be able to compete
Best AI can already beat best human chess players, trading similar to chess
The big guys have the speed locked down, huge unfair advantage
Market makers game the time-price priority of the book
HFT get a free look from their constant partial fills [the bastards], you can't compete with that
By knowing your market, you can spot the spoof orders more easily
Spoofing happens all day every day
"Order Flow Basics" -- basic principles video
"Order Flow Scalping" -- a popular video of his
www.nobsdaytrading.com
Twitter: @nobsdaytrading