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Order Flow - Finding cluster of stops on chart

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  • First Post: Jan 1, 2011 2:54pm | Edited Apr 13, 2011 10:45am
Hi guys,

I have been reading allot of Darkstars posts and found this order flow stuff very interesting.
So I have been looking around the net for Order flow info and just found things about "tape reading" and level 2 orderbooks etc but here is my take on it:

Since the FX market is OTC, there is no "center" orderbook or whatever I should call it. What we have is FXCMs orderbook, OANDAs orderbook etc. which wont help at all because no big banks or big indivduals trade their order thru these small retail brokers.

Now, the second thing is that the FX market moves so god damn fast, how would ANYONE be able to process all that fast moving info and reading a fake hand on bid/offers to take a counter trade?

What this boils down to is really my question, is there any way of localizing where the orders MOST LIKELY will be ON A CHART.

IŽll give you an example, as a rookie: I think as a FX loser. And this was once portrayed to me by the market in a way that made me think "what the FUCK are you doing".

This is what happened:
The market trended down strongly, then was in a consolidating or congestion, easily drawn by two horizontal lines.

Fair enough I thought, I put up an upper and lower horizontal lines which also created my boundaries.
As smart as I am, I put up breakout orders BOTH directions (I know, I'm a sharp, greedy little kid.. Trying to catch both movements!!)

So how does the market humiliate me? Well it trades up and hits my order so I'm positioned LONG. Up a couple of pips and then moves waaay down and hits my stop-loss at the bottom boundary (remember the two horizontal lines?).

What does that tell me?
That tells me that I am STUPID. That tells me that my entry was someone elses short and my stop-loss was someone elses take profit. It almost feels like someone took my girlfriend really.


So this made me think, I have seen allot of traders using order flow in the stock market (obviously because it's easier since it's centralized) and almost all other markets but not the FX.
Let's say it's impossible to use a order book in FX: how would we then go about order flow? Is there any possible way of "thinking" about where the orders may lie?

The first thing that hits my mind is that there should most likely be stop-loss order below a consolidation range. And also there should be some market orders SHORT.
And reversed, there should be long order above the range, trying to catch a breakout.

But this can't be it, can't it? There has to be something more! (Ofcourse I understand that there is no way of knowing 100% where all the orders are).
So this is my take on what I have found on order flow and I am looking for more, it sounds extremely interesting!

And hope you guys (n' gals) can help me out here, how to "think" where the orders should be and perhaps point me to the direction of getting more info about order flow.

Thank you and hope you all had a great new year celebration!
PS. Sorry for my English, if you do not understand what I mean I will happily try to explain it more.
Quoting Carnegie
This is what happened:
The market trended down strongly, then was in a consolidating or congestion, easily drawn by two horizontal lines.
Most of the times, strong trends are followed by a ranged market. Trends are rare, trends resuming just after a pause are rarer. It takes quite a lot of money to create a strong trend and most traders bank accounts are exhausted after such an effort and they'll resume trending another time.

Quoting Carnegie
It almost feels like someone took my girlfriend really.
lol


Quoting Carnegie
And hope you guys (n' gals) can help me out here, how to "think" where the orders should be and perhaps point me to the direction of getting more info about order flow.
Had you inversed your orders (short at the upper limit, buy at the lower) it seems like you would have been fine.
You obviously did not trade the "market flow". The trend had not changed direction & you assumed the market could not fall any lower.

Greed & Hope are not good strategies.
"Difference between Winners & Losers - Persistence"
Quoting Intensity
Had you inversed your orders (short at the upper limit, buy at the lower) it seems like you would have been fine.
Ah yes but you see, this goes for every single trade that is a loss.
Every loss trade should have been reversed right?

But it is rather that the THINKING on my part has to be reversed, which is why I started to ask the questions.
Hope you don't misunderstand me, I found your post very valuable.


There was a third post here, which has been erased now that contained much info and the guy seemed like he knew what he was talking about. Where did that post go?

Thank you.
Quoting Carnegie
Ah yes but you see, this goes for every single trade that is a loss.
Every loss trade should have been reversed right?
Right, I shouldn't have said it that way.

Quoting Carnegie
But it is rather that the THINKING on my part has to be reversed, which is why I started to ask the questions.
Hope you don't misunderstand me, I found your post very valuable.
Your thinking process seems right to me :
- you studied the chart and found a trend ;
- you used previous experience to create an analysis that can have an edge ;
- you invested based on all that, you lost and now you're trying to understand why and move forward.
The progress will be slow but at least you might become a profitable trader that way later on.

Hint : in my opinion, going the way of market orders/indicator signals isn't really profitable.

I didn't see the third post you are talking about. I've subscribed to the thread and I receive every post in my mailbox but it's not there. Could it be that you were reading another thread ?

Back to your subject : order flow. Forex being a over-the-counter market, it's quite impossible to have reliable order flow data if you're not a major market maker. But it can be done with futures and you can even chart it as show on Brett Steenbarger's blog.
Quoting Intensity
Your thinking process seems right to me :
- you studied the chart and found a trend ;
- you used previous experience to create an analysis that can have an edge ;
- you invested based on all that, you lost and now you're trying to understand why and move forward.
The progress will be slow but at least you might become a profitable trader that way later on.

Hint : in my opinion, going the way of market orders/indicator signals isn't really profitable.

I didn't see the third post you are talking about....
Hmm interesting thing you stated there, that the progress was slow. Are you of the idea that there is a smarter (and therefore a faster) way to go about the learning process? If so, please tell me!

Ah, yes, maybe I read it in a wrong thread never mind that.
Yes, you are very correct in this, being it's OTC and we'll never have good access to data unless we're a big market maker. But this is my point!!!
Is there any other way to go about order flow if not by Market Depth or Level 2 order book?

My idea was that you most likely should be able to see inefficiencies and a misbalance in supply and demand just by looking at the chart.. But the question is how to go about this

Thank you for the link on the blog, but as I stated above I already know about futures and well aware that there may be correlation but the way I see it is that if others can see it on FX Spot, I should be able to do it also if I study properly.

The way I'm seeing this is all about price, and the chart trends and consolidates as a function of a 'war' if you like to call it. If demand wins the war against supply there is a inbalance and we have a trend until they meet at another area to fight on (consolidation). Now this is really economics course 1 and I need to study more, because there is no way this can be applied to trading.. Not in this simplicity.
Thank you guys.
Spot FX is the cash market OTC.

Level II and T&S are 2 parts from derivatives markets where you can get order flow information easier.

The global fx market is a bit more complicated if you're wanna measuring currency flow.

Only looking at charts and guessing here and there are sitting stops - it doesn't work like that.

There are lot of different stop hunting pattern because the participants act different in handling their weak positions if they are trapped.
You will never know where stops are and how far it needs to drive the price to liquidate that pool.

Stops get triggered all the time, that's nothing new.

It happens like you've said under or above consolidation pattern and even in that range.
But without statistical edge in knowing how big that pool is, it's an dangerous undertaking.
You're playing the breakout and suddenly you will become the prey.
A lot of traders call it false or "fake" breakouts.

So it's essential to know the size of that pool and how it could be hunted depending on the market condition.
Furthermore you have to identify which market participant is trapped and who is in control.
Carnegie my friend, you are wise beyond your years. That is EXACTLY how you find the orderflow. Nice work.
Quoting Carnegie
What we have is FXCMs orderbook, OANDAs orderbook etc. which wont help at all because no big banks or big indivduals trade their order thru these small retail brokers.
I know Oanda orderbook is open for public, but haven't heard of FXCM. Or did you just mean that they have their book but don't disclose it?
Quoting UnnamedPlayr
Only looking at charts and guessing here and there are sitting stops - it doesn't work like that.

There are lot of different stop hunting pattern because the participants act different in handling their weak positions if they are trapped.
You will never know where stops are and how far it needs to drive the price to liquidate that pool.
Yes I understand that and you are very correct in this. You can't just guess where the stops are because in the end you'll get burnt bigtime.

The last things you are mentioning here are of very much importance. The ones with the weak positions and how they handle their positions. I didn't even THINK about that group which shows how little I know because this is the group I should be targeting. So thank you for that one!

Quote
So it's essential to know the size of that pool and how it could be hunted depending on the market condition.
Furthermore you have to identify which market participant is trapped and who is in control.
This is also a very good comment, Darkstar mentions this also, that one should find which participant is doing which move etc. And I have an answer to how I am going to learn it!


Quoting Darkstar
Carnegie my friend, you are wise beyond your years. That is EXACTLY how you find the orderflow. Nice work.
Thanks for the encouragement Darkstar, being from you, I really feel like I have a chance at this
Anyway they're all your own words, so it's nothing that I have figured out myself!


Quoting seagreen
I know Oanda orderbook is open for public, but haven't heard of FXCM. Or did you just mean that they have their book but don't disclose it?
Oh sorry for that one, I just chose these two brokers as an example. So you could say Interbank or something (although I don't know if they disclose their book).



Anyway what I was trying to say in this post is that I should try to get my shit together and gain more knowledge about the market. Every newbie is looking for systems and don't understand that if you don't learn the simplest concept of WHY PRICE MOVES.. Every single system will fail in your hands.

First off I'll read Trading and Exchanges: Market Microstructure for Practitioners and leave some comments and questions in either this post or start a new thread. We'll see about that.
Hopefully in a couple of months I will have gained more knowledge of the market.

In the meantime..
Good luck to you all and I hope I will talk to you soon.
Quoting Carnegie
if you don't learn the simplest concept of WHY PRICE MOVES.. Every single system will fail in your hands.
You're certainly proceeding in a way that will spell success.
Nineteen years of age? Pretty impressive, my friend!
Keep at it.
Well here goes first post. Been in the background a long time learning. I have been interested in Darkstars orderflow/stop hunting bits of information. I know he talks about option buyers being exploited for the hunt, thus part of order flow. My example is the EUR/USD options maturity calander. The calander posts 1.3125 DIG 20M expires on 1/6/2011. If you look at the EUR/USD chart today 1/5/2011 you see something amazing at around 16:15. Maybe I am incorrect but it looks like it may be in play. My question is what does DIG or TC stand for and could it be a clue as to the flow of the market. Appears that the calls stand to benefit but we shall see how it plays out tonight and into this morning. Carnegie thanks for starting this thread. I never thought of orderflow this way and yes I have had my girlfriend stolen a few times.
Quoting Louie
Well here goes first post. Been in the background a long time learning. I have been interested in Darkstars orderflow/stop hunting bits of information. I know he talks about option buyers being exploited for the hunt, thus part of order flow. My example is the EUR/USD options maturity calander. The calander posts 1.3125 DIG 20M expires on 1/6/2011. If you look at the EUR/USD chart today 1/5/2011 you see something amazing at around 16:15. Maybe I am incorrect but it looks like it may be in play. My question is what does DIG or TC stand for and could...
Hello Louie,

to which calendar are you referring? where have you seen that?

thanks for the info!
Quoting sumi
Hello Louie,

to which calendar are you referring? where have you seen that?

thanks for the info!
It is the options maturity calandar. As Darkstar points out some of the information is useful. I find that lots of it is not. On needs to get a IFR news feed to see it or if you play with options your broker should have this information for you. Hopefully you have read through Darkstars posts. I have found some useful nuggets there with my style of trading. Hope this helps.
Thanks for the thread.

Lenoxer
DIG is an abbreviation for Digital Option I believe, which would mean that as long as the strike price conditions are satisfied, then the option will be paid out. TC on the other hand I'm not quite sure.

And yes IFR News Feed can be chock-full of information, which can lead to the unfortunate dose of analysis paralysis.

Regards,
xXTrizzleXx

Attached Image (click to enlarge)
Click to Enlarge Name: stophunt1611.png Size: 141 KB
I'm watching it play out too.

Interesting to see the one-directional order flow as I believe DarkStar used to call it. Perhaps it can be used as a means to enter positions, with a greater probability of moving the stop-loss to break even to take risk off the table?

Regards,
xXTrizzleXx
Quoting xXTrizzleXx
DIG is an abbreviation for Digital Option I believe, which would mean that as long as the strike price conditions are satisfied, then the option will be paid out. TC on the other hand I'm not quite sure.

And yes IFR News Feed can be chock-full of information, which can lead to the unfortunate dose of analysis paralysis.

Regards,
xXTrizzleXx
Thanks for the info. I have never heard of this type of option. I will have to do a little research on the FX exotic options. Hopefully someone knows what TC stands for.
Yes this is a knock-in digital option I hear, which is an exotic, they are saying the option holder has to keep it below 3125 to get the payout, expires today 10am NY cut.
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