The Equilibrium, a key to success!

PS:

Got it, my expectation was a bit higher to have a clearer view.

I expected 100+ contracts buy and 150+ contracts sell to overcome the price and come lower.

I guess this come with the experience after the years

Hello Sesamstrasse,

what is the Name of the Software you are using?
Best regards,
Renko

Clearly without doing any kind of marketing here, it is ATAS.

Danke!

the sellers are already coming

as always says Bionics the big player
and he's right

I received the same email.
I must say never heard about this data provider and besides that the platform and the data feed for 1usd *THE FIRST MONTH* but you can cancel anytime they said...

I stick with Michael about data provider CQG is my favorite BUT nocommercial or sugestion of nothing here as Michael always says do your diligence/home work.

I am not promoting this ting at all i just wondered if anyone have used them and if they are any good,but if the price is 99 dollars after first month its to much for me....


PM:I will remove the post so nobody thinks i promote this

Do not worry FXsniper none of us here is promoting any product, as Michael always says wich one must find and fulfill their personal needs...

But for those who are not able to afford the platform every month and more data feed I personal would give a try for just 1usd and then cancel, but anyway as you I am not promoting nothing no either recommending.

Each one must decide what to do as 8f was a trade decision...

Cheers

The law of the market economy


Hello dear subscribers,


There are many providers in the forex and stock market that offer software, data feeds, indicators, EA's, training courses or trading signals. Many offers are unnecessary, too expensive, or fraudulent. How do I find the best product for me now? In order to explain the optimal procedure, let's first look at an example of how to find a good winter tire.

When driving, the tire contact area, i.e. the area that touches the road, is only about the size of a palm. These few centimeters have to carry a car weighing several tons and protect the most important content, humans, from unpleasant accidents. For this it is important to use a high quality tire. How do I find the best winter tire now? All-weather tires are out of the question because they are comparable to a duck. The duck can run, fly and swim, with certain restrictions. But she can't swim, run, or fly well.

Interestingly, there are many test reports from different winter tires, some of which are sponsored by tire manufacturers. Everything is analyzed, liability in snow, liability in ice, liability in water, liability in dry conditions, abrasion, rolling noise, guarantee, price and much more. Then points are awarded and there is a winner and a loser. Depending on the weighting of the points, every winter tire can theoretically be named the winner.

I am only interested in the grip and braking distance in wet, snow and ice. From this I create the best winter tire for me. As soon as I have filtered out the best winter tire, it is about the price comparisons. I always buy my winter tires in midsummer and my summer tires in winter. Since our market always responds to the subject of supply and demand, I can save up to 50%.

The time required for this saving is limited, the only disadvantage is that you have to buy the tires half a year before using them. But when it comes to saving, this disadvantage also works in my favor. Of course, this procedure also works with the topic: data feed, stock exchange software, brokers and many other things in everyday life.

If you are interested in a data feed, you should first research the Internet. If we assume that there are 10 different data feeds, then one can assume that 20% are expensive, 60% on average and 20% are inexpensive. First of all, it is important to determine an average price for a product. But the decisive factor is not the price, but the performance. What is the use of a cheap data feed that fails permanently or provides me with inaccurate values? That is why the optimal price-performance ratio is the decisive factor.

The Internet provides this information, although you should neglect the first results on Google, since it is usually only paid advertising. First, look for comparisons or warnings about certain products. Of course, good products sometimes have bad ratings, but good products always prevail. The book Harry Potter has a 5-star rating, although some of the 10,000 ratings have also given negative votes. When you buy something, you should first know exactly what you need. You should have the necessary expertise to do this. If you do not have the necessary specialist knowledge, you can look at the recessions of experts and thus form an opinion more quickly. This takes some time, but prevents money loss by making a decision too quickly.

There is an interesting law of business that the English writer and social philosopher John Ruskin created many years ago.

There is hardly anything in the world that not anyone can make a little worse and sell a little cheaper, and people who only focus on price become the just prey of such people. It is unwise to pay too much, but it is even worse to pay too little. If you pay too much, you lose some money, that's all. On the other hand, if you pay too little, you sometimes lose everything because the item purchased cannot perform its intended purpose. The law of the economy forbids to get a lot of value for little money. If you accept the lowest offer, you have to add something for the risk you take. And if you do that, you have enough money to pay for something better.

For this reason, you should always try to find the best price-performance ratio. For some it is the most expensive, for the second the best quality, for the third the cheapest for the fourth the easiest handling and so on. It is crucial that you are satisfied with your decision for the next few years and can look forward to it every day.

I wish you always make the right decisions.

best regards
Michael

Auction Market Theory and Market Profile


Hello Kette,

it is nice to see that we are all pursuing the same goal and that everyone is successful in their own way. You are very professional and I am sure that you will achieve your personal goals. I think it's great that you also program your own indicators for your software, which give you a huge market advantage. These experiences are an invaluable asset for many traders who have not yet found their way. One can achieve a lot alone, together with others one can achieve everything.

I wish you a nice weekend

best regards
Michael

thanks for your nice words
I follow your analyzes very interestingly
Have a nice Weekend

4D strength method

[quote=Sesamstrasse;12882834]Moin Michael. I really like to see your examples on live trades.

Hello Guido,

First of all, I would like to congratulate you on taking on this not easy challenge. It takes some time to have stock market data translated by a prop software. The problem here is the infinite number of possibilities that arise with the filter settings. First of all, I would concentrate on limit orders as they determine the future course of the market. Sell market orders runs in buy limit orders and buy market orders runs in sell limit orders. The stock market data initially only show us the market orders. But we know that a market order can only be activated if it is simultaneously accepted by a limit order. This can be used to represent a limit order by simply swapping the color. So if a buy market order (green) runs into a sell limit order (red), I can display the limit orders by changing the color. This creates a small challenge. If 100 lot buy market orders are accepted by sell limit orders, you have to assume that not all sell limit orders belong to a single big player. The big players usually use triggered stops to fill their limit orders. Therefore, the market orders must first be sorted according to triggered stops in order to present them as decisive limit orders. Then the limit orders must be assigned to individual big players. First of all, this is a bigger challenge that we have already dealt with. The main thing here is to determine a future market direction with the decisive limit orders. The short-term movements can then be determined relatively easily using the 4D strength method described.

Act in the eye of the tornado

There is an exception if a big player makes volume available to himself that he absorbs with his own limit orders at the same time. This procedure does not initially show a clear direction of the big player, which can, however, be determined with a certain delay. This can then be used to derive specific price levels that show us exactly where the future course is headed. This "own liquidity strategy" has only been used increasingly since the beginning of the Corona crisis and it will still take some time before the big players have developed a concrete strategy from it. However, this procedure is very easy to identify and just as easy to act on. For this reason, I hope that this strategy will become an integral part of the big player strategy in the future.

In this market, we will never be able to specifically determine which goal is being pursued with market orders and limit orders. But even if our assumptions are only 50% correct, this will significantly improve the probability of winning and at the same time reduce losses. Another advantage is the market advantage. If, in the second half of an equilibrium, ask was increasingly collected with buy limit orders, the price trend is set up. The question is whether long traders with a stophunting have to be switched off beforehand or whether the price goes up immediately. However, this can often be seen from the big players' market orders. A residual risk will always remain, but with very small stops of 1-2 pip a manageable risk.

I wish you a nice weekend and not so much stress for the next 6 weeks of your project.

best regards
Michael

Why candles don't work properly in retail



Hello dear subscribers,

As a beginner, you may know this situation. The price suddenly rises quickly and you would like to take the possible breakout with you. You entry in the middle of the movement, but due to the lack of liquidity, you only get into the market at the end of the big bull candle. As soon as you are in the market the price turns, runs down sharply and you are stopped. You are angry because you were hoping for a breakout and you want to make up for your loss. The price is a new low and it is assumed that the price will now go down more. That's why you spontaneously opt for a short trade. The price actually runs down a bit and you make another short trade to make up for the loss faster. The price stops first and an equilibrium is created. After that, the price slowly goes up, while there are ever stronger down moves in between. These stronger moves down give hope that the trend could continue further down. That is probably why they were ready to pull the stop a bit as the price went higher. Suddenly there was a stronger upward movement and then the price went up 40 pip. The total loss was now as high as if you lost 7 single trades.

The big problem is the candles currently emerging on the market, these often give us the wrong signals, which we also instinctively follow. The biggest delusion is the simple representation of candles by brokers. No matter what time unit we are in, if we look at a past upward trend, we usually see more green candles than red candles, a downward trend shows more red candles than green candles. Green candles show a demand market, red candles show a supply market and dojis show an equilibrium. However, this is a big mistake. The candle gives us traders the wrong truth, which is why the big players rarely work with candles.

Candles are created based on a time-dependent random principle and in the M1 every broker has different candles. An EA based on two moving averages will therefore always achieve different results in the same chart with different brokers. Another factor is the fact that most of the retail traders do not trade in the Forex market at all, but only on a personal platform of the respective broker. Although he receives the Forex price data from a bank, he can pass it on to his customers in various forms. As a rule, trading is carried out on the broker platform, with the broker protecting itself against losses. If 1000 lot short positions and 1500 lot long positions have been placed within a currency, the broker only needs a 500 lot long hedge with the relevant bank to hedge. This means that 2000 lots do not even appear in the real forex market. With ECN brokers it looks different because they forward the relevant trades directly to the Forex market through their bank. This procedure alone can lead to different candle representations.

Many traders get in with a candle movement, green candle long, red candle short and these are typical mistakes that the big players use in their favor. Volume in the form of market orders that meet liquidity in the form of limit orders are the only reason for price movements within a certain time. So the price is the result of volume and liquidity. The time is only a variable factor for the consideration. In the Forex market we only have the time and the price and therefore only the result within a given time (M1, M5 ...). It is crucial to know how the market orders behave compared to the limit orders, and this can only be seen if you receive liquidity volume data. For this reason, I try to largely refrain from displaying candles and to develop modules that show me the strength of market sell orders, market buy orders, limit sell orders and limit buy orders. Time doesn't matter to me, price ist important. I have written a detailed article that I would like to refer to again here.

Bionics 4D strength method

When we see a green candle, we think the market is going up because green means there are more buyers than sellers. But first we should examine this statement in more detail. Market buy orders (ask volume) run into limit sell orders (bid liquidity). When 1 Lot Market Buy Order enters the market, it will be accepted by 1 Lot Limit Sell Order at the same time. If the market is just starting, there are now 2 orders in the market. The market buy order should go up as far as possible, the limit sell order should go down as far as possible. So at this moment there is a buyer and a seller in the market. In a current market, however, it is no longer so easy to determine how many orders, buyers or sellers are actually still in the market.

A green candle is created when the euro is bought or the dollar is sold. And that is a crucial difference. Let us assume that a price has gone down more strongly and a new low has formed. Suddenly a strong green candle emerges. If this candle was created because a market participant bought the euro heavily, the subsequent course of the price is more likely to be bullish than if a market participant sold the dollar at that time. If a market participant gets out of the dollar, he needs Ask. This Ask runs in the sell limit orders and automatically ensures that the price rises. Provided that the orders are large enough to break through the liquidity of the limit orders. If a green candle is formed by a larger market participant getting out of the dollar, it automatically means that he will be out of the market afterwards. With his exit he made sure that a green candle was formed, but it is very likely that he will not invest another Ask to push the price higher.

However, this would be a big exception, since most big players generate their entries and exits almost exclusively via limit orders. Let's stick to the same case. A new low was formed and suddenly a green candle emerged. Then the price jumps upwards and another strong green candle is created.

What could have happened here?

The price was in a downward trend and the big player noticed that too many market participants were short. In order to eliminate these market participants, he has to stop them. To do this, he first buys the euro, pushes the price up and catches the first stops of the short traders. Then a chain reaction occurs. The triggered stops ensure that the price continues to go up and thus trigger further stops that push the price up. The big player waits at this point and absorbs these stops with its limit sell orders previously placed on the market. If necessary, he adds further limit orders via the iceberg orders in order to completely absorb these stops. So he got another cheaper price. As soon as the short traders are out of the market, the big player pushes the price further down.

Let us consider briefly how these two green candles came into being. The first candle was created because the big player bought the euro and pushed the course into the first stops. The second green candle was created because the stops of the short traders were triggered. That means the dollar was selling heavily at that moment. If a price increase is realized due to a dollar sale, there is no basis for an upward price trend. Because to realize a profitable trade upwards, you first need ASK, or buy the euro. Since this was not the case in this case, a long trade could lead to a larger loss. It is precisely for this reason that it is important to know why a green or red candle is created.

Of course I also work with a candle chart (Bionic candle), but only to understand the pricing more quickly. A green candle is initially neutral for me, until I find out whether it is a euro buy or a dollar sale. I only get this information in the stock exchange market. We now know that the big players work almost exclusively with limit orders for their entry and exit and use the market orders to push a price into the first stops, which then trigger a chain reaction. There is an exception if you provide yourself with liquidity, I have already written about this in great detail. Here is the article:

Own liquidity for the big players

Let's stick to the example described, the price is now pushed down by the big player and this triggers the stops of the long traders who started the new up trend with the strong green candle. The big player is now using these stops to get out of his dollar position. Then an equilibrium is created, where the big player first dissolves his remaining dollar position. Another big player is now using this equilibrium to collect a certain number of bid or ask and then push the price in the corresponding direction. And then the same game repeats itself over and over again.

With candle formations it was possible to trade profitably in earlier stock market times, but with the way big players and high-frequency traders work, this is becoming increasingly difficult. Spoofing in the area of limit orders and the use of iceberg orders creates a false representation of supply and demand. The permanent stop hunting for available volume to fill the limit orders changes the structure of the individual candles considerably. A green candle often contains more Bid than Ask and a red candle contains more Ask than Bid. Even with a footprint chart where Bid and Ask stand side by side, the market cannot be analyzed because Bid and Ask have nothing to do with each other. Limit sell orders only cooperate with the market buy orders and limit buy orders only with the market sell orders.

The price is solely the result of this cooperation. And the candle is nothing more than the result of the price. So a candle is just a result, how this result came about is not clear in the Forex market. Anyone who deals with mathematics knows that a result can always be calculated from different factors. And these factors are a crucial point in order to be able to derive possible derivations from them. However, a candle will never be able to help us. However, this proportionality should be considered in order to act profitably.

For the casual trader, the candle is a great way to quickly grasp the market. The brokers benefit from this because a trader would like to have it as simple as possible. The fact that over 90% of traders lose shows that the current representation of the candles is a truth that does not really exist. If you turned the candles exactly, it could lead to a higher success. However, this is pure speculation. Over the years, attempts have been made to improve the appearance of the candles. In principle, Heikin-Ashi is a Japanese representation of price development, similar to candlesticks. Heikin-Ashi was rediscovered in 2003 and means something like balance. It is a type of candle, which shows the prices modified by smoothing them. The advantage of this form of presentation is that trends can be identified more quickly and without tools. After what we know about the candles today, it is only a tool to feel better, I see no concrete advantage due to the lack of information.

The Bionic Candle that I developed should also not be used for entry or exit in the trade, but it has the advantage of conveying faster information. This is crucial to identify the key candle for stophunting. These zones help to determine a possible reversal point in the trend. The decisive factor is the reaction in the area of market and limit orders in order to make a specific trading decision.

Now you could only try to change the scaling of the charts. We would have two options here: In addition to linear chart scaling, charts could also be scaled logarithmically. While the linear chart scaling always refers to absolute numbers, a percentage price movement, in the logarithmic representation, always corresponds to the same distance of the price in the chart. This prevents distortion. However, this also means that we cannot avoid the main problem of the candle.

A friend of mine trades with the same broker as I do, if we work with the same tickchart in the Forex market, different candles are created by the same broker. In the stock market we always have exactly the same information, this are important points that decide between profit and loss. A candle consists of two dimensions: price and time, a market profile in the stock market consists of three dimensions: price, time and volume. The fourth dimension is limit orders and in my eyes the fastest way to capture the market in concrete terms.

Conclusion:

A candle is still the most common representation for analyzing a course or drawing resistance zones. Most Forex indicators are calculated from the price and the time and are basically lagging behind the price. The price is ultimately only the result of the cooperation between market and limit orders. This important information is not available in the Forex market. This automatically brings incorrect information for the individual traders. However, the candle / price in the forex market is the fastest information. Indicators are always lagging and should therefore not be the basis for a trading decision. Since the candle is calculated from the price and the price is only a result, the candle should not be used for a trading decision. Of course there are profitable traders in the Forex market who can successfully trade with candles or indicators. However, this is less due to the specific information that the candles or indicators provide, but more to the many years of experience of these successful traders. There is only one way to trade more profitably: You have to look into the candle but you only get this information with stock market data. Trading on the forex market is a smart way, but only with real stock market data. That is the future for me.

I wish you a great weekend

best regards
Michael

As my first post on this thread wanted to first congratulate Michael for his impressive posts. The quality of the ideas shared, backed by a data driven testing methodology is top notch. Thank you for sharing, this is a refreshingly thought provoking thread that should advance each traders orderflow knowledge regardless of skill level.

A couple of years back, as an orderflow trader, i set out to compare the "quality" of the data provided by the major data services. My primary focus was on the quality of the data. Quality was defined as the most "raw" and "unfiltered" executed order data. The testing included CTS, CQG, Rithmic, Transact, and TT(tested later). The conclusion was that all the data providers were equivalent in quality of data with the exception of Transact. The Transact data was clearly filtered when larger market orders were filled over various price levels. No idea why Transact chooses to "filter" this data, but for my testing purposes it had to be discarded. While there are other consideration besides "quality of data", the four providers above can at least be trusted in this regard.

Interestingly, while the millisecond timestamps of the T&S for each data provider were checked to gauge "speed", an attempt to reconstruct larger order as Michael has done in this thread was not attempted. This would be interesting. For those wanting a deeper dive into this question, straight from the source itself: https://www.cmegroup.com/confluence/...ing+Algorithms . (the four bullets under CME GLOBEX Matching Algorithms are worth a read).

Best,
N.


Edit to merge posts:
I scream this from the top of every mountain i visit.

All price movement is the result of the battle within the book between Market orders vs Limits orders. Price movement is the consequence. Orderflow is the causation.

Big player algorithms

[quote=Nik-Nyc;12885195]As my first post on this thread wanted to first congratulate Michael for his impressive posts. The quality of the ideas shared, backed by a data driven testing methodology is top notch. Thank you for sharing,

Hello Nik-Nyc,

Welcome to our blog: Equilibrium, a key to success and thank you for your introductory words. I find your results on the data quality of the most important data feed providers very interesting. This information will help many traders who will deal with stock market data in the future. However, it essentially depends on which software the stock market data is translated with. The respective software providers usually provide information about the individual differences in the data feeds. CQG uses a new CME data format that adds volume data while Rithmic has not yet done so. With Rithmic you can use up to 5 different trading platforms simultaneously with your account, while at CQG you have to pay extra for each separate login. The question is always what information a trader needs to achieve his goals.

The price is ultimately only the result of the cooperation between market and limit orders.
Nik-Nyc: I shout that from every mountain I visit.

You are absolutely right with your statement, but many traders do not want to hear this because they do not want to work with stock market data or do not yet see the advantages at the current time. 2 years ago someone tried to convert me on this blog. In principle, we both did not understand each other because everyone lived in their own world. At that time I was trading profitably in the Equilibrium and saw no reason to leave my comfort zone.

Many traders want it to be as straightforward as possible and believe that the market is easy. After I exchanged ideas with a high-frequency dealer and got to know the technology and procedure, I realized what was actually going on in the background. These professional traders work with a 99% success rate and make significantly higher profits than losses. I became aware that for many years I was only lucky enough to trade in the Equilibrium, because the big players initially collected their bid and ask there and there was no reason for extreme stophunting. So I focused on how big players work to learn their strategies and follow them. That was my motivation because I saw a clear advantage for myself at that moment.

Most traders, like me at the time, live in their world and see no reason to change their situation. A person learns only from pain or insight, I was lucky enough to forego the pain. A trader is often only ready to change something when it is already too late. Then, however, there is no longer enough time or money to get back into a profitable area. For this reason, I have decided to deal only in this blog with my topics.

The traders who are ready to start a change process will find many ideas and clues in this blog. I see my task less in convincing people of my ideas and more in finding traders who are willing to go the same way. However, this willingness should be based on intrinsic motivation. The identification of the big player algorithms is a very complex challenge that can only be achieved together. At Forex Factory, 17% of all traders in the world are gathered, the probability is very high to find traders who have a similar goal.

Your way of working and your knowledge coincide in many areas with our approach, which could lead to an interesting exchange.

I wish you a nice weekend

best regards
Michael

Which is stronger, market orders or limit orders?



Hello dear subscribers,


As we have noted, most retail traders do not know why the market they are trading in is moving. However, this is an essential aspect in order to be profitable in the long term. Today's article is about understanding the order flow better and examining two important statements that are conveyed in the market.

1. Market orders move the market, limit orders stop the market.
2. The market moves when more buyers than sellers or sellers are active as buyers.

These statements have burned themselves into the brains of stock market traders over the past 20 years and I would like to show today that these statements are only partially correct. This automatically gives the answer to our question: which is stronger, market orders or limit orders? This answer is a crucial point to concentrate on the essential things in the market.



A market is determined by supply and demand and the price moves because the market sell orders (point A) run into the limit buy orders (point B) and the market buy orders (point C) into the limit sell orders (point D ) to run. The iceberg orders (point E) lie behind the limit orders and can be replenished if necessary by the big player algorithms in order to absorb further market orders. These facts are known, we have already spoken about them in detail.



Here we see another simplified illustration. The market sell orders (point A) run into the limit buy orders (point B). The first level of limit buy orders in the DOM is the best bid. The market buy orders (point C) run into the limit sell orders (point D). The first level of limit sell orders in the DOM is the best ask. The spread lies between the best ask and the best bid. This spread changes if in a current price, new limit orders are not immediately formed , in the best AsK or Bid. This creates small or larger gaps that are not visible in most cases because they take place inside a candle. First of all, we should think of Point A and B as a car that goes down a mountain, Point C and D being a car that goes up a mountain.



First we see a red car on the left that wants to drive down. We have to think of the market sell orders at point A as the accelerator pedal of the car. The limit buy orders, we have to think of as the brake of the vehicle. On the right we see a green car that wants to drive up. The market buy orders at point A, we have to imagine as the accelerator pedal of the car. The limit sell orders, we have to think of as the brake of the vehicle.

Let us now assume that the price is on the best bid side. Now 100 Lot Market Sell Orders come into the market, which meet the Limit Buy Orders. If there are now 10 lots on ten levels of the limit buy orders, the 100 lot market sell orders, these ten levels will literally eat up and the price will go down 10 ticks. This means that the market sell orders were at full throttle and the limit buy orders were unable to stop this market sell order.

Now we put the brake on by placing 101 lots on the first level of limit buy orders. The 100 Lot Market Sell Orders now run into the Limit Buy Orders and initially absorb 100 Lot. Now there is still 1 lot on the Limit Buy Order side and since there are no further market sell orders, the price was slowed down. The same example could also be explained with the market buy orders, whereby the vehicle would go up here. So we recognize that we can accelerate the vehicle using the accelerator pedal (market orders) and brake the vehicle using the brake (limit orders). So far, the statement is correct that market orders can move the market and limit orders can stop the market.




Let's ask ourselves two very strange questions. Can you also brake a vehicle with an accelerator pedal and is it possible to accelerate the vehicle with a brake?

From a physical point of view, this is not possible at first, but let us first consider some aspects.

Accelerate with the brake pedal

When a vehicle drives down a slope and you first brake it, it comes to a standstill. If you now release the brake, the vehicle will accelerate due to gravity. Now one would theoretically be able to control the acceleration of the vehicle with a brake.

Braking with the accelerator

When a vehicle drives up a mountain, you have to accelerate first. As soon as I reduce the accelerator pedal force, the vehicle slows down until it may come to a stop. Now you would theoretically be able to control the braking of the vehicle with the accelerator pedal. Even on a straight road, an accelerator pedal would be able to bring a vehicle to a standstill. Let us assume that the vehicle moves slowly forward on an ice surface. You shift into reverse and accelerate slowly. Now the tires on the ice turn in the opposite direction and would theoretically be able to brake the vehicle.

This example should first clarify to us that to a certain extent you can slow down a price with market orders and accelerate a price with limit orders.

How does that work in reality.

Let's say a market is going down and is suddenly stopped by a big player's limit orders. As soon as the big player deletes his limit orders, the market accelerates further downwards. This means that even with limit orders, a big player is able to accelerate or slow down a market.

Let's say that a big player pushes the price up sharply with market orders. Further retail traders follow and help to push the price higher. Suddenly the big player stops his market orders investments, which will slow the price. Now he starts trading a large number of market orders in the opposite direction. As a result, he would be able to completely slow the course upwards. This means that even a big player is able to accelerate or slow down a market with market orders.

The strategies of the big players are controlled using algorithms and ensure that limit and market orders work together at the same time. This results in considerable advantages that the big player can use for himself.



Over the course of a day, we keep seeing that a price suddenly moves up or down quickly without investing a large number of lots. One inevitably wonders how that is possible. The answer lies in programming the big player algorithms.

Let's look at an example. At point A, the big player begins with market buy orders to push the price into the first stops. The subsequent stops are used to push the course further up. The destination is Point C because most stops are suspected there.

The following situation arises at point B. First of all, the big player invests a relatively small number of brand buy orders. When the price was at point A, the big player had already occupied all levels of the sell limit orders between point B and point C. Now the price was at point B. The moment the big player invested his market orders, he also deleted his previously created sell limit orders so that his own market buy orders were able to move upwards. At the same time, the algorithms ensured that strong limit buy orders were placed in the market in order to hedge the price downwards. Now the short traders' first stops were caught and pushed the price further up. The big player now absorbed this ask with his sell limit orders previously placed on the market and was thus able to sell his euro. After that, the market went up a little further, with the big player using this Ask to buy the dollar.

We therefore recognize that the algorithms are optimally coordinated to enable the big player with a small number of lots, large price jumps to catch the first stops. The big player is thus able to achieve the highest possible returns with the least effort.

Now we come to the next statement. The market moves when there are more buyers than sellers or sellers as buyers. This statement is conditionally correct, because let's assume that we have a large number of buyers who place a large number of market buy orders on the market. However, at this price level there is a big player who, with large limit sell orders (iceberg orders), absorbs the complete number of market buy orders. Then we may have a higher number of buyers, but the price doesn't move. Likewise, it would be wrong to say that if there are more buyers than sellers, prices go up and if there are more sellers than buyers, prices go down. The decisive factor here is the interaction between market orders and limit orders that meet.



In our example we compared the market orders with the accelerator pedal of a vehicle and the limit orders with the brake. Let's first look at what happens in a burnout when we compare the strength of the advance with the brake. In the event of a burnout, the car stops on the spot while the tires turn very quickly. The resulting friction between the tire and the road heats up the rubber, which starts to smoke.

So we recognize first. that the brake is much stronger as the accelerator. If we now transfer this to the market, it becomes clear that the limit orders are far superior to the market orders. This is primarily due to the fact that the big players regulate their entries and exits via limit orders in most cases.

Conclusion:

The price moves because the market sell orders run in the limit buy orders and the market buy orders run in the limit sell orders. The big players collect their ask and bid in the form of limit orders (iceberg orders), as these can hardly be identified in the market. This allows the big players to collect in peace without the majority of traders noticing. The market orders are primarily used to trigger the first stops of retail traders in order to provide themselves with liquidity. Exceptions arise as soon as a big player makes his own liquidity available. Basically, it is correct that market orders move the market, but we should be aware that market orders are also able to stop the market to a certain extent. Basically, it is correct that limit orders can stop the market, but we should be aware that limit orders are also able to move the market.

The fact that the big players primarily work with limit orders leads us to the conclusion that the limit orders are significantly stronger than the market orders. I would even go one step further and make the claim that the limit orders are really moving the market and not the market orders.

If a big player collects a large number of ask during an accumulation phase, it is predictable over a period of time that the price will go up. If a big player collects a large number of bids in a distribution phase, it is foreseeable that the price will then go down. This means that the limit orders specify the medium and long-term price trend. The strong price movements in the market arise primarily from triggered stops by retail traders in order to provide the big players with the appropriate liquidity. Therefore, focusing on market orders is not conducive to long-term profits. In my opinion, the volume trader belongs to an extinct species because it constantly receives incorrect information even in the future market. The future belongs to the liquidity traders who are able to determine the current liquidity of the big players. Because only liquidity shows an experienced trader the future course of the price.

The identification of liquidity is a major challenge because the individual algorithms of the big players must first be decrypted and assigned to the cumulative market orders. The individual strength of the respective market and limit orders based on my 4D strength analysis is very helpful. Additional support can be obtained by identifying the key candle in the Stophunting and the currency strength from the Forex market.

These different tasks will continue to occupy us for the next few months in order to better identify the algorithms of the big players and to derive even more concrete trading advantages from them. The road is hard and rocky and we are making slow progress, but in the end we will say it was worth it.

I wish you a nice Sunday and a successful start to the new trading week

best regards
Michael

Finally, after doing hours of reasearch, you have found this gold nuggest. Hats off to you.

I agree with you based on my own random personal experience. But you have finally hit the nail.

The fact that the big players primarily work with limit orders leads us to the conclusion that the limit orders are significantly stronger than the market orders. I would even go one step further and make the claim that the limit orders are really moving the market and not the market orders.

May I know if you have done any research or have experience on delaying of orders when trading in seconds?

I would appreciate if you can share your ideas on the practicability of delaying trades or putting ticks into a sleep mode for some period or even days .

Thank you

Limit orders versus market orders

Hello simnz,

First of all, thank you for your approval of the last post. Indeed, it is very time-consuming to carry out research in addition to daily trading. As we found out at the weekend, also the CME prefers the larger cumulative orders to smaller limit orders when filling limit orders. This would mean that a retailer who places 2 lots in the form of limit orders is always at a disadvantage compared to a big player who has placed 60 cumulative limit orders. This approach would partially make it not necessary to occupy a limit or early occupancy at higher price levels, since the big player is always given priority. We will research this in more detail and inform you as soon as possible. This is already the case in the Forex market, because we should always ask ourselves who produces 85% of the turnover. These are 12 banks and these 12 banks also decide who is primarily served. This is actually logical, because whoever has the house rights will always have an advantage. However, this only applies to limit orders. The following applies in the market orders area: First come, first serve. However, since the market orders are used almost exclusively by retail traders, the big players do not care, but the fight takes place in the limit orders and there the big players have a clear advantage. You will only get into the market faster in the limit area, compared to a market order, if it is an area that is not decisive for the big players. Therefore, market orders for retail traders could actually enable faster market entry. It is crucial to enter the market with a big player at the same time before pushing the price up or down. You can only do this if you keep an eye on the strength of limit orders and the strength of market orders.

I wish you a successful trading week.

best regards
Michael