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Reverse engineering order flow from naked chart

  • Post #1
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  • First Post: Jun 15, 2021 8:39pm Jun 15, 2021 8:39pm
Forex market is decentralized and there is no correct volume for fx traders. I trade futures with volume profile and have been through DoM screening time. I start wondering whether there is way to reverse engineering order flow activities from a naked chart. Balance and imbalance are easy to spot; however, how to find a reasonable value area is harder. If I could get a value area, vpoc is an easy one. It's a s/r inside the value area. Does anyone have some ideas or trade this way?
Discretionary Quantitative Trader
POC often be at around 50% of the range, depends on the range's profile it could be heavier at lower or upper area.

What do you see in this area? I pulled the Fib from highest body to the lowest body.
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  • Post #3
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  • Edited at 10:27pm Jun 15, 2021 10:11pm | Edited at 10:27pm
Quoting alps99
POC often be at around 50% of the range, depends on the range's profile it could be heavier at lower or upper area. What do you see in this area? I pulled the Fib from highest body to the lowest body. {image}
This is the lower part
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And the upper part
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Notice the area which contains many small range bars consolidated inside the range was heavily distributed at lower part
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The profile, thus, should be asymmetrical. The POC should be at the lower part.
Value area, to define it, easiest way is to ignore the lowest body as well as highest body part.
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The POC should be at the most traded level, more often we see most candle tend to close nearby.
Also small observation, the last accumulate occurs above POC if price break to the upside afterwards, or below POC if price break to the downside.
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Thanks for sharing your points. I completely agree with you about defining VA and POC. VA contains 70% volume of the profile. Without volume information, we have no choice but use an area covering most of candles instead. I think that's the reason you choose to ignore the highest and lowest body, right? IMO, there are some characteristics about VA and POC that could be used to refine them.

1. Since VA has the best liquidity, I expect to see candles leg in and leg out less frequently. Due to liquidity, there should be many small candles inside VA. I consider small candles present balance because the price range accepted by buyers and sellers should be narrow. From liquidity point of view, balance area should be narrow due to many limit orders around VA.

2. Within VA, price should seek liquidity from POC, so we could expect to see many wicks touch POC.

3. For VAH and VAL, they couldn't be easily broken and we could expect to see many rejections when price tends to get inside or outside of VA.

4. Once price gets within VA, I expect to see it touches POC.

This is the VA and POC that's in my head.

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Discretionary Quantitative Trader
Quoting alps99
{quote} This is the lower part {image} And the upper part {image} Notice the area which contains many small range bars consolidated inside the range was heavily distributed at lower part {image} The profile, thus, should be asymmetrical. The POC should be at the lower part. Value area, to define it, easiest way is to ignore the lowest body as well as highest body part. {image} The POC should be at the most traded level, more often we see most candle tend to close nearby. Also small observation, the last accumulate occurs above POC if price break...
This is quite interesting stuff, thanks for sharing. Out of interest, do you trade this off the weekly charts or use that TF just for analysis purposes?
Regards, Paul.
  • Post #6
  • Quote
  • Edited at 1:36am Jun 17, 2021 12:27am | Edited at 1:36am
Quoting pah
{quote} This is quite interesting stuff, thanks for sharing. Out of interest, do you trade this off the weekly charts or use that TF just for analysis purposes? Regards, Paul.
Hi Paul. I vaguely understood about these before, but didn't really use it. Recently i come out with a theory about how it works, and still observing it. Although i don't know whether it's true in reality or not, or coincide with any concept that exist before, i'd discuss about it later, here.

It's all about market searching for liquidity. And what i mean liquidity here? We all know the ultimate reason for the existance of any market is "facilitate trade"; and at the Dealer level point of view, they dont make money by speculation, they make money by matching buyer and seller. The more trading activities the better.
Spread * the amount matched is profit.

If we see it as selling or buying pressure, support or resistance, Market only see it, the so called "Market structure" is:
- Where is the money? Where is no money?
What do i mean by "Money"?
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At red: no buyer -> no trade, no money.
At blue: no seller. Too low. No money.
At purple: who ever wwants to buy, bought. Who ever wants to sell, sold. There is nothing left there.
At green: potential level. If price goes there, plenty of new buy/sell orders could be triggered, and that's "money" for dealer.
Price could left the "no money" level (purple) and search for green.
Thanks, I'd say your ideas are worth further investigation. It will be something I'll be looking at myself as time permits. Good luck!
Cheers, Paul.
What do you see? What is it doing?
EURUSD
Weekly chart
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And this is how it developed
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If I am on SierraChart, I'll just merge four profiles together because price doesn't go anywhere. You could see 2nd profile fill the imbalance of 1st profile and 4th fill 3rd. ICTers might call this as "fair value gap".
Discretionary Quantitative Trader
  • Post #10
  • Quote
  • Edited at 6:58am Jun 18, 2021 6:48am | Edited at 6:58am
Quoting zkchyo
If I am on SierraChart, I'll just merge four profiles together because price doesn't go anywhere. You could see 2nd profile fill the imbalance of 1st profile and 4th fill 3rd. ICTers might call this as "fair value gap".
It's not just "Gap". What they call "Gap" is just "non traded level" or "Non overlap" like this
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This is somewhat similar, but more. What the market does is it identifies thin market area, whether that area been traded thru or not, and fulfill it until achieving a near perfect form of "Normal distribution" before shifting to the whole new level with a massive movement
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I believe if we move to lower tf, same thing would happen. Even though it keeps filling the thin market of previous Profile, market has to do a breakout at some point. But i couldn't know how to make the connection between analyzing high tf to lower tf

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And i personally think EU would break several years consolidation range from 2015 to the upside and fill the void above, in confluence with multiple underlying fundamental conditions
I know that normal distribution talk but it doesn't convince me much. I think the reason is unfilled orders. Price would go there to grab more liquidities before continuing its direction. Low volume area candles could be merged together as a FVG candle due to fractal, so I am willing to consider they're the same thing. Price will always try to fill those low liquidity areas. A setup I know is using H4 to find this kind of move as direction and use lower time frame to trade it. It generates good RR. Trading within FVG is the same as the setup since there is still a FVG within a FVG on lower time frame (yep, fractal again). It's more like a scalping trade IMHO.
Discretionary Quantitative Trader
Quoting alps99
And i personally think EU would break several years consolidation range from 2015 to the upside and fill the void above, in confluence with multiple underlying fundamental conditions
I think there must be a big good news for Eurozone to breakout from VA. I don't pay too much attention on fundamentals but I read some news about US reducing Q.E. Won't it be an appreciation for dollar?
Discretionary Quantitative Trader
Quoting zkchyo
{quote} I think there must be a big good news for Eurozone to breakout from VA. I don't pay too much attention on fundamentals but I read some news about US reducing Q.E. Won't it be an appreciation for dollar?
Long-term perspective buddy, the dollar overvalued for years due to its reserve currency status. No the long-term trend reverse and combination with massive twin deficit. European, despite their aggressive monetary policy, their member countries have very hawkish approaches on fiscal policy.
You see in 2018-19, despite yield spread had widen that much, EU couldn't go lower than 2016's low. Another reason is the US equity market is also overvalue now vs many EU equity market, Price/earning is quite reasonable.
Quoting alps99
{quote} I believe if we move to lower tf, same thing would happen. Even though it keeps filling the thin market of previous Profile, market has to do a breakout at some point. But i couldn't know how to make the connection between analyzing high tf to lower tf {image} {image}
you are on the right track

I make a connection by overlapping "fibo" lines for each TF
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Forex can only be understood backwards, but it must be traded forwards.
Quoting prozor7
{quote} you are on the right track I make a connection by overlapping "fibo" lines for each TF {image}
Could you be more clear? I don't understand the chart, maybe bigger chart and present from high to low tf?
Quoting alps99
{quote} Could you be more clear? I don't understand the chart, maybe bigger chart and present from high to low tf?
here
Forex can only be understood backwards, but it must be traded forwards.
  • Post #18
  • Quote
  • Edited at 9:33pm Jun 21, 2021 9:20pm | Edited at 9:33pm
Quoting prozor7
{quote} here
Your fibo way of trading is interesting. I used to be a pattern trader and I find TP by measuring and projecting fibs before I turned to institutional tools.
Many fibo traders fail to explain why golden ratio works. Could you explain it further? My theory is based on volatility but I kinda gave it up because it wasn't convincing enough.
Discretionary Quantitative Trader
  • Post #19
  • Quote
  • Last Post: Jun 22, 2021 3:07am Jun 22, 2021 3:07am
Quoting zkchyo
{quote} Your fibo way of trading is interesting. I used to be a pattern trader and I find TP by measuring and projecting fibs before I turned to institutional tools. Many fibo traders fail to explain why golden ratio works. Could you explain it further? My theory is based on volatility but I kinda gave it up because it wasn't convincing enough.
IMO fibo golden radio is a pattern on a planet, it is there in everything, why is there for me to explain, I'm not that well educated.

my theory is based on time and money (time is money) PA spend in/on each TF

alps99 beautifully explained in post3
Forex can only be understood backwards, but it must be traded forwards.
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