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  • #201
  • Edited 1:23pm Aug 30, 2009 12:12pm | Edited 1:23pm
Quoting Scotty B
I am saying that TA and FA are reduced to their probabilities. I cannot say yet what I believe about orderflow and it also being reduced to simple probabilites. I think these guys who know how to trade using orderflow trade with certainty, at least that's the way they make it sound. Meaning that, if you trade a break of support for example and go short, you don't know for sure if the orderflow is on your side, so all you can do is say "well, this trade might work out and it might not, so I better get my stop all ready." But if you are someone...

I think others have probably already said it, nothing is a certainty as far as the direction of price goes, there are far too many unknowables and unpredictables, if that's what you're expecting or hoping to find at the end of your search then I think you'll be disapointed.

I believe understanding order flow and maybe being able to read more into how and why price moves may increase probability but it isn't some infallible Holy Grail. Like you I'm passionate about trading and particularly about these types of subjects, they're fascinating, but they're still only part of the picture.

Edit: I must say Scotty, for a trader you don't seem to think very logically! Don't you think that having a romantic notion about certainty existing in the market is just a wee bit illogical?

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  • #202
  • Aug 30, 2009 12:24pm Aug 30, 2009 12:24pm
Quoting Scotty B
The orderflow predetermines where price can go. Why do you think SK uses terms like "a one way market." You say we "cannot know with certainty." but at the same time are certain that you cannot know and appeal to "fact." If we are not all knowing, then how do you know we can't ever know? If we can never yeild any answers then why are you putting answers fourth?

If we can see orderflow, then we can see the man behind the curtain pulling all the strings and get out of the mindless audience.
Well, simply you've missunderstood the game. The certainty is the law of supply and demand which governs any market, and Newtons laws of motion. These are facts.

We have a mental belief system that allows us to recognise a set of variables in the markets behaviour that indicates when an opportunity to buy or sell is present (imbalances in the supply and demand equation). This is our edge and something we can know. However, what we don't know is exactly how the pattern our variables identify will unfold. We can know that the edge places the probability of success in our favour, but we also have to completely accept the fact that we don't know the outcome of any particular trade.

To quote Mark Douglas on the beliefs about the market we need to share:

"1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an
edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over
another.
5. Every moment in the market is unique."
  • #203
  • Aug 30, 2009 12:46pm Aug 30, 2009 12:46pm
Post by SKFX:

"@Goose

Goose,traders of all types have to do what they have to do...trade.They place orders.
For the big players,they NEED to place orders,they have no choice.You and I though,it's more of a want thing.We are not forced to do business unless we want too.This is an edge in itself,another one.Think about what this means.
Hint:we get too watch the big nutcases push capital around.But we need not get involved until we know the hand.
Ever thought you could trade without a stop loss?(not recommending this.i do use stops but just as a terrorist type thing if you catch my drift or internet crash).
Once you KNOW and UNDERSTAND,using a stop seems silly because price can only go ONE WAY."



To ferrari...Look at how SK describes this..He puts on a stop to protect from bin laden and internet crashes. If he is telling the truth, the only probabilities you'd need be concerned about are those things unrelated to trading.

If the roulette wheel is only black, then what is the probability you will hit black? SK is portraying this thing as certainty.

Back at SK... to clarify sir, are you trading with certainty or probabilities as far as the trading and analysis alone are concerned, leaving terrorists and internet problems out of the equation?
  • #204
  • Aug 30, 2009 1:30pm Aug 30, 2009 1:30pm
Quoting Scotty B
To ferrari...Look at how SK describes this..He puts on a stop to protect from bin laden and internet crashes. If he is telling the truth, the only probabilities you'd need be concerned about are those things unrelated to trading.

If the roulette wheel is only black, then what is the probability you will hit black? SK is portraying this thing as certainty.

Back at SK... to clarify sir, are you trading with certainty or probabilities as far as the trading and analysis alone are concerned, leaving terrorists and internet problems out of the equation?...
My opinion,

Certainty is a brave word.

If you are trading on material information that can only be interpreted in one way (when/if you understand the mechanics of it propperly), then you are trading with certainty with regards to your analysis. But you cant be certain that you will profit, all it takes is an extra pip change in price to turn a potential winner in to a loser.

If the OP trades with certainty that he will profit each and every trade, he might as well put the house on e&e time.

Like I said, cause and effect, solid rules, certainty in your own quality analysis. Thats as certain as your going to get.
Living the adventure in my head.
  • #205
  • Aug 30, 2009 8:24pm Aug 30, 2009 8:24pm
Quoting Scotty B

Old Larry says: Limit orders execute quickly if they are on the wrong side of the market but they do not execute if they are on the right side of the market.

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Hopefully I can clear up this "right side" and "wrong side" terminology with respect to order types since this is one of the subjects I used to teach at Fidelity Investments. Unfortunately, the FOREX world uses the term "limit order" to cover anything that isn't a market order, and this causes confusion. In the securities markets, we make a major distinction between limit orders and stop orders.

Limit orders are intended to BUY at prices that are LOWER than the current market price, or to SELL at prices that are higher. Since it makes obvious sense to anyone that BUYING LOW and SELLING HIGH are good ideas, limit orders are said to be placed on the "right" side of the market.

Stop orders are intended to BUY at prices that are higher than the current market price (for instance to buy into a breakout if it occurs or to close out a losing short position), and to SELL at prices that lower than the current market price (to sell into a downside break or to close out a losing long position). Since the general public would consider it kind of stupid to want to buy at higher prices and sell at lower prices, we used to refer to these as being on the "stupid side" or the "wrong" side of the market.

This is NOT to say that stop orders are stupid or wrong. It was a way of explaining to the novice what the essential distinction is between the two order types.

In regards to order flow; order books like the one to which you posted a link, as well as NASDAQ level II and so forth are showing limit orders. These orders tend to restrict price to a range because sell limits are above the market and buy limits are below.

Stop orders tend to do the opposite. When the trigger price to a regular stop order is hit it becomes a market order (although there is such a thing as a "stop-limit" order which when triggered becomes a limit order ). Because buy stops are above the market they tend to move it even higher when hit, and since sell stops are below the market they tend to increase downward momentum.

We used to teach the following mnemonic device to help people remember the four possibilities:

SLoBS
BLeSS


This reminds us that Sell Limits (SL) and Buy Stops (BS) are ABOVE the market, while Buy Limits (BL) and Sell Stops (SS) are always BELOW the market.

This being said... it is possible in the equity markets to place a limit order on the "wrong" side of the market. This would be done in a fast moving situation where you want to avoid huge slippage. So if Amazon dot BOMB suddenly shot from 100 to 110 in a few seconds, you might place a limit to buy at 115, even though that's on the "wrong" side of the market. Orders like this would usually get filled immediately because you're saying you're willing to pay up to 115 for the stock and it's currently at 110.

We had to be careful to determine the customer's intent in a situation like this though because they may not be familiar with the terminology. The customer might only want to buy AMZN if it ever gets up to 115 and not before, in which case the correct order would be a buy stop, not a buy limit.

Merlin and I had a great debate about this once... not about any of the facts in regards to how the orders work (which we both know) but in regards to how they should be "classified." He sees a major distinction between market and limit orders, whereas I see the major distinction as being between limit and stop orders. Here's a link to the debate we had:

http://www.forexfactory.com/showthread.php?t=87133
  • #206
  • Aug 30, 2009 8:41pm Aug 30, 2009 8:41pm
Quoting Scotty B
If the roulette wheel is only black, then what is the probability you will hit black? SK is portraying this thing as certainty.
If not a certainty, then at the minimum as close to a sure thing as you can get in forex trading. It sounds like they have discovered a specific inefficiency in the market that they are exploiting.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #207
  • Edited 9:03pm Aug 30, 2009 8:50pm | Edited 9:03pm
Quoting capitalist88
http://www.forexfactory.com/showthread.php?t=87133
I remember reading that a few months back. Not taking sides in the debate, just that Merlin's classifications made it more clear to me. Plus trading with Oanda you basically place a market order or a limit order (I know the MT4 platforms use the whole buy stop (limit) sell stop (limit) thing).

Quote
Hopefully I can clear up this "right side" and "wrong side" terminology with respect to order types
Good explanation, makes sense to me.

Quote
In regards to order flow; order books like the one to which you posted a link, as well as NASDAQ level II and so forth are showing limit orders. These orders tend to restrict price to a range because sell limits are above the market and buy limits are below.
Is it that basically limit orders are on the book and stop orders are off book?
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #208
  • Aug 30, 2009 9:37pm Aug 30, 2009 9:37pm
Quoting LasVahGoose

Is it that basically limit orders are on the book and stop orders are off book?
Exactly, and this goes to what the great beady-eyed one was saying in the debate. He's right in that every order, no matter how complicated, eventually turns into either a market order or a limit order. That's why he perceives those two as being the most fundamental types.

Limit orders sit on the order book. They are the bids and asks (offers) that you see in NASDAQ level II or on the site Scotty posted earlier. Bids are just limit orders to buy below the market and offers are just limit orders to sell above the market.

When a market order comes in, it "hits" one of the two inside limit orders. If the market order is to buy, it hits the offer. If it's an order to sell then it hits the bid. If the market order is for more volume than the limit order that it hits, then it gets filled by hitting the next limit, and the next until it's completely filled. This is what we see as price movement.

So if the offer side of the book looks like this:

134.50 300
134.49 500
134.48 100
134.47 200

...and a market order to buy 500 comes in, it will hit the first two offers and wipe them out completely, then partially wipe out the 500 offered at 134.49. So the fill would be 200 at 134.47, 100 at 134.48 and 200 at 134.49. The effect of the market order would now make the offer side of the book look like this:

134.50 300
134.49 300


As far as stop orders go, Merlin was right in saying that they are really market orders, "stopped" from reaching the market until a certain condition is met (we agreed on this point the whole time; our disagreement was on what was more "important") Anyway, that's why stop orders aren't on the book. The broker is holding them in house until such time that the trigger price is reached, at which point they simply become market orders and start hitting the bids or offers.

Now I say this with a grain of salt when it comes to the FOREX market, because each broker uses any old terminology and practices that they want. In the case of Oanda, the stops ARE on the "book" so to speak, because they have a tool where you can see where all the limits and stops are clustered (although they use the term "limit" for both limits and stops, which confuses the issue).
  • #209
  • Aug 30, 2009 9:46pm Aug 30, 2009 9:46pm
Quoting capitalist88

...and a market order to buy 500 comes in, it will hit the first two offers and wipe them out completely, then partially wipe out the 500 offered at 134.49. So the fill would be 200 at 134.47, 100 at 134.48 and 200 at 134.49.
By the way, this goes right to the heart of the concept of liquidity. I used to tell a story to my classes to illustrate the idea of liquidity. Back when I was an trader, a woman calls me up about how she was robbed when she tried to buy some stock because "they" kept moving the price up on her. Well I checked it out and she had placed an order to buy 10,000 of some dog crap OTC BB stock. So I had to explain to her that "they" weren't moving the price away from her and giving her higher and higher fills. SHE was. I was like.. "Maam, the price is going up because YOU'RE BUYING IT." The offers were like in the hundreds, and her order was blowing through like dozens of levels in order to fill.

This is an illustration of how limit orders provide liquidity to fill market orders (or in this particular case how the LACK of limit orders leads to a lack of liquidity).
  • #210
  • Aug 31, 2009 12:49am Aug 31, 2009 12:49am
What an intelligent thread! Great job!
  • #211
  • Aug 31, 2009 3:45am Aug 31, 2009 3:45am
Quoting capitalist88
"Maam, the price is going up because YOU'RE BUYING IT."
"We Have Met the Enemy and He Is Us."

Your story really cracked me up. LOL!

Lovin' the thread - Thanks!
  • #212
  • Aug 31, 2009 4:54am Aug 31, 2009 4:54am
Quoting Scotty B
I am saying that TA and FA are reduced to their probabilities. I cannot say yet what I believe about orderflow and it also being reduced to simple probabilites. I think these guys who know how to trade using orderflow trade with certainty, at least that's the way they make it sound. Meaning that, if you trade a break of support for example and go short, you don't know for sure if the orderflow is on your side, so all you can do is say "well, this trade might work out and it might not, so I better get my stop all ready." But if you are someone...
Interesting answers from the worlds greatest scalper Paul Rotter (nice name) who uses indicators and the order book:

Q: what timeframes are you using on your charts?
A: usually 5 - 30 min charts for trendlines and indicators. i prefer p&f charts because they give me a clearer view on patterns (triple tops). for indicators i like the CCI because it also shows the volatility of the markets.

Q: what has one to do if he wants to become a scalper?
A: he has to watch the orderbook for a very long time.

Full interview here (http://www.forexfactory.com/showthread.php?t=152952)
  • #213
  • Aug 31, 2009 6:05am Aug 31, 2009 6:05am
useful links....

http://www.tradingmarkets.com/.site/forex/how_to/articles/The-4-staples-of-Interpreting-Price-Action-77799.cfm

http://www.youtube.com/watch?v=bv2SXYneNrc

Cheers,
Sniffing Snake's Tracks...
  • #214
  • Edited 6:38am Aug 31, 2009 6:34am | Edited 6:38am
Quoting capitalist88
By the way, this goes right to the heart of the concept of liquidity....
Capitalist..Thanks so much for the examples and for cleaning things up for us. My eyes are opening more and more. This seems like its boiling down to simply knowing the microstructure (the rules of the game) and the mechanics of how price works, not an end in itself - but the starting point.

From your 2nd to last post you stated that stops are not on the book, but held by brokers. So at this point I am baffled as to where you would find information on stop placements. Especially considering that it's not necessarily us small guys who are pushing price around, but 'the big guys.' It is their stops/orderflow in general that matter and I am not sure if 'the big players' even use brokers because they are operating on a whole other level. I say this because our charts, say on Oanda for example, are not nessisarily a picture of what is happening on Oanda's in-house orderbook. Oanda might as well be playing Forest Gump on their chart area on the platform along with all the other retail brokers. I say that because, if I entered a maximum postion with Oanda, or several for that matter, Oanda would take the other side of my trades and I don't think you would ever see those trades reflected on Oandas charts. Unless of course they 'hedged themselves with their liquidity provider.' Who would in turn pass my orders up the stream.
( I have to admit that at this point I have absolutely no idea what I'm talking about with anything that I continue to say, I am feeling my way around in the dark here).

I have the same question about the guys in chicago trading FX futures on globex. Are they also trading with data coming in through the wall? Should they be playing Mario Cart instead? I have a sneaking suspicion that they are playing much of the same game we are. (if they are, it would make the volume data I subscribe to through market delta meaningless) I know that the Forex is a decentralized market, so their is no central exchange on which it's traded, so who the hell is moving prices up and down? This was one of SKs questions for us to answer (he said it nicely though). Yes, my words are revealing how ignorant I really am, but we cannot (I cannot) move forward until they are answered. This is probably the most imporant question aswell in regard to the topic and this is the crux: If we don't know who is ACTUALLY making the price tick up and down, then we cannot take advantage of orderflow. All we can do is look at the charts (half of the picture), and keep guessing what will happen next.

Also, if this topic is reduced to guessing where certain orders will be, then we might as well put the indicators back on our charts. Knowing that the big guys have to use orders to trade is helpful in the logic of the charts, but we will still just be guessing.

One thought I had was, what kind of risk tolerance do 'the big players' have? How much pain can they take? Do they calculate their R:R like us morons? Is there possibily some average percentage that we could use to say, after such and such a consolodation (positions entering the market via limit orders), all the 'big players' who were wrong in the direction start executing stops thereby adding momentum to the 'right direction?' Yes, I am gettng ahead of myself here, but Its just a thougt. If something like this could be done, I think it would better explain why fibs work. Edit: to appease SK, I mean, maybe it would explain why fibs 'work.'

Okay I'll shut up for now...Capitalist, not all of this was aimed at you my friend..I just figured since I started rambling, I might as well keep going.
  • #215
  • Aug 31, 2009 6:50am Aug 31, 2009 6:50am
Due to the trendline I'm getting short. Also, notice a perfect head and shoulders at the last high.
Attached Image
  • #216
  • Aug 31, 2009 6:54am Aug 31, 2009 6:54am
Quoting Scotty B
From your 2nd to last post you stated that stops are not on the book, but held by brokers. So at this point I am baffled as to where you would find information on stop placements.
OMG. LOL. I never put 2 and 2 together. That is why they call it stop HUNTING. They don't know where the stops are (off book) so they hunt for them.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #217
  • Aug 31, 2009 7:06am Aug 31, 2009 7:06am
Quoting LasVahGoose
OMG. LOL. I never put 2 and 2 together. That is why they call it stop HUNTING. They don't know where the stops are (off book) so they hunt for them.
Wait, whos stop hunting? The funny thing is, there is bound to be stops on each side of the market, so really all you need to do is 'fire into the dark.' And in all seriousness, Osler in her paper also refers to orderflow as order imbalance, which makes you think that the majority will hit the minoritys stops each and every time furthering their cause. Kind of like racism but more like priceism.

We can't simply use price action for this either, it just tells us half the story. We'll find it...in time will find it, and until we do we'll continue to be the victims of priceism.
  • #218
  • Aug 31, 2009 7:09am Aug 31, 2009 7:09am
Quoting Scotty B
This is probably the most imporant question aswell in regard to the topic and this is the crux: If we don't know who is ACTUALLY making the price tick up and down, then we cannot take advantage of orderflow.
I don't understand your logic on this. Why should we know that who's moving the price? It's totally unrelevant.
  • #219
  • Aug 31, 2009 7:19am Aug 31, 2009 7:19am
[quote=Scotty B;3007811]
Quote
Wait, whos stop hunting?

I'd imagine anyone with a super sized order that needs to be put in the market and wants / needs the extra liquidity or get in at a better price.

Quote
We can't simply use price action for this either, it just tells us half the story. We'll find it...in time will find it, and until we do we'll continue to be the victims of priceism.

Well, wouldn't price action show the end result of the order flow? For example if price spiked long taking out all sellers stops and selling to buyers ( buying into resistance), maybe pinbar shape? Then once all the buy orders are gone, price falls until the next level of buyers can found.

Hmmmm....
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #220
  • Aug 31, 2009 7:29am Aug 31, 2009 7:29am
Quoting MartinFx
I don't understand your logic on this. Why should we know that who's moving the price? It's totally unrelevant.
Would you like butter on your popcorn sir?

No no...In all seriousness, if we don't know who is moving price, then studying orderflow is a waste of time. I don't necessarily need to know names, SS#'s, DNA, but humor me here...

What if I knew that later today mr. X at X-Bank, was going to start selling Euros like there's no tomorrow. Mr. X has so many Euros to sell, he's actually been taking them home so he can wipe with them. Mr. X is going to start the sell-off at 3pm, london time..Sorry I don't feel like going to the effort of telling you the GMT. It's story for crying out loud.

So if you had knowledge of this, what could you do with the information at say... 2:58-2:59PM?

Now that story is completely far-fetched, but what if you had access to this type of data where you could see these trades that were about to execute. Even if you only had 5 seconds or less to act, would it be valuable to you?
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