(binned per thread starter's request) Behind Price-Orderflow

Did u derive this from slimcat's post above?
anyway, Thanks shreem & slimcat



perhaps u can enlighten us, if u are knowledgeable in it.

The reason no one talks about it is simple. Tapping the phones of large banks is illegal.


Oh crap! I just gave it away.

A few years ago I used FXCM and now use Oanda. The two, FXCM then, and Oanda now, do not have the same detail of order flow information.
In the past, FXCM IFR info had quite a bit of detail on several different pairs. The way they delivered it was different as well. Much more detail than you can find on Oanda IFR now and in a much better format. Oanda IFR has their order flow somewhat buried in text. FXCM IFR was more in a table format as I recall. Maybe FXCM IFR is still doing their order flow info that way. You need to have a live account, I believe, to access FXCM IFR.

This info included where buy and sell orders were "placed". I use quotation marks because the statements were a bit vague and went something like this:
'Stops seen above 95.00' . or like this 'A sovreign name thought to be buying Euros".
When I discussed this with Darkstar's mentee, Mike .. Mbqb11, about 2 months ago, he said that the IFR order flow info was not something that he used.

Shreem,

Thanks for the great article. It does a great job of painting a picture of what it is we are after. So common sense tells us that the dominant order flow causes the same orderflow type and a continuation in the main trend. Meaning that if the market is buyer dominated, all the shorts(created via limit or market orders) will, under enough preassure become buys as well in the form of stops.

This might sound dumb..But I have an image in my mind of two groups of people playing tug-of-war with a giant rubber band. Instead of the losers falling in the mud, they are 'snapped' towards the winning side and everyone ends up running in the direction of the stronger side (a one way market). They have to if you think about it.

So when SK speaks of waiting for the market to show it's hand, he is most likely watching and waiting to see which side ends up dominating, and right before the rubberband snaps he's in going the right direction.

How he and the other guys see this is still up in the air, but we are getting closer.

The thing I liked about the article was that it mentioned a term I beleive is very important. That term is "open interest." Open interest in a market are the trades that are still open, they have not yet been liquidated or settled. The study of open interest is a whole other topic in itself. The only source I know of in the forex that records open interest is FX futures that trade on the CME Globex.

I think that the FX futures MKT is big enough to show us significant information in this data. The only tricky thing is that CME only records open interest once per day as far as I am currently aware.

Because I think that open interest is imporant to the topic of orderflow, here is a link that explains it well. The article has some interesting insights I thought.

http://investopedia.com/terms/o/openinterest.asp
http://www.investopedia.com/articles/technical/02/110602.asp
http://www.investopedia.com/articles/technical/02/112002.asp

Now, I don't know how much this information is going to help us, but it is directly related to orderflow. I know that the futures data is significant, because guys like AlexS use it's volume data to trade profitably. He watches for high volume to form and then records the price at which the high volume formed and then waits for price to come back to that high volume price and then he trades the bounce. It's pretty neat really. I think that is a differant subject again in itself, but it tells me that prices on the FX futures exchange are informative. When an institution comes in and buys 5000 lots of euros, I beleive they probably know something that I don't. Also, their 'direction' ussually wins.

Now, I mentioned yesterday that I am wading through a ton of futures data..I have to much to look at really. So it would be helpful if we could all join forces in searching it all out. I'll post some links here so you can all start going through it.

CME FX products main page:
http://www.cmegroup.com/trading/fx/index.html

CME Euro page (you guys will find all of them there though)
This link is cool because it gives you the significant volume data for free that many data vendors charge you hundreds of dollors per month to see.
Just click on the volume charts. There is a link there that explains how to read them. Pretty Cool! Also, in the main charts for the contracts, you can turn on an indicator that charts the open interest on the daily. I don't think this whole orderflow thing will turn into an indicator thing, but it's still very interesting to put on the chart, especially after you have read the article on open interest.
http://www.cmegroup.com/trading/fx/fx/euro-fx.html

Various daily reports on open interst
http://www.cmegroup.com/trading/fx/fx/euro-fx_quotes_volume_voi.html

There is much more to look at on the CME site as you guys will find. If anybody see's anything they think is significant, please report back.

Here are some links from the CFTC:
There is a lot there as well. I think some of it can be helpful.

Market reports of bank participation in the futures markets:
http://www.cftc.gov/marketreports/bankparticipation/index.htm

Commitment of traders reports:
There is a niche of traders out there who know how to profit from this info alone.

Another intersting one:
http://www.cftc.gov/OCE/WEB/eurodollars.htm

So there is a ton of stuff to go through....I don't know for sure if we need all this info, or if it will be useful to us, but it's worth a look nonetheless. I am actually at work right now (I work overnight), so it's slow, but I am just about to get busy again. So I will check back in later.

Regards,

Scotty B
http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm

Oh, one more thing...The bank participation report from the CFTC allows you to get a glimpse whether they are holding net long or short positions. I think this has the potential to be helpful. Especially if the bias is heavily skewed to one side.

Damn, there goes my edge


I can't help thinking there's a bit of tailchasing going on here....wood, trees etc

It's easy to be distracted by the sideshow. The basic principles explained in this thread regarding order flow, how to interpret it, the different types of orders and participants, and how to profit from this knowledge IMO is the gold herein. It's very easy to get sidetracked by interesting but not completely central topics such as br_oker shading, open interest, CoT, news providers, etc. I see pipmutt beat me to echoing this general sentiment.

Let me quote one of the posts early on (#8) that I think hits on or around the major focus of this thread. Or at least what helped the lightbulb turn on for me. Now that I've read the papers, studied IT and had some time to assimilate IT I'm seeing IT all over the map. SK was correct that timeframe means nothing. Wrong mindset completely and thanks for the explanation. It's all about exploiting a constant dynamic - the cycle of the market participants' profits and losses that are painted on the charts and the tape. It's more about assimilating IT all together into a single picture than in digging deep. More like staring at one of those hidden pictures and figuring it out. I may not have the whole thing down (yet) but I can see the outline clearly. And from an understanding of the underlying dynamic, yes there seem to be many edges to be had. Lots of ways to exploit this knowledge. I'm seeing the market through new eyes. Where to start?


Sage words.

The banks can see their customers' order flow and therefore always have an edge so you have to use commonsense to figure which way they the banks are trading(big picture) and then follow them(banks).

k.i.s.s

I know what you are talking about, and yes it's pretty simple. I have not posted that which you are speaking of because it's the most important peice, yet the peice those of us must realize on our own. But even knowing the vital part of the puzzle you are speaking of, I doubt you are taking trades on IT, because you don't trust that you are in the right place. This is where I am focusing at the moment while trying not to chase my tail. Knowing the 'picture behind the picture' can give us an idea of open interest and how it's changing, but we are still guessing at this point. The reason I went to the open interest idea, is because I think the 'big players' or certain big player trade on a little bit longer term. If we can know when open interest is declining on the daily scale, then we can be in the right direction before the losers show up on the chart. Just an idea.Trading IT, alone is still risky unless we have more information. This is why I beleive a lot of these guys (OF traders) trade at the news times. When lots of people are trading in the same spots, these places become much more clear and likely to work out, allowing one to up the risk.

Yes, and they have enough strenth to pry nickels and dimes out of the loser's hands. But PRY they must. It's kind of like a financial game of 'say unlce.'

One more thing...When I found IT, I realized why Gaston calls himself an orderflow sniper. Snipers are stealthy, quick, and precise. This leaves contrarian, momentum, TA, and FA traders in the prey catagory.

So I don't look like a jerk, here is a clear picture you NEED TO STUDY AND UNDERSTAND if you are still lost.

I bet Steve (the OP) is having a quiet laugh to himself about now

If I understand it correctly I think the whole issue is really simple, just think like one of the big market-moving herd-exploiting players for a minute and imagine what you would do if you were them, and then find a way to benefit from what you think they're likely to do in certain market conditions.

Is it a guarantee of where price will go? Of course not, no-one could ever have all the information required to predict price direction with 100% accuracy, it's a wild goose chase trying to find something which doesn't exist.

'Probability' people, not 'certainty', that's what trading is all about isn't it?

Nice work slimcat and shreem on the Jason Alan Jankovsky tip. Been doing a bit of digging and he seems to know what he's talking about on this subject. Ordered 'Art of the Trade - What I Learned (And Lost) Trading the Chicago Futures Market.' I'll have a read and post a review when I'm done.

The intention of a stop-loss is to dump a position that the trader thinks will suffer further loses. But if a trader truly believes that the security will suffer further losses, how can they ethically sell it to another human being?
A stop-loss order is just an automatic scheme to find the greater fool and a stop hunter is just a means of making a greater fool out of someone who was seeking a greater fool.
If you are choosing not to hide your orders with all the tools and different order types you have at your disposal, I think that's a mistake on your part. It's a fair game that they are only doing this when ever people are willing to open their hands. It's like a poker game. If you are willing to open your cards to other players you don't expect them not to use that information to their advantage, after all everybody is trying to make money. Also on the flip side since you know what they are doing, it's also a fair game that you can model this behavior and make money whenever they are trying to push the markets.
I believe it's individual's responsibility to do their work ahead before trading these markets to understand how everybody trade and how that effects your trading.

Whatever floats your boat I guess.

lol, or sinks another's

Seriously, do you really believe certainty exists in this market? Just consider the implications if that were true.

Here's one way of looking at it. Whenever you look at price, ask yourself, what can happen (in the next minute, hour, day, week) that will screw the most amount of people.

I do! Certainty DOES exist. I know EXACTLY where my charts are headed everyday...

to the RIGHT haha. that was corny but it always cracks me up.

buttt to stay on topic...

i've been reading through this thread for a few days.. as it piqued my interest since I had been working on something along the lines of trading with the big boys. i'm superstitious about sharing a trading edge until its actually made me some $.. and i'm still demo'ing this strategy as i demo everything before i add it to my live trading plan. but its been working consistently so far this week.. and in my very rough backtesting it tested well. obviously a week of consistency is by far nothing to hang your hat on, but it does show that its worth trading(demo or live) to ascertain if its an edge or random luck so far.

all im doing is,

1. figure out where the big boys took action in the past(yesterday,last week, last month, whatever)
2. assume they'll take action there again (probability, not certainty)
3. figure out which direction they're likely taking(think of trader psychology.)
4. have a way of getting in with them that minimizes whipsaws(as there inevitably will be.. again, we're dealing w/ probability. notice the words "assume" and "likely" in my explanations)
5. have a money management plan to manage these trades to suck the most profit out and keep the losses relatively small

what im doing may not be one of the edges that sk was referring to, although i suspect it might be, but its definitely got potential to be an edge itself.

To answer pip in response to you sir. Yes, most people certainly get the shaft.