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

Well you've got to hold something, dollars, yen, gold, oil, debt....

lol, I thought you would have been, I just couldn't resist

I guess this time around you know why these things act the way they do...maybe you knew all along...most don't...but don't forget the Who, Why, and When.

Ok, I really have to hit the sack now...I'll try to make an appearance tomorrow, but the markets are open, so I'll have more to do than sit on forexfactory

lol exactly...that was sort of my point...

Ok, real quick before I really do leave.
Pull up a Eur/Usd H1 chart.
We can all agree that smart money moved price from 1.42 to 1.43 right?
Now, does it look like they unloaded that position at the end of the day Friday?
If not, do we think they will today? If they do, when will this happen? If they don't, what will price do?

None of this is trading advice, just some questions you might want to ask yourself...these are the questions I'm asking myself...I'm not going to pretend I know the answers, but I may have some idea based on previous price levels.

Some really great posts here recently. Here is one I found on another thread. I don't trade VSA and honestly don't know much about it, but the point is not the method or using volume. What I like about this post is the orderflow aspect of it, the buyers coming into the market. It's a bar by bar play by play and I found it very interesting, I hope you do you as well.

http://www.forexfactory.com/showpost.php?p=3026068&postcount=3210

This quote is by Ed Seykota:

"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."

He's a long term trend follower and actually has a n interesting bio.

Sorry, but this is all mumbo guess-work. Who's to say there wasnt jus average size bids sitting sub 1.42 and lack of sellers caused price to rally, you dont know if there was 'smart money' there. And even so, they could have unloaded the whole possition if there was a random buyer big enough sitting around on the way past 1.43.

Gotta agree with brethren Pipmutt here about the way this thread is going/has gone.

PS. You could be completely correct, just as the scenario ive explained could be. Thats the problem.

Nice post and exactly how i trade

This was a very informative post, much appreciated.


So another way to look at important S/R areas (that holds), in terms of orderflow, is that they are areas of liquidity that allows the informed traders to switch sides so-to-speak.

If the informed traders sold early and price has dropped to a level that they have a good idea where a ton of buyers are sitting, they start getting out. The uninformed trader is getting in late or actually selling in support giving the informed even more liquidity to exit their positions and reverse and new informed traders sitting on the side lines to enter.

The uninformed that sold late will eventually help move price against themselves (buying) when price reverses and they have to exit their position at a loss.

Why is there a lack of sellers? Meaning, why are the large sell orders that could stop price from increasing absent from the market? Is it b/c these traders are on the other side of the market?
This goes back to my previous posts. Who can place buy orders large enough to stop and reverse price? So who is long at the moment?
So maybe we can tell that there is smart money long at this point.

Tell me goose, what has price done for the first 3 hours of the open for this week? Is price looking for sellers? Why is price looking for sellers? When do you think price will find sellers?
I see a couple of places on my chart, some are riskier than others as far as placing a sell order to be in with the smart money, so I simply haven't done so...I don't know enough yet.

note:
Not to say all smart money, the market is still a battle field, with certain entities having vested interest in keeping exchange rates at certain places, and big money trading many time frames as well, etc etc...all this must be taken into account...

Damnit, now its 3am...so much for a goodnight's rest...oh well, at least I tried...

This is a great post! I believe I read or saw somewhere(maybe Sam Seiden?) that the faster the price travels to a previous area of supply/demand that the better chance it has to react to those points.

I also read about the more times the supply/demand area is hit, the weaker it becomes.

These facts could be traded with charts alone(indi free!)

Hello guys. Here is an interesting post of Houdini (a CTA professional hedge fund manager) about how big banks use price ranges to initiate their positions and trade accordingly:

"You are on the right track, for sure. I've been managing funds for 8 years using discretionary trading based primarily on price action and some fundamentals. Each time i am in NY, London or Singapore i meet with my dealers at UBS, DB, CS and others and they say the majority of their major clients trade the ranges and price action, which supports the approach. I use S/R, fractals, fibs and fib based patterns and it has proven itself year after year. Congratulations on your realization. If i may offer a suggestion... when you look at charts, look at the price action patterns as it relates to the dealing flow. The dealing flow is not constant, rather is moves in waves as you can see on the smaller timeframes. Also, consider that the actual dealing numbers are fixed in the minds of traders and have an emotional root in the environment, which will be remembered at a future time. "
__________________

This post shows me that we may trying too hard to find what are those order flows and how could we access the order book of all those orders pending or not in the big interbank market.

The thing is, having a clear and well define technical analysis approach using major S/R levels along with fibs and a clear understanding of fundamentals that do impact the currencies that we trade is all what this game of trading is all about.

Keys Support and Resistence levels can be clearly seen either on a chart of without using a chart (for people who prefer to) and past "major" S/R levels are indeed important and will be revisited time and time again.

Anyway just wanted to put that post of a successful professional FX CTA trader that do trade within the true Interbank market. Posts of those guys that more in the "known" than me is certainely helpful!

Shreem

Agh, I vowed I'd sit out on this thread but Peter, I always liked your posts, so briefly...

"As I understand it, a major order may have to be filled in stages due to the need to keep a level of secrecy or simply due to the available orders resting in the market."

Yes - all you're trying to do is lever in a large position at the best possible price. Hiding identity and size is crucial to this.

Getting into position might be done over minutes, hours, days or even weeks, and accordingly different tactics are required depending on your size.

There are many ways of doing this - averaging being the least proactive. If you're trying to leverage in at the best price, you're only after one thing - liquidity. You either generate your own liquidity by convincing everyone price is heading one way, or you head for existing pools - aka banks of orders.

And even once you've decided how, there's the small matter of execution; it used just to be iceberg orders and not a lot else. Nowadays there are hundreds of execution algos for this very purpose, all operating with a minute edge and with the aim of disguising how big an order really is, and to minimise price going against you. On the flip side, there are hedge funds reverse engineering those algos to determine trade size (and therefore extent of informed trades)... but that's another ballgame.

If you as a retail trader follow suit and average in as well, what are you doing? OK you're literally front running, but to what advantage?

Hope this helps a little

Well we know the mechanics of the market but that's about all we know, trying to apply logic or analysis to the 'Who, Why, When' is pure speculation and (educated) guesswork, subjective and discretionary. For pretty much every thesis there can be an alternative equally valid and educated opinion.

Speculating on the motives and strategy of the 'who, why, when' behind order flow is an interesting subject but the results can never be conclusive, we simply don't have enough accurate data to go on and we never will have, that's the nature of the game.

ODL quoted a friend like that on dollar cad around news one day. He bought, they wouldn't pay out! Lol

lol, I can't imagine why they wouldn't, no sense of humor some of these bucket shops!

Very interesting postings,good job to all who are contributing to this post.
My own thinking is that we are just looking at part of the puzzle,order flow,price action and volume are the three main ingrediance that makes up momentum,knowing all three parts individually will get us no where until we start to understand the power of momentum,with out momentum the markets are going no where,our job as traders is really to study momentum,how ,when why it has such effect on any given market.In some markets orderflow and volume are given out the next day.As a day trader all we have as a guide to trade with are price action and momentum.I am not suggesting any indicator,chart patterns or candle patterns,all am suggesting is that you pay more attention to momentum because that is the key to succeed in trading,without momentum you are just spinning top in mud.Remember Usain Bolt ok that's Momentum

Many traders use different methods to get into the market. Some just put the entire position on the books and let it fill over weeks, days, minutes, pending on how big the order is...this is why you will see price hit the same price over and over, they have effectively placed a barrier in the market, assuming its a large order.
As this thread has already discussed, price cannot pass this price until the order is filled. Others with large capital will average down(when going long) as they are more experienced than you and I and see an imminent reversal coming (of course, its given they like the price they are getting) and want to be sure they play a role in that reversal.

I, on the other hand, like to average up when going long, and average down when going short, for the simple reason that I would like to already have an idea that I'm right before I add a position. So instead of placing a sell order as price enters a supply/demand battle zone and averaging up as price pushes into the zone, I like to wait and observe how far price pushes into the zone before I see clear selling absorbing the late buyers.

Today I missed the strong move up b/c I wasn't in front of my computer due to prior engagements. No, I was not very happy about this, but instead of being a late buyer, I decided to just sit out and wait, and maybe find a good place to go short.
(btw, I'm hoping some of you caught that move after seeing no sellers when price pushed through the short term battle zone at 1.4380/1.44)

So today in Eur/Usd (15min/5min to follow along) we got our first hint of strong selling at 1.45, as expected. But I didn't place a sell order for two reasons: That move up today was strong as hell, and everyone likes to buy a pullback, specially in a market like that. Could I have sold and taken a quick 20 pips off the market on the first touch, sure (of course, only in hindsight I know this would have worked out), but that would have been risky as hell, so I just sat out.

That first pierce of 1.45 was pretty weak, so after seeing a bounce and a weak break I figured price could push up to 1.4520 and then run out of steam. I've found that the 0,20,50,80 rule is relatively reliable. So I placed a limit sell (that's what my broker calls it, I personally think it should be called a sell stop, but that's another debate) at 1.45197, to be exact.
I got filled about 2 hours later. As soon as I got filled price retreated and things were looking good. A half hour later price continued up and put me slightly in the red, but notice how small the break was. Price then retreated again and then came back and put me in the red, but the break was even weaker this time. At this point I can start to assume enough selling is going on at this price that I can be somewhat confident in my trade. You can look at the chart to see that bulls and bears battled for awhile between 1.45 and 1.4520, the way price reacted, and the fact that sellers were able to push price slightly lower each time gave me a hint that buyers were running thin, sellers have started to gain control.
After price was pushed to 1.4480 and bulls were only able to push back to 1.4508, I figured the last buyers were in and sellers could now take over, so I placed a another small sell order at 1.4495, b/c I knew if price was able to push back below 1.45, it would most likely fall off a bit.

As of right now, price is at 1.4488. I still don't know if I'm right, but I do know that enough buyers have been absorbed to stop price's upward continuation, I know what happens when buyers are scarce, and I know who is buying after a run like that, and it isn't smart money I also know that I have statistical averages and whatnot on my side considering price has run 300 pips without a legit pull back. The overall trend may be up, but we are hitting some heavy supply on the long term charts that must be soaked up before price can continue. I'm only looking to be right for a few minutes, to a few hours, to at most a day or two...my personality doesn't allow me to be in a trade for too long, so that's how I trade.
(edit: price is now at 1.4478 )

Again, that post feels jumbled, but that was my thought process today, hopefully someone can follow it, lol. And no, I don't usually like to place trades in the second half of the US session, but I found prices attractive

This will be my final long post, I'll try to check in and see where this conversation leads, as you know I'm always looking to learn as well.

trader disclaimer: Buyers did put up a pretty good fight, we can tell by the amount of time price stayed in the zone, so this might not have been the best trade to broadcast to the world, we'll see how it goes...but you get the idea...Will I be surprised if price challenges my position? Nope. Will I be surprised if I have to close out with a small gain/loss? Yea, a little, lol. I'll be perfectly fine if I have to close it and re-observe, there is always another...

Good trading to all!

Jpat, love your posts. Please continue writing your novels