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Stating The Obvious and The Quest For Wisdom

  • #981
  • Mar 21, 2010 10:07am Mar 21, 2010 10:07am
Quoting Scotty B
Even the lowest latency, crazy micro based OF trade is inherently lagging. This is true because you don't trade until meaningful orders happen.
well, yeah, you anticipate orders and make appropriate decisions based on 'what has already happened' BUT exploiting the orders 'correctly' (if there is such a thing) you could get in at a better price than those who's orders you were anticipating so the reality is that you are not missing out any pips because of the 'lag'.
  • #982
  • Mar 21, 2010 10:19am Mar 21, 2010 10:19am
Quoting FXSurfer
So far it's pretty much been the microstructure stuff (Osler, Harris etc.) that have been the "suggested reading" for the subject, Scotty?

Suggested "macro" reads - or just follow the news?

Thanks!


Wishing DS good luck on the upcoming book!
Yes..The academic stuff is very important in that it pounds the basics of trade mechanics into your brain. If you don't get the ins and outs of how price works, there is no way you'll understand orderflow in the sense that you can begin to have the mindset DS talks about.

Orderflow in a practical sense is all about knowing where demand is. Leon was right on when he mentioned the idea of prices being available for the least amount of time i.e. in the most demand. I suppose there are many ways of seeing this, but volume spikes are to me the best info we can get inexpensively as retail traders. A spike in volume simply shows extreme demand/time. The higher the volume you can pack into the smaller amount of time the better. Just remember to keep this in the context of what I've already shared.

Trading with demand is the name of the game. We lose when we trade blindly, or mistakenly trade against it.

I'm going to shutup about this stuff until DS comes along and scolds me a little bit. I don't want to take things too far away from what he has to say because he is the one with all the experience.
  • #983
  • Mar 21, 2010 10:27am Mar 21, 2010 10:27am
Quoting lumesh
well, yeah, you anticipate orders and make appropriate decisions based on 'what has already happened' BUT exploiting the orders 'correctly' (if there is such a thing) you could get in at a better price than those who's orders you were anticipating so the reality is that you are not missing out any pips because of the 'lag'.
You only get in at a better price than those who trade after you. But at the time of your initial entry you don't get the better pricing the traders got who you are coat tailing. I hope this makes sense. The trade starts with solid info and ends with a guess/hope.
  • #984
  • Mar 21, 2010 10:49am Mar 21, 2010 10:49am
Quoting Scotty B
Trading with demand is the name of the game. We lose when we trade blindly, or mistakenly trade against it.
Thanks Scotty!

(I like the quote above. Well said!)
  • #985
  • Mar 21, 2010 11:57am Mar 21, 2010 11:57am
Quoting FXSurfer
So Suggested "macro" reads - or just follow the news?
If you have some time on your hands....

http://en.wikipedia.org/wiki/Behavioral_finance

Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press. ISBN 0198292279.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #986
  • Mar 21, 2010 12:02pm Mar 21, 2010 12:02pm
Quoting Scotty B
I do see the difference between a situation with a range of outcomes and one with only two. The jump that's hard for me to make is finding that 0/100 range in odds, extrapolated onto what are seemingly arbitrary prices. How would you infer what the market was thinking by looking at current prices? Or am I totally off the mark? I'm going out on a limb here, but if you meassured the current pre Greece decision price range and used that as your scale, I'd say the market is about 75% decided towards the down side with the risk premium being 25%. I admit...
Your getting stuck in the if x then y mindset. There is no mathmatical correlation between the current price and the outcome probability priced in the market. Its far simpler then that... Where is price now and what is the sentiment now? They always line up. You don't need to know the exact probability, all you need to concern yourself with is if sentiment will be better or worse in the future.

It gets into the answer to another question you have, but generally I like to find situations where I have a really good idea about the eventual outcome of some event. Then I want for sentiment to diverge considerably from that outcome and take a position that would bring it back toward the outcome I anticipate. Not only does this give me the biggest profit opportunity, it also gives me a good chance of spending the majority of the positions life in the money. All I need is a little good news to cushion my risk.
  • #987
  • Mar 21, 2010 12:18pm Mar 21, 2010 12:18pm
Quoting The Fool
If you have some time on your hands....

http://en.wikipedia.org/wiki/Behavioral_finance

Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press. ISBN 0198292279.
do you use a broker with a edge at the execution?

thanks in advance.
  • #988
  • Mar 21, 2010 12:23pm Mar 21, 2010 12:23pm
Quoting Scotty B
Darkstar,

Do you have a working model you use for entry? If so what does it look like? I know you have mentioned the chart indicating that the market wanted to turn up, is that, combined with your outlook on Greece what caused you to enter long. Are you using more advanced orderflow based micro oriented stratagies to enter, or was it that rounded bottom? Sorry, some loaded questions there.

I've use volume, PA, time and sales, ect to enter my trades. I really like the setups where there is a combination of all these tools telling me the same...
As I mentioned in the last post, I usually like to wait for extremes in setiment and trade for the correction. Having said that, it isn't always the case. I take trades for all sorts of reasons and my entry and exit criteria change with my interpretations about the market. Let me give you some examples:

The main reason I got in the euro trade was that it had a massive drop followed by that rounded bottom. The Greek situation was another factor, but not as significant when I entered the trade. It's important now because it's the dominant theme driving that pair and I'm in a trade.

I have a huge u/j long @ an 89.8 avg price. That trade has a 2 year target of 115.00. My entry criteria was predominently fundamental (interest rate based) with the price chosen by the BOJ's stated price floor for intervention.

My AUS trade was sentiment based in the manner I described previously. Price had dropped precipitously on the greek news (on the risk aversion factor) even though RBA was in the midst of a rate increasing cycle. I bought when sentiment was way out of line and went instantly ITM. I'm looking to get out of that one soon (.9500 is my target, but we'll see).

The one theme that runs through all these is future market flows. As long as I have a valid reason why traders will join me, (at some point in the future) I can trade.
  • #989
  • Mar 21, 2010 12:26pm Mar 21, 2010 12:26pm
Quoting The Fool
If you have some time on your hands....

http://en.wikipedia.org/wiki/Behavioral_finance

Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press. ISBN 0198292279.
Schleifer is considered the most influential economist on the planet.

http://badger.som.yale.edu/faculty/ncb25/bsv_jnl.pdf
"If The Fool persists in his Folly he will become wise." - William Blake
  • #990
  • Mar 21, 2010 12:30pm Mar 21, 2010 12:30pm
Quoting giraia_br
do you use a broker with a edge at the execution?

thanks in advance.
OandA has the sub m1 charts, down to 5s, and i seek to catch large momentum moves asap. Breakouts from consolidation, breakouts at transitions from market stasis, scheduled news announcements, etc.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #991
  • Mar 21, 2010 12:39pm Mar 21, 2010 12:39pm
Quoting SunTrader
So when the market bounces off previous support (or resistance) from months or years ago it is just mere coincidence?
I wanna mention again that I'm not saying that this is the only way to trade or that other trading methodolgies don't work. People make money in all sorts of different ways and if what your doing makes sense to you then you should do it.

There ARE some significant chart based S/R levels. Make no mistake, you can get some serious orderflow activity purely as a result of a chart pattern. Usually the higher the timeframe this pattern or technical truism presents itself on, the more orderflow activity it will attract and the more valid it will be. Technical traders make up the majority of speculative flows and when a great many TA traders are in agreement, they can meaningfully impact price. It's more self fulfilling prophecy then anything, but it still works.
  • #992
  • Mar 21, 2010 12:54pm Mar 21, 2010 12:54pm
Quoting The Fool
OandA has the sub m1 charts, down to 5s, and i seek to catch large momentum moves asap. Breakouts from consolidation, breakouts at transitions from market stasis, scheduled news announcements, etc.
but you use Oanda for charts AND trading?

many thanks for answer my question
  • #993
  • Mar 21, 2010 12:58pm Mar 21, 2010 12:58pm
Quoting giraia_br
but you use Oanda for charts AND trading?

many thanks for answer my question
yes....and futures platform in tandem for volume comparison. sometimes I trade spot others futures. PM me if you have questions about how I trade.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #994
  • Mar 21, 2010 2:17pm Mar 21, 2010 2:17pm
Did you hear last week the German official who because of criticism of their action or inaction,said "how many Italian marble bathrooms can they put in their houses .... and how many Greek statues can we buy ..... and how many French tapestries can we buy" to help stimulate the eurozone.

The Germans have their financial house in better shape than others and they get criticized.

Note: I'm not German American, nor trying to bash other free-spending countries like the good ole USA.
  • #995
  • Mar 21, 2010 2:32pm Mar 21, 2010 2:32pm
There seems to be two types of trading described on this thread, although more focused at the moment on the future sentiment longer term trading. I am very interested at the moment in the short term liquidity order flow based trades.

Thanks to Darkstars recent posts on this, I plan to look for setups like this and the other battles he mentions. He has given us enough information, with work, study and patience, it can be achieved..

To this end I will be studying market microstructure, has anyone read Lyons book on this? It seems more focused on fx than Harris's book, which I am reading at the moment.

Thanks again Scotty, you seem to have created a monumental thread, I have backed it up lest it becomes suddenly removed (like DS's old thread).
Seems like you quest is fruitful.

PS Does what was that original thread about? Just the stop hunting described earlier?

Chatzi
  • #996
  • Mar 21, 2010 2:43pm Mar 21, 2010 2:43pm
Quoting chatzi
Has anyone read Lyons book on this? It seems more focused on fx than Harris's book, which I am reading at the moment.
Lyons book is really just a compilation of his work posted on his website. You could read all of his free PDF's and get the gist of what the book has to offer. There are a lot of meaningless mathematical formula's and statistics that are inapplicable to real life. I found this to be the case for both Lyons and Osler's stuff. It is all great to have as far as background information goes, espescially for developing that order flow "mindset", but I doubt you will change much on how you approach the market from that book alone. But its cheap and short, so you wont waste much time or money with it either way. So why not?

Edit: It should be noted that I read the book about a year ago now, and a lot has changed with me since then. If I read it again perhaps something would jump out at me....just a thought.
All I ask for is a chance to prove that money cannot make me happy.
  • #997
  • Mar 21, 2010 2:49pm Mar 21, 2010 2:49pm
Quoting Marsh
Lyons book is really just a compilation of his work posted on his website....
Thank you Marsh,

Harris book is very good, It should be required reading for any new trader. I suppose order flow mechanics are the same across any market. I have already bough the Lyons book anyway, so its on its way from Amazon.

Chatzi
  • #998
  • Mar 21, 2010 7:23pm Mar 21, 2010 7:23pm
Quoting The Fool
If you have some time on your hands....

http://en.wikipedia.org/wiki/Behavioral_finance

Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press. ISBN 0198292279.
Thanks for the info, my friend!

Crazy weather around here today, huh? Like the markets - couldn't make up its mind what it wanted to do. Ha!
  • #999
  • Mar 21, 2010 7:26pm Mar 21, 2010 7:26pm
Quoting Marsh
Lyons book is really just a compilation of his work posted on his website. You could read all of his free PDF's and get the gist of what the book has to offer.
http://faculty.haas.berkeley.edu/lyons/pubabs.html

http://staffweb.ncnu.edu.tw/yfgau/s07/ifm07s.htm
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,000
  • Mar 21, 2010 7:28pm Mar 21, 2010 7:28pm
Quoting FXSurfer
Thanks for the info, my friend!

Crazy weather around here today, huh? Like the markets - couldn't make up its mind what it wanted to do. Ha!
Hey no problem. Grey day - matches my mood after watching Syracuse steamroll Gonzaga this AM.... West coast still gots the Huskies, tho - and St. Mary's (woohoo!)
"If The Fool persists in his Folly he will become wise." - William Blake
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