Domino's Price and order flow trading

institutional non-program imbalance statements are what they are called.

so what eventtrading is saying ..correct me if im wrong event is that limit orders including all the different types.. supply liquidity to the market.. liquidity is simply the ability of price to transact vrs the price impact of transaction... the reason why limit orders are liquidity providers is because they are not an immediate transaction and are pending to fill orders but dont need to be triggered so they apply liquidity to the market or ease of finding a fill order.. Market orders will seek to eat liquidity by seeking out higher areas of larger quantity orders and must be transacted on a now time basis.. market orders will eat liquidity running the market while widening the spread and limit orders tightening the spread. The moment the stop orders are triggered they are changed and processed as market order at limit price this inter eats liquidity and causes more drastic price impact in relation to the depth of the market.. for example if price moves and triggers a limit order and it then at that price is sent to the market as a market order at limit price it will swallow the liquidity in the market and varying on depth may not move price if the market depth is deep or may more significantly move price if market depth is shallow..? am I understanding you event? Market depth sometimes also refered to as liquidity or the ease of finding a fill vrs price impact so if using a real example traders are looking to buy and price breaks out long and there are many sellers in the market the market depth will be deep for the orders triggering long market or limit and the breakout.. thus stunting price movement and swallowing the move.. but as the sellers build into the market and soak up the liquidity or market depth and drive down price they reduce the liquidity and the stops or any other orders pending at the lows will be sell orders.. with market depth eaten by the sellside orderflow trigger of agressive sellside limit and market orders at failure or breakout will result in widening spreads reduced market depth and larger sellside price impact..

this is of course without discussing the effect of hidden liquidity

*sigh*

i understand why y'all can't seem to grasp the basics of wtf is even happening when you press the buttons on your 'trading' platform... i believe most have never ventured into the world of stocks.

forex is a shadow of a market when compared to stocks. the game has been changed from what a real market is to whatever the hell forex trading is. if you go and do 'real' trading i.e. stocks then you will completely understand how this all works. let me TRY to explain...

you have people who want to buy. you have people who want to sell. the people buying intend to sell for more than they buy and therefore make money. the people selling either have already bought and want to offload for a profit or loss depending on what price they managed to buy at (you also have short-sellers in some markets but this is just making things confusing so forget that for now). on the buy side of the ladder you have buy orders from almost $0 to whatever the currently highest bid is, then you have a gap above the highest bid where no-one currently wants to venture with a buy or sell order, and then above this gap you have sellers from the lowest sell price up to infinity. actually, sometimes there is no gap because usually there is a set price 'step' value and it's entirely possible and likely that the highest buy order in the market is one step below the lowest sell order. quite literally like on a real physical ladder that you fall off and break your neck.

all these orders on the ladder are what are referred to as 'on the book' so to speak. they are IN THE MARKET sitting on the computers at the exchange center waiting to be filled. if a seller decides to lower their sell price and it now matches with someones buy order then a 'trade' takes place from the highest buy order down to the value the seller set, and it depends on how much volume the seller is selling and how much volume the buyers are buying as to how far down the buy ladder the seller takes out buyers.

e.g. a buyer @ $1 for 10 units and a buyer @ $2 for 10 units are waiting to be filled. a seller comes along and puts an order through for 10 units at a lowest price of 50c... so wtf happens??? well the seller has their 10 units offloaded to the buyer at $2 and as there is no more volume to sell that's the end of the transaction. if, however, the seller has 20 units to sell at a lowest price of 50c then the buyer at $2 for 10 units receives 10 of the sellers units and then the buyer at $1 for 10 units receives the final 10 units the seller is offloading.

ok, so what if the seller is selling 15 units and not 20 units... well then the highest buyer gets filled and then the buyer at $1 buys 5 units and is then left in the market waiting to be filled for the last 5 units by someone else who may or may not come along and trade at that price.

let's say either of these trades occurs, so at least one of the buyers has been filled and is no longer in the market. let's imagine that the rest of the buyers and sellers do absolutely nothing and no further buyers or sellers place an order into the market at a set price. well then you see a gap in the bid and ask. either someone comes along and decides they want to adjust their current buy order to a higher value to hopefully get filled, a seller decides to lower their sale price to a lower price closer to the highest bid, or a new buyer or seller enters the market at a higher bid or lower ask... then the gap starts to fill. also note that other buyers and sellers will also come into the market at whatever other prices already have buyers and sellers, and so they just slot in behind the people who had orders at those prices first (first in first served... this is why it's impossible to get filled on a penny stock at the lowest possible price because a hundred other people already have their orders in at that price hoping to get filled before you were even a fart in the wind).

everyone who is 'in the market' or 'on the books' is a LIMIT ORDER. either a buy limit or sell limit. the buyers have said 'i want x amount of units and the highest i will pay is $y' and the sellers have said 'i want to offload x amount of units at the lowest price of $y'. that is their literal 'limit', hence the name limit order. a STOP order is something a little backwards. a BUY STOP is the opposite of a BUY LIMIT. a BUY LIMIT triggers when price gets 'cheap enough' that it hits the buyers highest set buy value, whereas a BUY STOP is basically the opposite and is simply a mechanism to 'chase the market' and triggers when price has actually RISEN to a level that the buyer has decided that the market is moving upwards and they want to jump on board before it's too late. these orders aren't 'in the market' and don't show on the buy and sell ladder... the ladder only shows who wants to buy cheap and who wants to sell higher, to put it bluntly.

you simply reverse the directions for SELL LIMITS and SELL STOPS. SELL LIMIT says 'i will not sell below x price' and a SELL STOP says 'omg the market is not coming up anymore and is in fact dropping and if past $x i want to offload my units in a panic because it will only go downhill from there'... now this may be higher than what they bought at originally and they have just been letting the market do its thing and go higher until a perceived top, or perhaps it is below their original bought price and they are going to lose money. whatever.

So, a STOP order is actually just an agreement between you and your broker to trigger a buy or sell of x units if price moves unfavourably either direction. these orders are not IN THE MARKET, and are not on any BOOKS except your brokers. they do not exist on the actual stock exchange. only limit orders sit on the exchange ie. who wants to buy cheap and who wants to sell higher.

What is a stoploss... a stoploss is either a BUY STOP or a SELL STOP... and it's to stop, er, loss. if you buy at $100 you are hoping to SELL higher but want to protect yourself so you put a stoploss (ie SELL STOP) at $50 you are saying to your broker 'if the price turns south and hits $50 get me out!!!'. the opposite is true for someone who is trying to short-sell, ie they might have short-SOLD at $100 and want to protect themselves a little so put a BUY STOP (stoploss) at $120 in case the market moves against them badly and they need to get out.

also, as previously mentioned a stop order can also be a way to chase the market... a BUY STOP is set with your broker above the current ask price and if the market goes north you get put into the market hoping to catch the ride, and the opposite for a SELL STOP which your broker agrees to trigger if the price starts going south and you want to catch a ride downtown. so a stop order is not always a trailing stop, but a trailing stop IS always a STOP order of whichever kind (depends on the direction).

so there is some of your key terminology that many people do not understand!

once a STOP order is hit it becomes a MARKET order... what is a MARKET ORDER. well if you think of BUY LIMITS and SELL LIMITS as 2 opposing groups sitting on the floor staring at each other waiting for someone on the other side to twitch, then a MARKET order is some random person on the sidelines jumping in out of nowhere and trading with the higher buyer or lowest seller (depending on if they are wanting to buy or sell). therefore, neither any of the buyers or sellers currently IN THE MARKET and ON THE BOOKS need to do anything at all for the market to move because random people on the sidelines who are NOT in the market (and on the books) can come along and say 'i am buying this instant x units for whatever the lowest sell price is' or 'i am selling this instant x units for whatever the highest bid is'.

does... does this make sense to anyone??? i hope so.

what is a trailing stop? a trailing stop is a stoploss which is either a BUY STOP or a SELL STOP depending on which way the trader is hoping the market will move but protecting in case they are wrong. so, a trailing stop is NOT on the books or IN THE MARKET because it is simply a STOP order (buy stop or sell stop) and as we have learned they are an AGREEMENT BETWEEN YOU AND YOUR BROKER ONLY that they will offload your order in the event that a certain price is reached unfavourably to your position. Not all brokers do this, nor do they have to. it's a 'feature'. often it is charged extra for too which just adds to the fees of trading stocks. now because of a range of reasons if your 'trailing stop' or more permanently set 'buy stop' or 'sell stop' is reached there is no guarantee you will be filled at that price due to the amount of actual units you need to move versus what is on offer at that level, or perhaps because your broker simply didn't get your order into the market quick enough before someone else edged-in a microsecond before you to take-out that price... and so you get the lovely SLIPPAGE. when you set a STOP order you usually get the option to specify the furthest away from that price you will let your order get filled (ie a slippage value), so in this way if something goes way wrong you can at least cap how badly you will get filled, and if you happen to not get filled or only get partially filled then tuff-titties you get to hold onto whatever amount of units you are left holding while the market runs-away like a robber from the cops.

now in terms of 'liquidity'... let's just get real for a moment. if there is a 'large' buy order a few steps below the current highest bid does this mean that the price will not be able to get lower than this giant order? HELL NO! the price may reach that level and take a chip from it then go higher again, to then later come back down and chip-away further, and at any time the person who placed the order can alter the order to change it to purchase less units or completely remove the remaining purchase order completely... same on the opposite with sells and large sell orders. they are not barriers because quite simply anything can happen. these orders could even be 'fake' so to speak and are only there to trick traders for whatever reason and as soon as price gets close to hitting the level the order may vanish before getting touched or on the flipside a huge order may suddenly appear.

you can't take what is actually 'on the books' at face-value because they are not set in stone and can be changed in an instant.

ok, so what if a large buy order does get filled finally and price goes lower and lower... does this mean a sudden 'stop loss' cascade will start as peoples SELL STOPS they have requested their brokers to trigger finally reach levels lower than the huge buy order that just got steam-rolled? well, maybe, maybe not. maybe the large order doesn't give a toss about a few ticks lower being reached and their outlook is to offload in a decades time where they predict their order will be worth the universe, or perhaps they do care and they do have a stoploss order in place and so suddenly a market order comes in and starts filling the buy orders over and over until the stoploss (sell stop) is finished... and in this case further stop orders may have been triggered and so on... or maybe a set of stops get triggered and suddenly a new order gets placed on the ladder which consumes all of the sudden selling and price stabilizes and then goes back up...

who... fricken... knows.... but the point of the story is that in a real market (not your 'i downloaded mt4 oh yay im a trader' setup) this is generally how the universe exists. left is left, right is right, up is up, and down is down. those are what LIMIT, STOP, TRAILING STOP, and MARKET orders really really honestly truly are (except of course whatever stuff-ups i have made in my explanation and examples) and where they sit with your broker and exchange center.

when you get into forex it's all ass-backwards! none of it is real. for everyone with their weeks wage playing in the big bad forex market none of your trades are real... it's ALL just an agreement with your broker. YOUR broker sees ALL orders. that is, they see your LIMIT, your TRAILING STOP MOVING ABOUT, your set STOPS. there is no REAL market in this instance and it's just a game between you and your broker. when you begin to think outside of your weeks wage account and consider what the BANKS are doing with their orders THEN you can start to consider what is and is not really occurring in the market and which orders can be seen and which can not. This is a whole new ballgame. if you consider what they are doing back to what it is like to trade stocks then you will have an understanding of what is occuring. when YOU trade stocks you are really trading something. when BANKS and Bill Gates and George Soros etc etc trade FOREX they are trading something real. but, when you and your pennies are playing in forex you are not doing a damn thing except amusing your broker and making them money and your orders are nothing but a joke being played out in a shadow game that is not like a real market at all... p.s. in a real market you can buy on the bid and sell on the ask, not like in forex where you lose the spread immediately (no really, it's true. i know it seems crazy right. well, no it doesn't actually when you understand how a real market works).

i actually forget what my point was... but basically y'all are giving me a headache with such fundamental market misunderstandings and what is and what is not happening or visible or whatever.

i'd almost bet money i've made a balls-up in there at least a few times, but unless you have traded something other than forex please to be keeping thy pie-hole filled with pie only. for those in the know feel free to let me know where i zigged instead of zagged.

goddamnit why couldn't you have posted that before i started typing my previous post

its not fx market its centralized and depending on the market it is either full dealer or full auction market structure thats fine but we are dealing with a decentralized mixture of dealer/dealerMM/auction/hybrid market structures.. with some being unified market structure.

lol I like people to figure things out sorry for not posting sooner nub lol

thanks tho for the information hidden in there i did not mention.

anyone wanna take a crack at the orderflow in the euro today.. before i show u my charts? i gotta clean a bit ill come back and see

I'll give it a shot.
I showed my entry for last night, rode the wave right into the stops.
The red line is where a good entry for a long would've happened.
http://tinypic.com/r/64owsh/5

Very interesting discussion!!

Thanks Domino..

I will try to follow and contribute..

Looking forward to this discussion.

s

k lets talk about the buyside orderflow prenews

Ive structured the chart from the orderflow this morning..

sellside orderflow market orders decreased liquidity to discover lower price broke low with accumulated stops and new triggers being hit after market depth was swallowed by price discovery the new triggers powered price lower but couldnt build a sustainable sellside orderflow.. created lower high broke again triggering more buy stops and triggers but there was enough buyers to fill the sellside orderflow stops on the shorts piled to the high of the new lower highs and the initial low break as moves lower expected to continue on the buyside orderflow.. you can see the yellow and the red line is a combination of buyside triggers and stops for the sellers. Price moves higher as buyers fill the sellorder and some consuming liquidity and moving price to discover concentration of clusters. the rest of the rally is stop order hitting trailing stop hitting new buy market orders on divergence and trigger longs..

If you had been watching the orderbook around the yellow and red zones you would have seen the large amount of buyside limit orders in the market and extreme imbalance. you can see the move fail as it reaches resistance due to new sellside orders coming into the market due to news and resistance with a lack of buy orders left to trigger price stalled and reversed on news.

In the 2nd chart buyside becomes concerned on reverse on lower timeframe as bears come into the market on news and stall of buying power with huge sellside ease of filling buyside orders.

couple of questions to to think about why take a long from this area? why would we believe that price is more likely to trigger the stops and triggers long with marker order price discovery? and why not go lower? also how do we control risk and how to do we manage return in relation to risk? another is how good is this trade in relation to pending orderflow?

So benevolent you pretty much had what I had for the pop long. so why this area and why this direction?

[quote=eventtrading;3608797] You're probably right on the definition of liquidity. What I'm trying to say is that while limit orders provide depth to the market, only market orders (and stops which become market orders when triggered) cause prices to move.

If the market consisted only of limit orders then price would never change.

It is market orders that allow price discovery since they eat through all the available opposite orders up/down the order book until they are completely filled. A limit order will not do this. It will simply sit at the limit price and provide liquidity at that price until it is completely consumed or cancelled.

I wanted to emphasise this point since if the protective stops we are talking about became limit orders when triggered, we wouldn't see a surge in price when these stops are taken out and the cascade effect would be impossible.

so let me ask if liquidity is being eaten up by market orders and price discovery is occuring on the buyside with limit orders listed as buys at a price that is hit.. what happens to those orders? how do they effect price? and how would a huge trigger of buyside limits being triggered not effect price? also how does the limit apply depth to the market?

we would take a long from the area because we are at a swapped zone where demand for this vehicle should exceed supply.. simply put a support zone. we would believe that price is more likely to trigger the stops and triggers long with market order price discovery because as price pushes against the demand zone buyside limits and stops will accrue at the wave highs because traders will be looking to go long at this area or are already short at this area and holds stops on failure so as demand begins to overwhelm supply market orders should eat buyside liquidity and trigger floods of stops and long triggers these then intern will cause price to rise as the market will find it harder to fill these orders so for every x amount that is processed as a buy order it will have a larger price impact.

We would manage our risk and reward by understanding the concept of limited loss and infinite gain.. as price rises if the buyside persists we will help price by setting new trigger longs with the market and build our short orders at the low with the market to escape. never more stops back only forward and build into the price movement.

how do we measure this trade against others to determine how good of a trade it was?

well we are understanding that we cant grade a probability only realize the strength of where we are.. this is a fact of the market.. as orderflow and price action traders we trade only the occurance not the probability..

so we need a way to read the level and strength of the level and possible futher ability to build into the trade.

well we know that we are at support and support is more noticable the more touches it has and the more noticable a support or resistance level is the more volatility the price level will bring in either the rejection or break. the ability to trade the level will have to do with the amount of orders providing a fluid movement to the market with the ability of the market to react asymetrically afterwards to build continuing orderflow.

so we can write zones by realizing type/touches(noticability)/orderflow - reaction (symetrical or asymetrical)

Your question makes no sense, buying that's occurring within the market takes liquidity from sell limits (asks). Also, bids follow the market up as it rises, so when there are pullbacks, or down ticks for that matter, those who hold those bids are are buying while at the same time supplying liquidity to sellers.



Again, your question only reveals your lack of knowledge of microstructure. Limits are not nessisarily 'triggered' their just traded into. Limits are like dirt, and market orders are the shovel that dig through it. Market depth is just another name for liquidity. Limit orders supply liquidity therefore they "apply depth," as you might say. Stops are triggered though, maybe thats what you were thinking of.

The only way sell limits could end up affecting price 1. allowing it rise via offering liquidity, 2. rapidly changing or being canceled to accelerate a move, 3. being canceled, widening the spread. 4. Some of the dealers holding these asks get into trouble and have to cover via a stop order, accelerating the move.

I like the idea of your thread, we need a place to define microstructure and to talk about OFA, but this thread is in hot water already for the amount of misinformation present. I suppose we'll all need to do our own due diligence though, I encourage all of you to verify for yourselves what domino is saying.

Your charts are cute I'll admit, but you haven't said much. Price goes up orderflow is positive, price goes down orderflow is negative. Thats hardly OFA.

Liquidity dynamics can actually put more sell volume than buy volume in a rising market. Just because a market is rising does not mean there is not more being sold, vice verse. To do OFA, you need far more than Oanda charts. To do it right you need data feeds that are expensive enough that most retail traders would find it cost prohibitive.

i predict it will go up, and down, and up... and down.... and up...

but really, i flipped a coin last night and it told me buy.

edit : which means y'all should sell.

they where questions and did u read what I posted last time or still coming to tell me I have lack of knowledge when you have proven by a paper writen by the IMF that you are wrong.. and your assuming your running into sell limits why buyside market orders.. well then yes it will consume the sell limit without price movement.. because at that price the buy is matched.. we are talking about areas where that is not likely to occur or areas of imbalance in the market.. much like how large commercial firms recieve a institutional non-program imbalance statement. there are these areas in the market and reading them is reading orderflow.. if market order buys push price into an area where theyre is heavy buying limit orders what happens scotty?




did u read the IMF paper yet. yes stops are triggered and so are buyside triggers which is also what im refering to.. if I was referring to market order buys piling into selling limit orders why would I assume that would move price? maybe you are misunderstanding me. I would suggest reading more closely or maybe if you still think its wrong getting a couple of series licensing books and learning about decentralized markets.
so let me ask you if market order selling is piling into the market discovering lower price and you have a sellside limit order at a price that is now a tradable price in the market your broker will.. what? process your sellside limit order and turn it into a market order allowing for futhur price discovery.
well that 45 page paper is still there from the last arguement so enjoy come back when you educate yourself.


you are also wrong about the data feeds most can be included now by brokers.. me i use a bloom terminal actually but like hell im gonna let people see whats going on .. on that but what do I know maybe its included in the huge platform and direct feed I got.. but I think Ib gives it to you for free

This was a response to eventtrading domino but here goes....

If those orders truly are limit orders then they will provide a pool of liquidity at the limit price. This will (at least temporarily) provide support of any price break above the limit price by absorbing any new sell market orders that appear until the limit orders have been used up. I don't believe the buy limit orders themselves will propel price higher up the ladder but will help price to keep some of the ground it makes by preventing an immediate fall back when the buy market orders run out.

Does that make sense?

When I mentioned market depth I meant that the more limit orders there are at a level, the less price effect a big order will have on the market since all the limit orders would need to be consumed before price continued up/down the ladder.

Thanks for your charts domino.

ok guys so when you go to the market and place a limit order are you guys telling your broker that it is not a marketable limit order? your specifically saying to your decentralized for the most part unregulated market that you dont want a marketable limit order.

we are going to our brokers and saying "yes priority is not and issue please issue me a non-marketable limit order"?

The PDFs that you keep refering to are cursory glances at microstructure. I think you read them once and are just making things up here as you go. It's like you're trying to teach calculus after reading a course description for it. You don't have a Bloomberg termininal, I 100% guarantee it. Bloomberg is extrememly expensive. If so, who is your regional rep? How many times have you met with him face to face? Why in the world are you piddling with Oanda and wasting time here at FF if you're at a pro level, paying professional prices? C'mon man, give us a break.

The sad thing here is, I give evidence in each of my posts to point out where you're off, you can't recognize the difference though.

You are using Oanda, and referring to a glance knowledge of those PDFs, and maybe referring to Bloomberg's free news.