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Domino's Price and order flow trading

  • #501
  • Apr 10, 2010 10:49am Apr 10, 2010 10:49am
Quoting Scotty B
The players probably don't give a rip about you and me, it's all about taking out other big players. .
and this is a BIG BIG mistake. they live on guys like us. they never go head to head on each other....they work together to manipulate markets and take our money.
The quality of your life is brought about by the quality of your thinking.
  • #502
  • Apr 10, 2010 10:50am Apr 10, 2010 10:50am
Quoting pipmutt
Isn't that what we've been saying/speculating all along though?

The quality of your life is brought about by the quality of your thinking.
  • #503
  • Apr 10, 2010 10:52am Apr 10, 2010 10:52am
Quoting Porkpie
Jesus Christ people. Its the weekend. Get a freakin life!! lol
this is life....after spending all day listening to my 6yrs old i need a rest and relax by thinking about trading....


LOL
The quality of your life is brought about by the quality of your thinking.
  • #504
  • Apr 10, 2010 11:37am Apr 10, 2010 11:37am
Quoting pipmutt
For a short? A long?

The lines you've drawn in at those retracements in the uptrend, what do they represent, buy entries, or levels where you believe stops are clustered?

I must have missed a page or two because all this looks like good ole straightforward simple TA to me! Uptrend, trade long on a retracement or a break above the previous swing high, stop below the previous low, job done......I don't get where order flow comes into it or how you're using it to help make trading decisions. The same for a reversal, trade short on a break below...
I agree pipmutt. I was just throwin it out there. Gold has been rangebound for months so we could reasonably expect a reversal IMO. ( It'll prob blow straight through now I've said that). The levels I drew are where I would assume stops were lying in the eventuality of a breakdown.
  • #505
  • Apr 10, 2010 11:41am Apr 10, 2010 11:41am
Quoting pipmutt
I'm not sure I'd rely on it as a standalone strategy but it may help when deciding where (not) to place stops or where to scale into a trade.
Thats the clincher for me. Surely its what separates the wheat from the chaff.
  • #506
  • Apr 10, 2010 11:51am Apr 10, 2010 11:51am
Quoting jolany
hello.
no offence.
hindsight everthing works.
can any one post live trades next week. with ur results?

Hi, I don't think that is the rationale of this thread TBH. Of course we'd all love to see some concrete tactics to take to the market, but this is the trading discussion forum afterall.
  • #507
  • Edited 12:15pm Apr 10, 2010 12:00pm | Edited 12:15pm
This thread has been biased towards clusters of stops creating momentum in the market and only recently towards limit orders triggering momentum. Surely the markets are based on supply and demand. The big orders trigger at levels where the market was considered cheap for longs and expensive for sells - basic economics 101. The arguments so far suggest that Domino's idea or technique with regards to stop clusters is only a very small part of the order flow picture. I diassagree with Domino that order flow can be identified as good or bad in determining future price action as it passes back through past PA, when considering supply and demand.

This is my understanding of the attached chart. Limit orders being triggered at supply demand zones. You will often see price being pushed in the direction of these zones where orders are waiting. Momentum is then created by the crowd (liquidity) jumping in on the trade after the fact as the institutional guys start taking their profits. The chart is a 240 CADUSD.
Attached Image
  • #508
  • Apr 10, 2010 12:20pm Apr 10, 2010 12:20pm
Yesterday was a typical day in E/U where the big money absorbed all selling before the big up move happend. I took a time but finally it rallyed.
Everybody who can read order flow correctly have noticed it.

On important support/resistance levels the big money always shows up.Every time.
A good indication for breakouts is that the bid side suddenly becomes equal or bigger than the ask size.
  • #509
  • Apr 10, 2010 12:21pm Apr 10, 2010 12:21pm
Quoting AstonDan
it seems to me to be a question of interpretation more than anything else.
I agree, most of it seems to be quite subjective, as well as being part of a strategy rather than a strategy in it's own right.

Quoting hornet
the orderflow idea brought forward by domino resonates with me because it is similar to my market dynamics idea. we sort of look for entries at same areas, so i am trying to understand how it might help me improve my trading
I'm interested for the same reasons, to see if there's anything which might be useful to me in my trading.

Quoting hornet
they live on guys like us. they never go head to head on each other....they work together to manipulate markets and take our money.
I'm not sure if that's right is it, we're insignificant, and I don't think they work together to manipulate markets, among other things where would liquidity come from?

Quoting Ted1983
Thats the clincher for me. Surely its what separates the wheat from the chaff.
Yep you have a point, if it helps filter out less probable trades and improves bottom line then I guess it can't be a waste of time.

Quoting Porkpie
Jesus Christ people. Its the weekend. Get a freakin life!! lol http://cdn.forexfactory.com/images/s...m/big_grin.gif
Damn, no-one sent me a memo!



I'll keep reading, it would be useful to see a couple of real-time trades and the thinking behind them. It's not important whether they win or lose, it's just to get an idea of typical analysis and the thinking behind it.
  • #510
  • Apr 10, 2010 12:25pm Apr 10, 2010 12:25pm
Quoting hornet
this is life....after spending all day listening to my 6yrs old i need a rest and relax by thinking about trading....
LOL
  • #511
  • Apr 10, 2010 3:15pm Apr 10, 2010 3:15pm
K guys im just gonna take one post to sum up the past 3 pages.. First of all if your refering to us just stop hunting you need to reread from the beginning.. I lump things into 2 sections.. buyside and sellside.. dealing with the mentality of the traders.. not between dealer(seller) and trader(buyer) of service.. so we are dealing with triggers AND stops as we have since the last thread..before this one.. we are targeting areas where "basic econ-101" areas where demand or supply will be exceeded by the other and create enough volatility so a trader can profit as traders profit on volatility... we make sure the placement of triggers and stops are fluid throughout the trade so the will create a good extension rather than deep pull backs.. The initial break is strong enough to cause asymetrical rebalancing and create directional orderflow to build new triggers and stop adjustments to power the new move correctly..

As to the mention of this is not order flow .. it is and ive made my point through this thread.. and yet to have been shown a better way to trade orderflow by the people who disagree.. im sorry real volume isnt available in FX without a institutional feed. so thats out of the question.. you guys wanna feel comfortable with MT4 volume go for it use volume profile cool.. but i wouldnt trust it the data is way off from institutional data. The aim is to MIX PA in with order flow ideas to trade.. notice the name of the thread.. price and orderflow.. its a hybrid.. if you dont think its orderflow cool there are several other dead threads out there that can be restarted and fail again..

as for the hindsight.. Ive posted all the trades right as the break occurs its the best I can do.. I dont have a crystal ball.. I cant show the break before it happens.. the best I can say is we are at X level with Y orderflow around it.. looking for a break like the to last charts.. they have decent orderflow around them.. coming off of good levels.. and showing possible breaks.. Even posted the chart about AUD/USD and shown Im still in it..

Sorry I cant part the waters for you guys who are expecting me to.. but I can show a couple of things.. what to build a trade around.. how to put money at risk... how to reduce risk .. how to increase exposure without increasing inital risk.. and how to take a profit and protect yourself. Thats more or less what this is about..

Getting these stupid Ideas about grinding the markets and success rate and loss vrs win ratios and being the casino crap out of here.
  • #512
  • Apr 10, 2010 3:59pm Apr 10, 2010 3:59pm
Quoting Scotty B
I heard someone say once that the dealers make the spread by simply trading at their bid and ask prices alone, but to my knowledge, the only way they make the spread is if they offset their position on the opposite side of the market before price changes. When they fill an order their position is at...


It doesn't make sense because you’re looking at it from the perspective of a single trade. Market makers operate on an inventory basis. FTI offered some pretty extensive information on the subject, but I'll try and sum it up. (You could also reread chapter 13 of trading and exchanges for some more info)

The dealers spread is not equivalent to the best bid/ask spread. Their operating spread is at least 5-10 pips wide. Obviously, they have a strong pulse of the market, so they usually have a good idea of what directional bias is baked in and can shift their inventory to capture that bias, but this doesn't address your point.

When the market moves against them they aren't accumulating losses, they are building inventory. Price seldom ever moves in one continuous straight line. Even in a strong trend, price oscillates back and forth in a 3 steps forward, 2 steps back fashion. Those steps are often in 5,10 or 20 pip swings. So as it moves against them they build up inventory and liquidating it when it oscillates back the other way.

It could probably best be summed up with an example. Imagine there is just one buy side MM offering liquidity (limit orders):

To start the scenario, lets assume our theoretical MM has 1 lot bid limits at 100, 99, 98, and 97. Someone else is making the market at the ask and will follow price as it moves lower, so we start with a spread of 101/100

A trader hits a market sell to consume the 1 lot at 100. Price moves to 100/99 and our MM has an inventory value of 1 lot at 100.

Another trader hits the bid consuming the 1 lot and moving our spread to 99/98. Our MM is at 2 lots with an average value of 99.5.

Another trader hits driving price to 98/97. Our hypothetical MM is now sitting on 3 lots at an average price of 99. The offer is currently sitting at 98, so even though price has moved against him by 3 pips, because he only trades with limit orders, he is only down 1 pip (assuming he can get hit on the offer).

Lets assume a 50% retracement. The MM gets 2 of his lots off at 99.5 before price resumes the downtrend. He pockets .5 pips on each of the 2 lots, so his average price for the 1 remaining lot drops to 98. So even though the current price is below where it started, the MM is in the money on his inventory.

Now this is of course overly simplified. In reality, he would be transacting at varying sizes at different price-points to control his aggregate inventory cost. He would also be spreading the transactions out over much larger range (maybe 20 or 30 pips) so as to capture 5-10 pips on each oscillation.

Regardless, I’m hoping it’s enough give you the general idea of how an MM can make money even when the market is moving against him. It's not an easy business, but it does work.
  • #513
  • Apr 10, 2010 4:30pm Apr 10, 2010 4:30pm
Quoting Darkstar
It doesn't make sense because you’re looking at it from the perspective of a single trade. Market makers operate on an inventory basis. FTI offered some pretty extensive information on the subject, but I'll try and sum it up. (You could also reread chapter 13 of trading and exchanges for some more info)

[color=black][font=Verdana]The dealers spread is not equivalent to the best bid/ask spread. Their operating spread is at least 5-10 pips wide. Obviously, they have a strong pulse of the market, so...
I've recently came back to FTI's thread and I must say with fresh eyes I'm actually starting to understand what he is trying to teach. First time through I thought FTI was some senile old coot... but this time something is different and I'm actually understanding what he is saying lol.
  • #514
  • Edited 4:53pm Apr 10, 2010 4:31pm | Edited 4:53pm
Quoting Darkstar
It doesn't make sense because you’re looking at it from the perspective of a single trade. Market makers operate on an inventory basis. FTI offered some pretty extensive information on the subject, but I'll try and sum it up. (You could also reread chapter 13 of trading and exchanges for some more info)

[color=black][font=Verdana]The dealers spread is not equivalent to the best bid/ask spread. Their operating spread is at least 5-10 pips wide. Obviously, they have a strong pulse of the market, so...
exactly.
they have deeper pocket to do that.
  • #515
  • Apr 10, 2010 4:41pm Apr 10, 2010 4:41pm
Quoting Scotty B
So what is the point of trading into stops if you know they are there?
Can anybody show me a chart of the exact moments stops were known to be executing? This is not meant to be a challenging statment to anybody, I just think that stops are getting too much attention around here.

To me, evidence of stops would occur on the smallest of time frames in the form of unidirectional bars, or long multiprice ticks. I think when we imagine stops in a theoretical sense, we imagine price breaking a swing high and immeadiatley jumping 30 pips. In reality,...

You've hit on an area that really facinates me Scotty. I've been thinking for some time about the hidden actions that cause bars to form up the way they do. Before someone jumps on me...I'm not pretending that knowing this will give me any edge. I just want to understand what might be at play behind the scenes because it interests me.

From what I've read it seems that market orders are primarily matched to limit orders sitting in the order book. A big market buy order will move price up the ladder until enough limit sell orders are found to complete the fill. Likewise, a big market sell order will move price down the ladder until enough limit buy orders are found to complete the fill. Of course if big enough limit orders stand in the way of price, the fill will complete with very little in the way of price movement. I know we're in agreement on this.

Now, in terms of that scenario you mentioned, I think the latter outcome would be most likely....a down bar would be printed with NO upward spike in price happening first.

My reasons are as follows. The buy stops triggered at 100.00 would create a surge of market buy orders looking to be filled at the current price or above. At the same time you issue a massive market sell order (which dwarfs the market buy orders) looking to be filled at the current price or below. So at this instant in time we have a large number of buy orders and an even larger number of sell orders looking for a fill at current market or worse.

What I think happens is that your huge market sell order eats up the nearest liquidity first (which happens to be the influx of market buy orders created by the stops triggering). This effectively removes all the market buy orders before they've had a chance to effect price (by filling the sitting limit sell orders above).

Your order is so large it still hasn't been completely filled at this point so it then looks for liquidity in the form of limit buy orders sitting in the order book below the current level. The order chases price lower, eating through the buy limit orders sitting at various levels in the price ladder below until your market order has been completely filled.

This action produces a large down bar with very little or no spike to the upside.

All this assumes that market buy orders can be matched against market sell orders and vice versa. Everything I've read so far speaks only of market orders filling limit orders - I haven't yet seen a reference to market orders filling market orders (although I haven't finished reading the Larry Harris book yet).

However, orders are orders and I think it would be crazy not to match up a large group of orders sitting right next to each other - especially since the fill you achieve chasing the nearest sitting limit orders may be poorer than that available by matching the opposing market orders.

So in summary, what I think happens is this:

1. the market orders are matched until the smaller side is completely consumed.

2. the remaining balance of market orders then consume the nearest limit orders, chasing price up/down the price ladder until all market orders are filled.


PS. Another question I'd like to answer is this:

If price was to move to a level where there are an equal number of limit buy and limit sell orders, would the 2 groups of limit orders be matched up (effectively cancelling out all the sitting liquidity at that level) WITHOUT the need for any market orders to be submitted?


Wow, that's enough rambling for now.
Hope you don't mind this side-discussion Domino. I know it doesn't add to the method but I think it's nice to know how price works.
  • #516
  • Apr 10, 2010 4:51pm Apr 10, 2010 4:51pm
Quoting Darkstar
It doesn't make sense because you’re looking at it from the perspective of a single trade. Market makers operate on an inventory basis. FTI offered some pretty extensive information on the subject, but I'll try and sum it up. (You could also reread chapter 13 of trading and exchanges for some more info)

[color=black][font=Verdana]The dealers spread is not equivalent to the best bid/ask spread. Their operating spread is at least 5-10 pips wide. Obviously, they have a strong pulse of the market, so they...
Great explanation DarkStar, thanks
  • #517
  • Apr 10, 2010 5:01pm Apr 10, 2010 5:01pm
Quoting Sutts
You've hit on an area that really facinates me Scotty....
i thought it will be easy to understand order flow.
if i think that while demo trading i will get mad.
why all the traders say trading is simple?
  • #518
  • Apr 10, 2010 6:43pm Apr 10, 2010 6:43pm
Quoting Sutts
Hope you don't mind this side-discussion Domino. I know it doesn't add to the method but I think it's nice to know how price works.
nope as long as no one is attacking someones neck and its on topic.
  • #519
  • Apr 10, 2010 10:08pm Apr 10, 2010 10:08pm
Quoting Darkstar
It doesn't make sense because you’re looking at it from the perspective of a single trade. Market makers operate on an inventory basis. FTI offered some pretty extensive information on the subject, but I'll try and sum it up. (You could also reread chapter 13 of trading and exchanges for some more info)

[color=black][font=Verdana]The dealers spread is not equivalent to the best bid/ask spread. Their operating spread is at least 5-10 pips wide. Obviously, they have a strong pulse of the market, so they...
Thanks for the example DS. It's one of those things that hard to wrap your mind around because it's a thoretical thing. I wish I could watch over a dealers shoulder for a day so it would really click.

Do you know of any good books on dealing stratagies or is it one of those things that is so specialized that no books would exist on the matter?

When we talk about inventory managment I am very curious. What does a target inventory for a dealer look like?

The funny thing about these questions is that they are really hard to answer. I've been reasearching market makers and there just isn't a lot out there.
  • #520
  • Apr 10, 2010 10:24pm Apr 10, 2010 10:24pm
Quoting domino
.. the best I can say is we are at X level with Y orderflow around it.. looking for a break like the to last charts.. they have decent orderflow around them.. coming off of good levels.. and showing possible breaks..
You posted a chart for EUR/GBP here and said "how about this one?". I was asking in this post if you could explain what you're looking at, your thinking, and what your plan would be, just so we have a clear example. Thanks!

Here's the post again to save you looking it up.......

Quoting domino
how about this one?

E/G

SZ9L



http://cdn.forexfactory.com/attachme...1&d=1270878652
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