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  • #881
  • Jun 24, 2010 10:39am Jun 24, 2010 10:39am
Quoting Scotty B
[color=black][font=Verdana]To trade orderflow, you make your trading decisions based off of orders you see in the market, not price charts....
Excellent Post Sir
  • #882
  • Jun 24, 2010 1:12pm Jun 24, 2010 1:12pm
Quoting Mr-Forex
When you want to know what is going on behind the chart you have to understand how institutions trade big sizes over time.

I won't show how i spot institutional orderflow but here is a cause for thought:

http://corp.bankofamerica.com/public/public.portal?_pd_page_label=equities/ets/agencyalgo
This was a good link that you posted earlier.

Really massive pools associated with these algos, no doubt!

The "white paper" section of the site also has some nice stuff (e.g. Algo Approach) to see how institutional trading is done.

I appreciate your posts - you know what the hell you're talking about. Thanks!
  • #883
  • Jun 24, 2010 2:27pm Jun 24, 2010 2:27pm
I'd like to try and clarify a few things...

First off, what Scotty is doing is one way to trade orderflow, but it isn't THE way. The truth is, there is no ONE way to trade orderflow.

As I've said before, orderflow trading is a mindset. The common thread that ties it all together is making decisions based on future orders. Sometimes those orders come from fundamental factors (econ reports or headlines), sometimes from technical (trend lines or fibs), sometimes there are simply no more orders to support the continuation of a trend (exhaustion).

What people like Sauron and Pip are hung up on is the fact that we have no time and sales. There is also no way of getting a brokers real time book, so they conclude that there is no way to front run big orders. They have a valid point, but they are missing the forest for the trees.

This isn't about front running (in the traditional sense). The truth is, as a retail trader there is zero opportunity to know when Toyota is going to make a block purchase of yen. So looking for a way to do it is a fool’s errand.

What’s also a fools errand is assuming that a fib or a trend line will "cause" price to do anything. All the technical patterns, tools, and indicators are arbitrary constructs humans project onto the market in an effort to understand what is likely to happen. Price doesn't give a crap about a trend line or a fib, but humans do. It's the humans acting on these patterns and indicators by placing orders that impact price.

It may seem like splitting hairs, but I can't tell you how many people genuinely think a trend line or an S&R level CAUSES price to reverse. Raise your hand if you have ever put your entry order 5 pips ahead of the trend line with your stop 5 pips beyond it. If you have you know exactly what I mean.

The flip side has a group of people who assume that fundamental factors cause prices to move. Whether its predicated on the idea that markets are efficient or that securities have some intrinsic value, I'm not sure. What I do know is that all the fundamental factors point to the euro falling, yet it's up 500 or so pips and rising.

Neither school of thought is capable of producing long term profits. I know there will be people who disagree with me on that, but I can point to the simple fact that if either were viable, someone who learned the principles out of a book would be able to instantly become profitable when trading. Even with 80k members at forex factory, I can't think of anybody who has been profitable from day one.

It takes years to learn how to trade because there is a subliminal message in the market that has to be learned from experience. Which trend line bounce should be taken and which should be skipped? What news is going to drive price through an S&R to start a trend? If you've been profitable for any length of time you know it's the trades you skip which lead to bankable profits.

The concept of order flow seeks to focus a traders attention on the subliminal message. By constantly asking yourself what is going to compel traders to enter and where, you cut right past all the TA/FA bullshit to what really matters... the orders.

Instead of trading because there is a trend line, you examine what happens to price when the trend line is reached. You figure out that 9 times in 10 price penetrates the fib level before reversing. And that price often reverses right at the point where people "should" place their stops. And that no matter what the fundamental story, if the COT is breaking records, a cataclysmic reversal is inevitable.

At the end of the day, an experienced order flow trader doesn't need to see the actual orders to know what’s about to happen. If you know why a majority of people will want to trade in the future then you can get in ahead of them and profit. It's really that simple...
  • #884
  • Jun 24, 2010 5:11pm Jun 24, 2010 5:11pm
Quoting Darkstar
.......it's the trades you skip which lead to bankable profits.
DS, great post, as always, but (even though I believe I know what you mean) I couldn't help seeing the amusing side of the way you phrased the above quote.

Even though I regard myself as a strictly 'technical' trader, I think it's possible that I use some orderflow concepts without realizing it. For example, S/R in the way that it can reflect areas of potential supply and demand; heavyweight pros manipulating amateur money; probable actions of 'trapped' traders; etc.

I believe it's possible to gain some kind of edge from 'pure' TA for the simple reason that the minimum requirement of an edge is to overcome '50/50 + spread'. In other words, and assuming that my br0ker isn't cheating me, if there was no spread, I should - at least mathematically - be able to break even by making random entries and exits. If I hold trades for a few days, any positive carry interest will overcome the spread. Now if I add some 'robust' concepts (e.g. like trading in the direction of the trend; trading the strongest currency against the weakest; confluences of different S/R types; etc) to all of this, it should be possible to come out ahead, on balance, in the long term. Rightly or wrongly, that's my current way of thinking.

Anyway, many thanks for your post - hopefully it's clarified the orderflow concept for those who are following this thread. It's helped me to validate aspects in the way that I trade, for which I'm grateful.
  • #885
  • Jun 24, 2010 5:29pm Jun 24, 2010 5:29pm
Well, that was just damn beautiful, DS.
Capital Preservation is key to long term wealth accumulation
  • #886
  • Edited 7:58pm Jun 24, 2010 7:46pm | Edited 7:58pm
Quoting Darkstar
I'd like to try and clarify a few things...

First off, what Scotty is doing is one way to trade orderflow, but it isn't THE way. The truth is, there is no ONE way to trade orderflow.

As I've said before, orderflow trading is a mindset. The common thread that ties it all together is making decisions based on future orders.

<truncate>
Thank you very much for the clarification DS. It's helped to put into words a buncha stuff that has been floating around my head.

It's like saying economics (or technicals/news/whatever) and stuff can play a part in influencing what the market will do, but most importantly, it's what the market perceives it to be. This becomes "the truth" to the market and adds a layer of predictability... but the real edge is in reading human perception of current conditions.

One can almost say, it doesn't matter what the real world implications are. To profit, what is important is thinking about what others would be thinking and how to profit from that. Very much like Keynes and the beauty contest analogy...
One Mind, Any Market
  • #887
  • Jun 24, 2010 11:58pm Jun 24, 2010 11:58pm
Quoting Darkstar
I'd like to try and clarify a few things...
Boiled down that's a long-winded way of saying what I commented to Scotty a few posts back, "wouldn't it be better to try and pre-empt where and why they might enter?", and it seems (along with thousands of other traders) that's exactly what you're doing, the only difference being you're misnaming it 'order flow trading' and that's where the misunderstanding comes in.

Quoting Darkstar
Price doesn't give a crap about a trend line or a fib, but humans do. It's the humans acting on these patterns and indicators by placing orders that impact price.

It may seem like splitting hairs....
It is splitting hairs, plus (seeing as we're hair splitting) you're forgetting that every trade isn't necessarily transacted by humans.

There's no denying that price frequently respects trend lines, ratios, and patterns, so for a purely technical trader who only trades off a chart it's totally unnecessary to look or think beyond that chart, his trading is clinical rather than subjective and discretionary. It's an age-old argument about which is the most productive, some traders advocate combining both (my personal preference, sentiment for general direction, technicals for entries/exits).

Rarely are market sentiment analysts in agreement, for every analyst who finds reasons for the market to be bullish there will be another who has equally plausible reasons why he thinks it will be bearish!
  • #888
  • Jun 25, 2010 12:27am Jun 25, 2010 12:27am
Quoting Darkstar
I'd like to try and clarify a few things...

First off, what Scotty is doing is one way to trade orderflow, but it isn't THE way. The truth is, there is no ONE way to trade orderflow.

[color=black][font=Verdana]As I've said before, orderflow trading is a mindset. The common thread that ties it all together is making decisions based on future orders. Sometimes those orders come from fundamental factors (econ reports or headlines), sometimes from technical (trend...
Good stuff thank you. I am trying to figure this out, and have been studying VSA quite a lot, as it seems there's some overlap with that method of analysis and orderflow. I also have the books "Beat the Forex Dealer", and "Reminiscences of a Stock Operator" I'm reading.

If I can suggest something though: can you give a real life example of what you are describing? Maybe post a annotated chart? Not sure if that gives away too much or whatever, but I would find it very helpful. A lot of people (like me) are more visual learners, so seeing it on a chart is a lot easier to grasp than trying to picture it in my head just from reading text.

If not no problem, I will keep working at it, but wanted to request that if possible.

Am interested in your book as well...

Thanks.
  • #889
  • Jun 25, 2010 1:01am Jun 25, 2010 1:01am
Quoting Darkstar
I'd like to try and clarify a few things...

First off, what Scotty is doing is one way to trade orderflow, but it isn't THE way. The truth is, there is no ONE way to trade orderflow.

[color=black][font=Verdana]As I've said before, orderflow trading is a mindset. The common thread that ties it all together is making decisions based on future orders. Sometimes those orders come from fundamental factors (econ reports or headlines), sometimes from technical (trend...
Thanks Darkstar. I admit my definition is completely subjective, I base it only on my working knowledge and experiance. The truth is, I don't have a working frame of referance to see what you are saying. I think you are describing the development of a feel for the market. I've only been trading for ~ 3.5 years now, not enough for that type of intuitive judgement to form. Furthermore, I have all but left TA and chart reading in the dust. I don't know how long what I do will continue to work, hopefully for a long long time, but my plan is to exploit that one thing until it's gone.

I'd like to hear more from you so I can understand more where you are coming from. That may be in the form of me reading your book. How is writing going by the way?
  • #890
  • Jun 25, 2010 1:28am Jun 25, 2010 1:28am
Quoting Scotty B
Furthermore, I have all but left TA and chart reading in the dust. I don't know how long what I do will continue to work, hopefully for a long long time, but my plan is to exploit that one thing until it's gone.
Scotty. You've left TA in the dust? Might I ask what you're doing now? I presume it's working... I'm still curious about your "virtual pit" comment.

Level II // Market depth?
One Mind, Any Market
  • #891
  • Jun 25, 2010 2:09am Jun 25, 2010 2:09am
Quoting pipmutt
Boiled down that's a long-winded way of saying what I commented to Scotty a few posts back, "wouldn't it be better to try and pre-empt where and why they might enter?", and it seems (along with thousands of other traders) that's exactly what you're doing, the only difference being you're misnaming it 'order flow trading' and that's where the misunderstanding comes in.


At the time of your post the discussion was on how scotty was trading ahead of large orders he sees on the futures depth. I took your point being that he should be placing orders in front of those big orders or front running them (in support of Saurons assertion). While that’s probably true, I wasn't addressing it at all. That’s Scotty’s deal and he can argue the merits of his system far better then I.

Your comments about a lack of time and sales were what prompted your inclusion in the post.

Quote
It is splitting hairs, plus (seeing as we're hair splitting) you're forgetting that every trade isn't necessarily transacted by humans.


True, but the algos are all programmed by humans. So it doesn't really invalidate the point...

As a side note, you see it as splitting hairs because you already know the difference. I can assure you that many people genuinely believe that the trend line is some magic construct that reflects price. May seem crazy, but its true...

Quote
There's no denying that price frequently respects trend lines, ratios, and patterns, so for a purely technical trader who only trades off a chart it's totally unnecessary to look or think beyond that chart, his trading is clinical rather than subjective and discretionary.


Frequently, but not frequently enough to make long term profits with. Were it the case that trading pure TA on a clinical basis could be profitable, anyone who read the myriad tech manuals could be profitable from day one. To my knowledge, there is not a single example that we can point to which would support that assertion.

Quote
It's an age-old argument about which is the most productive, some traders advocate combining both (my personal preference, sentiment for general direction, technicals for entries/exits).


Quite true. What IS new is a method of examining the market which can shorten the learning curve by getting to the heart of what makes the market move. I call it order flow trading and from what I can tell it has helped a great many in their quest to understand the market.

You might call it something else, but the truth is pip, I don't write what I do for you. You already know what your doing and I don't need the validation of you agreeing with me. I also don't need your insight on how I can improve my methods. I write posts for those aspiring traders who are still lost in the sea of indicator bullshit.

It took you and I years to learn to trade profitably because the age old wisdom is littered with garbage. From indicators to algorithms to economic theory, the hours we wasted learning useless crap is incalculable. Had we started with the single premise that we would only study things which would cause a majority of participants to place trades, we could have shaved years off our learning curve. And that’s why I'm here.

Try to keep that in mind when you read my posts.

Quote
Rarely are market sentiment analysts in agreement, for every analyst who finds reasons for the market to be bullish there will be another who has equally plausible reasons why he thinks it will be bearish!


Very true. Then again, an analyst is little more then wannabe trader who couldn't hack it. I wouldn't put much value on their opinions in either case...
  • #892
  • Edited 4:19am Jun 25, 2010 3:47am | Edited 4:19am
Hi, on demo, just trying to understand you all's points.



Quoting Darkstar
Had we started with the single premise that we would only study things which would cause a majority of participants to place trades, we could have shaved years off our learning curve. And that’s why I'm here....getting to the heart of what makes the market move.
Better data is admirable -- Mr. Scotty's frontrunning large futures orders, your inclusion of COT, a TF slice of volume, or a lot of traders' using an important news item -- and, to me (at the moment), pattern trendlines, flat levels or pivots' angles interpret how the market uses that data. Excluding the latter purpose is as absurd as thinking any one TA does the best job of it.
Maybe you're saying the better data order flow provides has one use an interpretation that serves the latter purpose without resembling what most define as TA.


Quoting Darkstar
If you've been profitable for any length of time you know it's the trades you skip which lead to bankable profits.
That's a good one, will have to think about it. Sounds like skipping a hand of cards.
  • #893
  • Jun 25, 2010 4:44am Jun 25, 2010 4:44am
Quoting Darkstar

the hours we wasted learning useless crap is incalculable. Had we started with the single premise that we would only study things which would cause a majority of participants to place trades, we could have shaved years off our learning curve.
here here! Nice to hear your summary of order flow trading it confirmed something I've only recently come to realize myself...
Time hides Nothing
  • #894
  • Jun 25, 2010 5:37am Jun 25, 2010 5:37am
As always DS, absolute pleasure reading your posts...looking forward to your book
  • #895
  • Jun 25, 2010 5:02pm Jun 25, 2010 5:02pm
Quoting Darkstar
May seem crazy, but its true...
I believe you, very little surprises me any more when it comes to what novices are capable of doing in this market!

Quoting Darkstar
Frequently, but not frequently enough to make long term profits with.
As predominantly a TA trader (of sorts) I'd have to disagree. Different debate but I don't believe strategy is the primary cause for failure, most approaches can be profitable to a degree in my opinion.

Quoting Darkstar
I call it order flow trading and from what I can tell it has helped a great many in their quest to understand the market.
Which is all one can hope for, that they find it helpful. Now all they need to do is put it to some practical use, that's the difficult bit. I think it's great that your posts are thought-provoking and encourage potential traders to think for themselves, that's far more valuable than 'do x and y, and (maybe!) get z'.

Quoting Darkstar
I don't need the validation of you agreeing with me. I also don't need your insight on how I can improve my methods.
I'm sure you don't, but that's not why I'm posting. I think two-way well thought out, reasoned, and logical debate, or even a challenge of one's ideas, is of more value than one-line platitudes or patronising back-patting. If nothing else it goes to reinforces our own beliefs if they can stand up under scrutiny. As far as improving methods, I don't think there's a strategy alive which can't be improved upon, sometimes an outsider looking at it subjectively can be beneficial but like I say that's not my intention here. I never mind other experienced traders pulling my strategy apart, I frequently do it myself but then I'm biased so it doesn't really help as much as someone else doing it, lol.

Quoting Darkstar
Very true. Then again, an analyst is little more then wannabe trader who couldn't hack it. I wouldn't put much value on their opinions in either case...
I think it depends on the source....
  • #896
  • Jun 28, 2010 1:42pm Jun 28, 2010 1:42pm
Quoting FXEZ
You're also right that a price chart doesn't contain order flow information.
Umm, what drives the prices you see in a price chart? Order flow. Sam Seiden would totally disagree with you.
  • #897
  • Jul 5, 2010 7:50am Jul 5, 2010 7:50am
Quoting Darkstar
It took you and I years to learn to trade profitably because the age old wisdom is littered with garbage. From indicators to algorithms to economic theory, the hours we wasted learning useless crap is incalculable. Had we started with the single premise that we would only study things which would cause a majority of participants to place trades, we could have shaved years off our learning curve. And that’s why I'm here.
Sorry to interrupt this 3d (it's the first one I managed to read entirely on FF... perhaps the last).

You wouldn't be in position to understand and to apply your method if you didn't learn those things before. Doing what you're doing requires a precise understanding on different strategies (altough most of them produce OF that cluster in the same spots).

@scotty: you don't need to see photons to know they're there. You can see their effects (light). Same goes for trading. You don't need to see T/S or L2. All you need is to know what they did (or are going to do): That's all you need. And remember, T/S and L2 is full of decoys. Ask me how I know Long gone are the days of Wyckoff, and Jesse Livermore, although knowing their methods is something you must have.

As for the others, I can say: Use the force, Luke!
  • #898
  • Jul 5, 2010 4:23pm Jul 5, 2010 4:23pm
Quoting pvpn
Sorry to interrupt this 3d (it's the first one I managed to read entirely on FF... perhaps the last).

You wouldn't be in position to understand and to apply your method if you didn't learn those things before. Doing what you're doing requires a precise understanding on different strategies (altough most of them produce OF that cluster in the same spots).

@scotty: you don't need to see photons to know they're there. You can see their effects (light). Same goes for trading. You don't need to see T/S or L2. All you need is to know what they...
Ok, I'm none the wiser!

Can anyone give a practical demonstration of this OF trading in action, preferably in real time?

There seems to be lots of conjecture, speculation, and innuendo but not a lot that anyone can actually use in the practical sense to make money.
  • #899
  • Jul 5, 2010 4:52pm Jul 5, 2010 4:52pm
Quoting pipmutt
Ok, I'm none the wiser!

Can anyone give a practical demonstration of this OF trading in action, preferably in real time?

There seems to be lots of conjecture, speculation, and innuendo but not a lot that anyone can actually use in the practical sense to make money.
Pip,

Speaking purely theoretically here, if we define orderflow as net market orders (buys (positive) + sells (negative)), the signed result would be the "flow" (positive or negative). So if you knew there was a strong imbalance of market orders (in volume) at a particular location, and by market orders I especially mean stop orders (SL/TP/pending long/short stop orders) as they become market orders and thus generate signed orderflow, do you not think you could use that in any practical sense to make money, whether by itself or as some piece of a strategy?

I'm not saying you can or can't, or that this is what orderflow trading necessarily is. But does that make sense?
  • #900
  • Jul 5, 2010 6:35pm Jul 5, 2010 6:35pm
Quoting eurotrash

So if you knew there was a strong imbalance of market orders......do you not think you could use that in any practical sense to make money
If the information was complete and included all order flow as well as all market participants motives and future intentions then yes, I would say most definitely it could be put to practical use.

I think the problem is that no-one has that information, the game by it's very nature is one of secrecy, we can only speculate as to the what and when. Sure we can try and get inside the heads of players and anticipate their next move but I think it's an impossible task to try and profit from what we believe, or probably more the point what 'they' want us to believe. Bluff and double bluff, painted charts, probing different levels, and heaven knows what other 'tricks'. We're at a distinct disadvantage, even institutional traders aren't privy to that information, so what hope do we have as bottom-of-the-food-chain retail traders? In the majority we're the fodder!

DS made an interesting comment a while back, something along the lines of order flow trading being a state of mind, to me that suggests the whole OF approach has little to do with actual facts and figures about order flow but more to do with the way we view the market and price action.
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