Order Flow - Finding cluster of stops on chart | Page 3 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

How to flow with the order flow? 26 replies

Cluster Average doesn't update on chart 0 replies

Mental stops vs hard stops 1 reply

365 Trade: Finding the Flow 11 replies

I am looking for EA to put Buy Stops, Buy limits, Sell limits, and Sell Stops. I will 0 replies

Attachments: Order Flow - Finding cluster of stops on chart
Exit Attachments

Order Flow - Finding cluster of stops on chart

  • #41
  • Jan 10, 2011 3:04pm Jan 10, 2011 3:04pm
It's great to see the discussion here get into the actual, normal functioning of the market - i.e. the offering and absorbing of liquidity - and the clustering of this supply and demand (again: of liquidity). Not just the same tired and paranoid rhetoric about having your stops hunted.

Following along with and trading along with the healthy appetites of liquidity takers, while they remain hungry. Using recent balance-of-power (pivotal) areas to see who's chewing though who's orders and positions. That's a way of viewing market activity that works for me - of course, it will forever be a work in progress.

Thanks for the great posts, guys!

P.S. With this post, I will bring back my liquidity-consuming pac men avatar!
  • #42
  • Jan 10, 2011 3:45pm Jan 10, 2011 3:45pm
Hello Carnegie,

Here's my humble view on an attempt to propose a possible explanation for what may be occuring. Looking at the move before the consolidation, it was a bold downwards move. This indicates that there was an imbalance of buy orders and sell orders, the latter significantly outweighing the former, and thus pushing price down as liquidity is consumed to match these sell orders. To enable the sell orders to be transacted, someone must have been on the other end of the transaction, with an accompanying buy order, whether it be a limit buy (which tends to be the case with institutions of size) or market buys.

We know that the great majority of transactions in the spot forex market are of a speculative nature, and so we can conclude that most positions taken would not be for the delivery of the currency, but for speculatory purposes. Individuals and institutions would like to trade for speculative gains, but because capital is limited, stop-loss orders must be placed out of necessity.

I seem to think that the individuals on the buying end of a downtrend, are of two types; the weak longs and the short longs. The weak longs are those of limited capital, who are in essence trying to catch falling knives, and are inadequately capitalized to remain viable on that side of the market. The strong longs are the institutions of size, who can withstand the pressure of the prolonged downtrend, and are capitalized to manipulate the spot rate to some degree.

In a strong downwards move, we can thus imagine the the buy-stops of short participants to be trailing downwards and accumulating, while, lagging behind the price action, as it plummets further and further. The down-move is propelled by participants transacting short orders into available liquidity, as well as the execution of the sell-stop orders of the weak longs, pushing price downwards.

Insitutions of size will then be able to transact orders in the opposite direction, overwhelming the imbalance of sell orders, bringing price back upwards, until it exceeds their average position price which they have accumulated. Viewed as the exhaustion of the downtrend; a reversal, this move may be speedy, since it is facilitated by the execution of the buy-stops of the participants who were short and riding the downtrend, as well as the buy orders of other participants who believe this is the start of a new, genuine move. The buy-stops of the short participants, are guaranteed orders, which will add upward pressure to price discovery; they must be placed otherwise these participants stand to meet financial peril.

Upon surpassing their average position price, the institutions of size will then begin to distribute their accumulated long position. Liquidation of this long position will be facilitated by the new market orders coming in from participants jumping on the move.

When the position is offloaded, new short positions can then be established, and by giving price a slight nudge downwards, into the sell-stops of the market participants who have jumped on this move, price finds itself cascading downwards as these sell-stops are executed. Other participants jump in on the new downwards move, further exacerbating it, in a manner of positive feedback, similar to the way an impulse travels down a neuron. I believe this is a repetitive cycle, with large institutions constantly trading places between buying and selling, and profitting from those individuals who end up whip-sawed.

Note how indicators would do a lovely job of detecting the pseudo-up and pseudo-down moves as profit-taking occurs. Perhaps that is why whipsaw is so pervasive in systems based upon them?

But as is more likely than not, it's possible that my views are completely incorrect, and I would love to hear different points of view, as that is the only way I will be able to suceed at improving my order flow mindset.

PS. Essentially as DarkStar succintly summarises it, if one can form an educated guess as to where the stops are located, by rationalizing the situation from the point of view of the participants, then joining the fading move into these stops, is a high probability scenario.
  • #43
  • Jan 11, 2011 3:30am Jan 11, 2011 3:30am
As I see it on the chart and as I know the economic situation, the down movement of the euro is due to fundamental forces at play. It was an overwhelming imbalance between the sellers and the buyers and all the sellers made money and all the buyers lost, as there's no significant retracement to be detected.

Even if it possible to explain any failed breakout as some conspiracy of smart money against the retail suckers, the real agenda behind those movements will never be made public. My reply is an advice to Carnegie, most of the time you can't know exactly what is going on and you'll never find a logical explanation for every strange movement.
  • #44
  • Jan 12, 2011 5:23am Jan 12, 2011 5:23am
Quoting FXSurfer
Following along with and trading along with the healthy appetites of liquidity takers, while they remain hungry. Using recent balance-of-power (pivotal) areas to see who's chewing though who's orders and positions. That's a way of viewing market activity that works for me - of course, it will forever be a work in progress.

Thanks for the great posts, guys!

P.S. With this post, I will bring back my liquidity-consuming pac men avatar!
Hey FXSurfer, thanks for your posts! btw, maybe the name should be liquidity hunters instead of stop-hunters right? Although I have to say that stop-hunters sound more evil.. maybe that's what they're after

Anyway I have a questions about something that I don't understand and tend to read allot.. What exactly are these "pivotal" areas?
Obviously I understand what a pivot is and also pivot points, but do they mean something else in order flow trading? And what is a "balance-of-power"?

Trizzle & Sauron:

Thanks for both of your contributions guys. Trizzle you had a nice eye-opener there and explained everything well, and Sauron thank you for your advise.

I think the problem here was that you guys focused a little bit to much on this particular chart I added in my last post, the chart was only an example fo HOW I am thinking about the stops and where they would be. In either way, you guys made a good effort in explaining and thank you very much for that. Let's continue our discussion!
  • #45
  • Jan 12, 2011 6:43am Jan 12, 2011 6:43am
From what I can conclude when doing OFA, 'pivotal' areas are areas where heavy orders and volume have taken place which tend to have a type of gravatational force on PA. Confluence with calculated pivot points make the trade more consistent.
Chart example: today's R1(1.3035/1.3045) -> Pivot(1.2970/1.2975)
  • #46
  • Jan 12, 2011 7:31am Jan 12, 2011 7:31am
Quoting Carnegie
Hi guys,
I have been reading allot of Darkstars posts and found this order flow stuff very interesting ...
and I am looking for more ... how to "think" where the orders should be and perhaps point me to the direction of getting more info
G'day Carnegie,
I reckon this link to few webinars may help you to understand the issue much better.
http://www.fxstreet.com/search/contr...1-e9bf77216d2f
  • #47
  • Jan 12, 2011 12:02pm Jan 12, 2011 12:02pm
Quoting Carnegie
What exactly are these "pivotal" areas?
These are the prices that the market found the liquidity that it was looking for thus, causing price movement to halt. The amount that was encountered is shown by the price movement back the other way. I myself just watch the market as it goes to see where they end up showing themselves. Mathematically calculated pivots? Not for me. Of course, they are used by many.

None of this is really "Order Flow" though, right? Just kind of the "flow" part. Oh well, we've got to work with what we have!



...and here I will change my avatar to: "market searching for liquidity".
Attached Image
  • #48
  • Jan 12, 2011 12:09pm Jan 12, 2011 12:09pm
Quoting FXSurfer
These are the prices that the market found the liquidity that it was looking for thus, causing price movement to halt. The amount that was encountered is shown by the price movement back the other way. I myself just watch the market as it goes to see where they end up showing themselves. Mathematically calculated pivots? Not for me. Of course, they are used by many.

None of this is really "Order Flow" though, right? Just kind of the "flow" part. Oh well, we've got to work with what we have!

Hmm.. Interesting that is what you wrote there, it seems as if liquidity really does play a major part in the order flow mindset.
Now my idea from this is that maybe there is liquidity at a certain place, maybe a support area or something, then major banks will trade to that area in order to execute their order there.. Would this be possible?

So in reality, we are looking for where the most likely "order-flow" area is, and trading toward that direction? But what happens when we're there??


Anyway I have another question that has been bugging me for a while and I will ask it here.
Anyone been looking at dominos price-order flow thread?

I found dominos thread interesting but it seems to me as if it only is a part of breakout strategy? Does anyone have any experience with it?

Thank you very much.
  • #49
  • Jan 12, 2011 4:04pm Jan 12, 2011 4:04pm
Quoting Carnegie
Hmm.. Interesting that is what you wrote there, it seems as if liquidity really does play a major part in the order flow mindset.
Now my idea from this is that maybe there is liquidity at a certain place, maybe a support area or something, then major banks will trade to that area in order to execute their order there.. Would this be possible?

So in reality, we are looking for where the most likely "order-flow" area is, and trading toward that direction? But what happens when we're there??


Anyway I have another question that has been bugging...
Hi Carnegie,

As you know, there is no true order information available for spot fx aside from the market depth or level ll on the interbank. Unless you're a bank or a big player, you're not going to get access to this information.

I would agree from a microstructure standpoint that a sideways market is highly liquid zone. As trade moves sideways, more players take a side and those who are wrong are inevitably squeezed out. This is a fine idea in theory, but you need to find a way to test your premise, see what the numbers really are.

My views continue to adjust as I learn more. If a trader has a chart pattern that is profitable over the long term, he/she is an orderflow trader in a certain sense, that is he/she can successfully predict future orders in some way.

My only advice would be to figure out a systematic way that quantifies your idea. For example, how do you define market compression? How do you define an entry and an exit? I would be careful not to rely on a manual/visual approach. I'd suggest looking at something like a simple standard deviation indi in your tests--what better to see compression?
  • #50
  • Jan 13, 2011 6:21am Jan 13, 2011 6:21am
Hey Scotty, glad you could join the discussion.

Quoting Scotty B
I would agree from a microstructure standpoint that a sideways market is highly liquid zone. As trade moves sideways, more players take a side and those who are wrong are inevitably squeezed out. This is a fine idea in theory, but you need to find a way to test your premise, see what the numbers really are.
Yes I also thought about the sideways market being liquid because there are buyers AND sellers there, instead of in a trending market where there are either only sellers or buyers (now obviously not ONLY, but I think you get what I mean..). I have been thinking about "quantifying" my ideas, i.e. testing them but I don't really have any idea where to start. First of, what is a balanced market? Or even better, what is an UNbalanced market? How do I define this? How do I predict future orders? How does the market look when it is efficient/not efficient? How do I find the "trades" to capitalize on? Is it candlesticks? Now you see there are a million questions I have to ask before and in all honesty right now (without any knowledge) I don't even know if it's in or out.. So I really don't know what to test!

Quote
My views continue to adjust as I learn more. If a trader has a chart pattern that is profitable over the long term, he/she is an orderflow trader in a certain sense, that is he/she can successfully predict future orders in some way.

Yes but I think there is a difference in what we view in orderflow traders. I wouldn't like to trade the "classical" orderflow and what that means.. By that I mean I don't want to trade L2 + DOM etc. I want the orderflow mindset rather. So in reality, are we predicting future orders, or are we just following along the existing ones and watch how they develop?

Quote
My only advice would be to figure out a systematic way that quantifies your idea. For example, how do you define market compression? How do you define an entry and an exit? I would be careful not to rely on a manual/visual approach. I'd suggest looking at something like a simple standard deviation indi in your tests--what better to see compression?

Yes I agree with you but I commented this earlier, I don't have any idea where to start. Therefore I need more knowledge, got to get reading ya know I don't even know what a 'market compression' is?

Also, I don't know what to look for in order flow, and how the trades look.. So how could I define entry and exits?

Thanks for contributing Scotty, I have read allot of your threads and hopefully you can continue to comment as you seem to know about this subject.
  • #51
  • Jan 13, 2011 6:58am Jan 13, 2011 6:58am
Quoting dragan53
scotty i would suggest for ur question that the answer is to read master the markets by tom williams

i also have a question,right now im demoing with oanda,as i want them to become my new broker,and in my trading activity it says that i earned interest ,
now im wondering how did i earn that interest,could that by any chance be a swap,

i found some basic info on swaps on wiki,and basically what they say it means,is that we are exhcnaging from a variable interest to a fixed interest between counterparties,

could that mean,that as my broker etoro...
They pay interest on your money, yes.

http://fxtrade.oanda.com/community/f...;f=15;t=008813

http://fxtrade.oanda.com/account/interest-calculator

Please remove your questions as they do not have anything to do with the thread.
Thanks.

PS. I can't really see Scotty's question and really don't see where Master the Markets gets into the picture. It's mainly about VSA with some point about how the maket works and how smart money trades.
  • #52
  • Jan 13, 2011 7:24am Jan 13, 2011 7:24am
thanx for researching,cleard
  • #53
  • Jan 13, 2011 7:41am Jan 13, 2011 7:41am
Stops usually gather just outside areas of S/R and especially the longer and more often a particular level holds, and if the level is a round number it can attract more stops.

If you look at a rectangle range there will be stops at either end. This is the whole premise for playing breakouts for quick profit.

There is talk of option barriers and attackers vs defenders, but who its all subjective at the end of the day, you can never know for sure where the orders are.
Kind Regards Chris
  • #54
  • Edited 7:58am Jan 13, 2011 7:43am | Edited 7:58am
Quoting Carnegie
Hmm.. Interesting that is what you wrote there, it seems as if liquidity really does play a major part in the order flow mindset.
.
Yep its basically everything... Liquidity is to a market what oxygen is to humans.

P.S why does everyone keep saying "premise". hehe
Time hides Nothing
  • #55
  • Jan 13, 2011 7:59am Jan 13, 2011 7:59am
u know cidneyxxxx i actually thought u were a girl before,lol
  • #56
  • Edited 8:15am Jan 13, 2011 8:01am | Edited 8:15am
At the end of the day all we can really do is guess where the orders are and what orders they are, only problem is the people that move the market actually know... Sure there might be 300 contracts in 1 tic at the peak of a high but does this mean a reversal? No

Inserted Video
Time hides Nothing
  • #57
  • Jan 13, 2011 8:18am Jan 13, 2011 8:18am
Quoting CindyXXXX
Yep its basically everything... Liquidity is to a market what oxygen is to humans.

P.S why does everyone keep saying "premise". hehe

Interesting thing you said there cindy. Could you explain more? (I'm still going to read Traindg & Exchanges, but I still want some ideas on the topic).. what's liquidity to the market? Why is it so important? Why do traders care, and how can one use it in their trading?

Thanks.
  • #58
  • Edited 8:52am Jan 13, 2011 8:33am | Edited 8:52am
I'll try to take a stab.

Quoting Carnegie
First of, what is a balanced market? Or even better, what is an UNbalanced market? How do I define this?
In an ideally balanced market, buy orders and sell orders would be effectively matched, and slight imbalances would be remedied by plentiful liquidity at both the bid and ask. As a result, price would remain in a range. In an unbalanced market, the surplus of one side of the orders would result in the consumption of liquidity at either the bid or ask, (depending on which order type is in surplus) and provided enough is consumed, will cause price to shift in the direction in which it exerts pressure, until it is 'quenched' by liquidity at further levels.

Quote
How do I predict future orders?
Short of a crystal ball, this would be a very difficult task to do, and would require you to know the intentions of a participant before the orders are placed. Sometimes however, information is divulged which we can use to make educated guesses as to where orders may lie.

Quote
How does the market look when it is efficient/not efficient?
In my opinion, the efficiency of a market would be related to the ability of the market to facilitate the transaction of orders, such that they can be filled quickly without significant market impact; ie. your average position would be as close to the current market price as possible, and unloading positions would occur as close to the market price as possible.

Like CindyXXXX stated, it all comes down to liquidity, and thus I interpret efficiency to be a function of liquidity. Illiquid markets are characterized by high volatility, and generally 'messy' charts, while more liquid ones tend to have lower volatility, and are 'smoother'. Best comparison that comes off the top of my head, is comparing USD/CAD and EUR/USD in terms of their Daily Charts.

Quote
How do I find the trades to capitalize on? Is it candlesticks?
It must be noted that candlesticks are really clumped up units of time, and may differ from place to place depending on what particular time off-set is used. The higher the timeframe, the less information can be obtained from candlesticks - unless position trading is your thing. However, the manner in which the candle is generated, can be viewed on increasingly shorter time frames, so that one can better gauge how price fluctuates throughout its development, responding to certain levels and rejecting others. Most times, the noteworthy things happen in the generation of the candle, and if you can spot them early, you get in before all those who either aren't aware, wait for it to be fully formed, or need confirmation from indicators. Their influence can then increase the probability of a trade moving in your direction, to reduce your exposure as quickly as possible.

Quote
Now you see there are a million questions I have to ask before and in all honesty right now (without any knowledge) I don't even know if it's in or out.. So I really don't know what to test!
I know how you feel, and actually still feel this way; the best way to remedy it is to continue asking those questions. At the end of the day it benefits not only you, but several other aspiring traders out there.

Quote
Yes but I think there is a difference in what we view in orderflow traders. I wouldn't like to trade the "classical" orderflow and what that means.. By that I mean I don't want to trade L2 + DOM etc. I want the orderflow mindset rather. So in reality, are we predicting future orders, or are we just following along the existing ones and watch how they develop?
It's my humble opinion that we do a little of both; we make educated guesses, and see how they play out as price moves, always remembering to keep a fluid adaptation, since anything can happen.


Quote
Also, I don't know what to look for in order flow, and how the trades look.. So how could I define entry and exits?
Perhaps by putting yourself in the shoes of a large participant whose objective is to make profit, it may be possible to form educated guesses as to where such participants would enter/exit the market. Think about the constraints faced by these financial giants.

Would love to share more thoughts, but have a Math class to attend. I also hope others would chime in, to critique or give alternative points of view for my benefit.

Regards,
xXTrizzleXx
  • #59
  • Edited 9:01am Jan 13, 2011 8:36am | Edited 9:01am
Quoting Carnegie
Interesting thing you said there cindy. Could you explain more? (I'm still going to read Traindg & Exchanges, but I still want some ideas on the topic).. what's liquidity to the market? Why is it so important? Why do traders care, and how can one use it in their trading?

Thanks.
Without trying to sound like an expert I will give a basic example...

Banker A wants to buy 10 million EUROS at 1.3000. What would happen if he simply clicked "Buy" with the full ammount? Remember taht "fat finger" trader guy that clicked billions instead of millions?

First all the available liquidity at 1.3000 will be consumed asumming there is not enough to fill his entire order. (I have no experience trading in the millions so my numbers may not reflect "Real" $ ammounts but thats not really important"

So... lets say for examples sake only 500,000 was available for sale at 1.3000, price will instantly go higher searching for more sellers to fill this massive ammount of demand taht is in the market waiting to be filled.

If you take that fat finger guy and what happened to him, he would have lost massive ammounts of money because although the price dropped hundreds of pips away from his original entry price, fact is that in the search for liquidity to fill that order the majority of his short would have been filled at very loiw prices you can imagine what this would cost particularly as the market corrects itself and starts going higher when he has 500 million on the lower prices and only a small portion of that on the initial entry point out of his billion dollar order

So this fat finger guy has offered LIQUIDITY and lots of it to BUYERS at very low prices.

In a nutshell without liquidity there would be no market as every buyer needs a seller. Lets go back to banker A and say he wants to buy but there is just not enough sellers to sell to him without pushing the prices against his own order like the Fat finger guy.

What does he do? He can drive prices lower through whatever means, false information, news hype, market manipulation, or even trade it lower with his own money to attract sellers to fill his buy order (take a small loss for a big win)

This is what the big guys have to do to get there massive orders filled at the prices they want. They need to find enough liquidity (buyers need sellers sellers need buyers) so they can trade. Another thing they need to do is scale into the market slowly so as to hide their intentions and also not push prices against themsleves.

Then you have guys that simply aren't profit motivated like big companies who simply want to convert their Yen profits into USD. I will stop now before I start talking about things beyond my pay grade!

Sorry this was longer than intended. So yes liquidity is everything.

EDIT: might just add as a side note that the EUR has a smaller range and smaller spread than the other pairs not because iits the most unpopular (as I used to think lol) its becasue its the most liquid (popular) and thus orders are filled more easily than say the GBP/YEN which is very volatile and thus attracts a larger spread and wild swings as it searches high and low to stay hydrated!

Markets are facinating but the more you learn about how the game works and how it is played you start to realise that those figures about the risk and success/failure rate is very well justified. Other bright sparks like DS dance in this complexity and find the loopholes. Others like myself go to the cuboard in search for another panadol lol.
Time hides Nothing
  • #60
  • Edited 10:08am Jan 13, 2011 9:56am | Edited 10:08am
Quoting CindyXXXX
Without trying to sound like an expert...
That was very helpful, Cindy, thank you. I have been lurking around this orderflow/liquidity topic for a while now (including reading all of Darkstar's posts), but haven't posted about it, yet.

In your banker A example, he needs to find someone who will supply him enough liquidity that he can buy his boatload of euros without moving the market too much against him (he is demanding liquidity). In Trading & Exchanges, it is stated that limit orders supply liquidity. So we can assume that banker A is looking for limit sell orders that will supply the liquidity he demands. Is he only looking for limit sell orders below the market, or would he also be interested in limit sell orders above the market? Obviously he would prefer the limit sell orders below the market (if he thinks he can push price down far enough to hit those orders) but what if there aren't any nearby below the market?

Quoting CindyXXXX
Then you have guys that simply aren't profit motivated like big companies who simply want to convert their Yen profits into USD. I will stop now before I start talking about things beyond my pay grade!
I wish you would expand on this. I have been thinking about this type of scenario for the past couple weeks and trying to figure out if there are any implications to this, but I can't figure it out. Anyway, I understand if you don't want to elaborate.
0 traders viewing now