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Order Flow - Finding cluster of stops on chart

  • #101
  • Jan 15, 2011 6:20pm Jan 15, 2011 6:20pm
Hi Folks !

Nice thread by the way
Well it's a game with simple rules...
When you want to buy for example a good amount of EUR/USD monday morning you need
liquidity.
So what can be done ??
1. Push the price down at first to the nearest stop level
(This might be Darkstars episodic volatility... which unfolds at this time
just for the reason to create liquidity to ride the opposite direction...)
2. after that price rises as magic....
<who could have guessed.....
By simultaneously observing the typical volume patterns you get all the information
you need.....
Take a look at Tom Williams "Master the markets" book... (VSA Trading)

By the way this scenario repeats itself in both directions over and over again each trading day...

Watch also carefully the behaviour of price before bigger economical events !!!

Maybe something interesting unfolds in your mind....

Happy trading

Bernhard
  • #102
  • Edited 5:05am Jan 16, 2011 4:55am | Edited 5:05am
Back to the original thread topic in terms of "stop clusters"

I find it interesting when people start talking about stops they always focus on the obvious swing high swing low and trenline "outskirts"

The money is in the middle not on the outskirts... If you've ever watched the volume around the S/R levels you will see that the leaset ammount of money is exchanged at these levels. The big money is accumulated closer to the centre where liquidity is plentifle.

Perhaps focusing on these points may give you a different picture. I'm not discounting the importance of S/R at all but I think focusing on them only gives you half the picture

Even without consulting a feed I can show you roughly each day of the last few weeks where the most money was focused on any given day and you can see those levels TURN INTO those illiquid S/R levels almost always.

If you find the biggest cluster of candles in the main sessions.. Ignore Asia you can almost guarantee the most volume will be traded in those clusters. And its a lot of money!

Iits like a round swinmming pool where the centre is the deepest part

Anyway this may not be very helpful just tought I'd mention it as a side note.
Attached Image (click to enlarge)
Click to Enlarge Name: Volume Clusters.jpg Size: 163 KB
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  • #103
  • Jan 16, 2011 5:35am Jan 16, 2011 5:35am
And i thought that this thread was gonna vanish in nothingness... I was absent for 2 days and i found 5 FF emails telling me this thread got updated and... wow, I'm speachless of how many steps have been taken ahead here.

Let me sum up a little what I think is the juice of the last 2 or 3 pages:

Quote by DarkStar
Quote
Knowing how it ends I know exactly what piece your missing, so I'll give you a hint:

Think about how price change and the distribution of liquidity interact....

Alright, i suggest concentrating on the first part, "Think about how price change and the distribution of liquidity interact. Your looking for a disequilibrium in that distribution which should give you a highly predictable outcome.", to me that's a big piece of the puzzle DS gave us, and i can see that Carnegie and relyt are very well thinking about it:

relyt:
Quote
The disequilibrium in distribution of liquidity means that there are traders out there who demand liquidity and traders who are willing to supply liquidity, but they haven't found each other, yet. The "highly predictable outcome" is a price movement to an area of high liquidity (the people who are demanding liquidity push price to an area where liquidity is being supplied).

This is where I'm stuck. How do we identify the disequilibrium before the "highly predictable outcome" occurs?


UnnamedPlayr gave us some other pills o think about:
Quote
Think about global money/liquidity shifting.
Quote
If you can crack that code you will be able - with some practice - to "read" the intentions of the big players before price will move in that direction.
Triggering some stops is then just a byproduct.

Identifying the imbalance before the outcome occurs puts you in the first best seat.
It's also a kind of front running.

And last, but not least, something from Carnegie
Quote
watch darkstar analize the market @ brazzers.com btw http://cdn.forexfactory.com/images/s...m/big_grin.gif
That seems stupid, but some laughts are always welcomed =P

I'll retire to think about everything we have here.
A question to DarkStar: when do you think you'll be able to release the book? hehehehe give us some hope please!!
  • #104
  • Jan 16, 2011 5:39am Jan 16, 2011 5:39am
Quoting scott89
And i thought that this thread was gonna vanish in nothingness... !
Don't worry it still will
Time hides Nothing
  • #105
  • Jan 16, 2011 6:31am Jan 16, 2011 6:31am
Quoting CindyXXXX
Back to the original thread topic in terms of "stop clusters"

I find it interesting when people start talking about stops they always focus on the obvious swing high swing low and trenline "outskirts"

The money is in the middle not on the outskirts... If you've ever watched the volume around the S/R levels you will see that the leaset ammount of money is exchanged at these levels. The big money is accumulated closer to the centre where liquidity is plentifle.
Actually....

This is true only to the untrained eye. Most traders would be shocked to know how little volume it takes to turn a market around. It's not necessarily how much is traded at the peaks of S/R, it is WHO is placing the orders at those peaks that causes a market to turn around.

Remember, FX is a dealers market. When they've traded with an informed trader, they themselves will often immediately speculate on that very information. They will also stop dealing on the side in which the informed traders "hit" them. This does a couple of things, and is the beginning of a chain of events in which the private information that originated with the informed trader is disseminated throughout the market after each party trades on that information and equilibrium is reached.

One of the most important things that happens is that liquidity dries up in the direction of the informed trader's trades. So if informed traders are buying, the available size at the asks will decrease, thus accelerating a price move in that direction.

The original dealer who provided liquidity to the informed trader will speculate on the information inherent in the informed traders trade by buying at another banks asking price, netting out his bad inventory and acquiring a profitable position at the sake of his competitor. After his position is established or simultaneously, he will cancel his remaining asks.

When he cancels out his asks, other bank's trade robots will see this and follow suit, and the waters of liquidity are parted like Moses and the Red Sea.

This whole order flow conundrum has more to do with understanding how private information is communicated in an opaque market, on which are written many graduate papers.

The key question is: how does one go about identifying an informed trader short of being the dealing bank who trades with them? There is more than one correct answer, and you're unfortunately not going to find it specifically without paying for quality data. You can to a certain extent answer it unspecifically with a price chart.

Jim
  • #106
  • Jan 16, 2011 6:46am Jan 16, 2011 6:46am
Quoting Scotty B
Actually....

This is true only to the untrained eye. Most traders would be shocked to know how little volume it takes to turn a market around. It's not necessarily how much is traded at the peaks of S/R, it is WHO is placing the orders at those peaks that causes a market to turn around.

[color=black][font=Verdana]Remember, FX is a dealers market. When they've traded with an informed trader, they themselves will often immediately speculate on that very information....
Actually Scotty that has cleared a few things up for me.... I've always wondered how a market can turn on a dime off such little amounts of volume against the prevailing trend. And yes I agree price charts only help so much

Cheers

So a dealer can move a market without affecting volume>?
Time hides Nothing
  • #107
  • Jan 16, 2011 7:04am Jan 16, 2011 7:04am
Quoting CindyXXXX
So a dealer can move a market without affecting volume>?
Can you actually see the volume?
  • #108
  • Jan 16, 2011 7:26am Jan 16, 2011 7:26am
Quote
Yes
Hahaha yes yes, i know lol
What I meant was, are you sure that everything they trade and anything they do is visible to us?
I mean, obviusly if they turn the market with low liquidity, they must act on a psychological level.

I noticed too that the majority of liquidity is pretty much concentrated "during the move", and not when it starts or ends, and I think that has something to do with fear.

Anyway, I don't know.
  • #109
  • Jan 16, 2011 7:34am Jan 16, 2011 7:34am
Quoting scott89
Hahaha yes yes, i know lol
What I meant was, are you sure that everything they trade and anything they do is visible to us?
I mean, obviusly if they turn the market with low liquidity, they must act on a psychological level.

I noticed too that the majority of liquidity is pretty much concentrated "during the move", and not when it starts or ends, and I think that has something to do with fear.

Anyway, I don't know.
Yes well that's what I was wondering as well. I have always assumed any moves in the market must accompany a transaction and therefore volume, weather it was marked up by the dealer or not. But perhaps this is not the case as a dealer could offload inventory as Scotty calls it through other dealers or banks... Now I'm just making shit up lol I dunno. Might need to do some reading/.
Time hides Nothing
  • #110
  • Jan 16, 2011 8:12am Jan 16, 2011 8:12am
Quoting CindyXXXX
This thread will die a bloody death just like all the others on order flow...

The order flow thread cycle:

1 Dude has a question with catchy thread title...

2 Dude is subject to vague replies and misguided advice from fellow dudes

3 Darkstar posts something rather interesting and valuable but the advices given are only fit for the best code breakers and freakers

4 Dudes flock to the thread and tare any value said thread once had to pieces

5 Orderflow traders run for the hills as their secret art is discussed in public.

6...
Hi,

With all respect, what else do you want? A complete system on how to trade the stops liquidations? Come on..

I'm enormously grateful for the people like Darkstar, skfx or Domino who are very generous, even too generous (I think) for sharing such a golden nuggets on the public forums like this. To ask more it would be just simply rude.

Thanks
  • #111
  • Edited 8:35am Jan 16, 2011 8:14am | Edited 8:35am
Quoting Tingus
Hi,

With all respect, what else do you want? A complete system on how to trade the stops liquidations? Come on..

I'm enormously grateful for the people like Darkstar, skfx or Domino who are very generous, even too generous (I think) for sharing such a golden nuggets on the public forums like this.

Thanks
you got me wrong... Not complaining just commenting and its true! I wouldn't expect any less! If something was put in public so obviously I wouldn't want anything to do with it anyway. And yes I'm grateful too -
Time hides Nothing
  • #112
  • Edited 12:09pm Jan 16, 2011 8:33am | Edited 12:09pm
Quoting Scotty B
Most traders would be shocked to know how little volume it takes to turn a market around.
...after each party trades on that information and equilibrium is reached.
One of the most important things that happens is that liquidity dries up in the direction of the informed trader's trades. So if informed traders are buying, the available size at the asks will decrease, thus accelerating a price move in that direction.
The original dealer...
Quoting Scotty B
who provided liquidity to the informed trader will speculate on the information inherent in the informed traders trade by buying at another banks asking price, netting out his bad inventory and acquiring a profitable position at the sake of his competitor. After his position is established or simultaneously, he will cancel his remaining asks.
When he cancels out his asks, other bank's trade robots will see this and follow suit, and the waters of liquidity are parted like Moses and the Red Sea. ...
(reading....)
While you seem to be describing big-$ liquidity, the idea could also be applied to float vs. news, in stock-speak. And, this guess: Almost no float left stalls or repeats price and important news moves price in a new pattern.
  • #113
  • Jan 16, 2011 8:40am Jan 16, 2011 8:40am
Quoting CindyXXXX
Actually Scotty that has cleared a few things up for me.... I've always wondered how a market can turn on a dime off such little amounts of volume against the prevailing trend.
Well, when you have clusters of candles together, you have liquidity being dried up. Especially if the orders coming in are market orders, which I think they tend to be. I may be wrong, but I believe most limit and stop orders come in outside of consolidation ranges. So when all liquidity has been dried up within one "side" of a range, price can take off like a rocket.
  • #114
  • Jan 16, 2011 8:46am Jan 16, 2011 8:46am
Quoting CindyXXXX

So a dealer can move a market without affecting volume>?
It's not that he's affecting volume per se, it's that he is taking away liquidity by canceling his limit orders and by off-setting his adverse selection risk by consuming someone elses limit orders. After trading with an informed trader, the dealer has to cancel his limit orders, or informed traders will continue trading with him- making his inventory situation worse.

When limit orders are canceled because of informed traders trades, liquidity is thinned out and because of this prices change quickly to reflect the information inherent in the informed traders trade.

But, taking your question at it's value, yes a dealer can move a market without affecting volume whatsoever. Why? Well, what is volume? Traded orders. What is the market? The bid and the ask. If I am a dealer for example and I am quoting EU at 1.2550 bid/1.2555 offered, and I then cancel my 1.2555 offer and replace it with an offer at 1.2570, I just moved the market up on no volume at all. Nothing has actually traded, but if someone comes along and wants to buy, you are going to see an instant spike on your chart with only one transaction/tick. The fact is though, the market was already "up" at 1.2570 before you saw it trade on the chart. This is why a lot of the old floor traders can sit and trade on quotes alone, and why robots watch and trade on information gleaned from a quote book/market depth screen.

Because computers deal at lightning speed, you need a computer to watch the orderbook for you. Humans are obsolete in the trading world, especially in the order flow trading world.
  • #115
  • Jan 16, 2011 8:55am Jan 16, 2011 8:55am
Quoting Scotty B
It's not that he's affecting volume per se, it's that he is taking away liquidity by canceling his limit orders and by off-setting his adverse selection risk by consuming someone elses limit orders. After trading with an informed trader, the dealer has to cancel his limit orders, or informed traders will continue trading with him- making his inventory situation worse.
But a dealer is a liquidity provider in its self right? So isn't it not about limit orders but more about simply taking away available liquidity at certain prices in the way of simply marking the price up or down by either off loading or buying back inventory.

I know I'm prob wrong this was just my thinking
Time hides Nothing
  • #116
  • Jan 16, 2011 9:01am Jan 16, 2011 9:01am
Quoting Scotty B
But, taking your question at it's value, yes a...
Technically speaking he only moved his market. If the others dealers don't also move, you can make a buck - buy at one other dealer at 1.2550 and sell at this dealer which just moved to 1.2570 for a quick 20 point profit.

In fact, this happens all the time, like you said, with bots arbitraging away all dealers which quote prices too far from the market, but for smaller differences.

This process (big move on low volume) can be best seen on news announcements, when slow dealers exit the market before (because they are too slow), so liquidity drops, and fast dealers (actually their computers) instantly adjust the quotes to the best of theirs knowledge when the news hits.

Also relevant from some papers:
Dealers may narrow spreads to attract informed customers and extract information from their trades, information from which the dealers can benefit in subsequent interdealer trades. Dealers consider financial order flow to be relatively informative, so this theory predicts that financial customers pay the narrowest spreads, as they do.

We suggest that after trading with informed customers dealers tend to make parallel outgoing interdealer trades − placing a market buy order after an informed customer buy, for example − in order to eliminate the likely loss-producing inventory and/or to take a speculative position. In this way the information from customer trades becomes reflected in interdealer prices. After trading with uninformed customers, by contrast, dealers will be more likely to place parallel limit orders or to wait for incoming calls, leaving price relatively unaffected.
  • #117
  • Jan 16, 2011 9:13am Jan 16, 2011 9:13am
Quoting CindyXXXX
But a dealer is a liquidity provider in its self right? So isn't it not about limit orders but more about simply taking away available liquidity at certain prices in the way of simply marking the price up or down by either off loading or buying back inventory.

I know I'm prob wrong this was just my thinking
It's about both. By canceling his existing limit orders he is taking away liquidity, and by offloading his bad inventory (losing position) on someone else, he is further removing liquidity. This creates a domino effect as other dealers find themselves in the same boat as the first dealer who traded with the informed. This is why there is so much volume traded in the interbank. If you're not trading, then you don't know who is informed at any given time (there is no time and sales). The only real way to gather market information is to continually trade. As you can see, even when a dealer trades with an informed trader, if he is the first one to trade with him it's really a valuable opportunity despite the adverse selection he is exposed to.

I'm simplifying most of this, it's much more complicated in practice but you get the gist. In real life it it extremely challenging to identify who is informed and who is not, who is bluffing who is serious. It's all a game.
  • #118
  • Jan 16, 2011 9:14am Jan 16, 2011 9:14am
Quoting Adal
Technically speaking he only moved his market. If the others dealers don't also move, you can make a buck - buy at one other dealer at 1.2550 and sell at this dealer which just moved to 1.2570 for a quick 20 point profit.
It won't happen. The dealer only moved his ask to 2570, not the bid.
  • #119
  • Jan 16, 2011 9:15am Jan 16, 2011 9:15am
Quoting Scotty B
It's about both.

Thanks
Time hides Nothing
  • #120
  • Jan 16, 2011 9:19am Jan 16, 2011 9:19am
Quoting Adal
Technically speaking he only moved his market. If the others dealers...
We are in the same boat, Adal. It's the hedge funds, sovereign money, ect. that basically strong arm the markets where they want them to go. Money is power.
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