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Order Flow - Finding cluster of stops on chart

  • #261
  • Jan 20, 2011 1:11pm Jan 20, 2011 1:11pm
Guys,now you have a couple of useful things and posts to think about and to work with.
Do your homework.

This thread was interesting.

Good Luck!
  • #262
  • Jan 20, 2011 1:13pm Jan 20, 2011 1:13pm
Quoting scott89
I feel stupid to ask this, but can you explain me the difference between "making a transaction" and "building inventory"?

I apologize for this
He is talking about the big block orders at that level. Building there inventory. How do you do this. Say you want to buy. Create a false short senerio in market, false breakout. unimformed jump in. Inventory builder buys and pushes up through the vacuum when the inventory is built and thanks to the short stop loss orders. game over.
  • #263
  • Jan 20, 2011 1:34pm Jan 20, 2011 1:34pm
Quoting Louie
He is talking about the big block orders at that level. Building there inventory. How do you do this. Say you want to buy. Create a false short senerio in market, false breakout. unimformed jump in. Inventory builder buys and pushes up through the vacuum when the inventory is built and thanks to the short stop loss orders. game over.
Thanks for the explanation =)

Now, again, what's the best way to trade it?
Let me quote myself:
Quoting scott89
So let's become practical here:

Price is now at 1.2275, Bank A wants to short, and to do that it needs liquidity.

Right behing 1.2300 there's a bounch of limit orders and stop losses.

Bank A buys a relatively small amount, but enough big to move the price in the 2300/2320 are, where the liquidity is (liquidity is provided to the bank by buy limit orders from breakout traders, but the bank is actually providing liquidity for stop losses; in both ways, the bank is entering its big short order).

Price immediatly drops down, and a cascade of other orders are triggered, helping the price to drop further.

Now here's what is happening. What would be the best strategy to profit from this event?
  • #264
  • Jan 20, 2011 1:50pm Jan 20, 2011 1:50pm
Quoting scott89
Thanks for the explanation =)

Now, again, what's the best way to trade it?
Let me quote myself:
That can be the tuff part. You have to figure out if the big players percieve that the current level is a wholesale level and are buying or do they percieve that the current level is a retail level and they are off loading there inventory. That I believe is where the many hours of chart time and learning new things comes into play. Do you short the top of the channel and buy back at the bottom? How do know how long the channel will last. To you put your order above the action and stops waiting to be picked up by the real break out when it happens. Then where do you get out. Can you identify the next logical level that the orders will be off loaded. What I am trying to say is that there are many ways to play it and only you can create it to gel with your trading temperment. I know this probably doesn't help much.
  • #265
  • Edited 2:00pm Jan 20, 2011 1:50pm | Edited 2:00pm
Quoting scott89
So let's become practical here:

Price is now at 1.2275, Bank A wants to short, and to do that it needs liquidity.

Right behing 1.2300 there's a bounch of limit orders and stop losses.

Bank A buys a relatively small amount, but enough big to move the price in the 2300/2320 are, where the liquidity is (liquidity is provided to the bank by buy limit orders from breakout traders, but the bank is actually providing liquidity for stop losses; in both ways, the bank is entering its big short order).

Price immediatly drops down, and a cascade of other...
I am by no means an expert here, but since nobody is throwing the towel, here's my take on a possible play in your scenario:

- set 1 sell limit at 1.2305-1.2310
- set 1 sell limit at 1.2320
once filled:
- cover 1 at 1.2280
- trail the other one

depending on the size of the stop losses, one or both orders will be filled.
As I understand it, this process is called fading.

Any other suggestions?

Great thread, btw.
  • #266
  • Jan 20, 2011 2:01pm Jan 20, 2011 2:01pm
Quoting sumi
I am by no means an expert here, but since nobody is throwing the towel, here's my take on a possible play in your scenario:

- set 1 sell limit on 1.2305-1.2310
- set 1 sell limit on 1.2320
once filled:
- cover 1 at 1.2280
- trail the other one

depending on the size of the stop losses, one or both orders will be filled.
As I understand it, this process is called fading.

Any other suggestions?

Great thread, btw.
Alright, that's what I thought and what I'm actually trying to do.
I'll add a little rule:
-cancel the trade if prices get close (like 5-10 pips) and then reverses without triggering your orders.

Of course everyone has to adjust his risk and MM, for example I would take something like 1.5:1 or 2:1 reward:risk, but that would be a calculation made AFTER you already have the edge proven to be succesful x% of the time.

Do we all agree on this way of trading it?
Any suggestion?
  • #267
  • Jan 20, 2011 2:10pm Jan 20, 2011 2:10pm
Quoting scott89
Alright, that's what I thought and what I'm actually trying to do.
I'll add a little rule:
-cancel the trade if prices get close (like 5-10 pips) and then reverses without triggering your orders.

Of course everyone has to adjust his risk and MM, for example I would take something like 1.5:1 or 2:1 reward:risk, but that would be a calculation made AFTER you already have the edge proven to be succesful x% of the time.

Do we all agree on this way of trading it?
Any suggestion?
As i see it, once you practice long enough and start to get a feeling on the order sizes, price / time progress, etc, one does not need to go for a higher reward than risk. 1:1 might be enough as long as you pick the best setups.
We might just start working on that 10k chart hours...
  • #268
  • Jan 20, 2011 2:28pm Jan 20, 2011 2:28pm
Quoting Wamo
The way I see it, the most interesting part of Darkstar's picture is the area I've highlighted with the blue rectangle. That is the liquidity vacuum created by the shift lower in price - there are no (or few) remaining orders there. If large buy orders start coming in, price should pass through that area very quickly searching for liquidity higher up. I would want to be in a position to capture that move should it happen.

Which I suppose is visualized in your third picture, Scott.

it's the same way I'm perciving it,couldn't say it better than you did

all the best!!
  • #269
  • Edited 2:47pm Jan 20, 2011 2:32pm | Edited 2:47pm
Quoting sumi
We might just start working on that 10k chart hours...
Here we get to the part before that, how to find clusters of stops in a chart, and that's exactly the point of this thread.

What I think is:
-We need to find out, discover, perceive or in any other way KNOW what the real value of the pair is to the latent interest players (ie:bank).
-Aftwer knowing what the foundamental value of the pair is to them, we have to find the best place where the latent interest players are willing to enter the market to correct the price.

The second part could be easily accomplished by a fast look at the chart, but only with the premise at the first point you can make an EDUCATED GUESS of where the stops are placed and that's where the latent interest becomes actual market decisions.

Otherwise, without knowing where the big players are headed to, we can look at the chart all day long and wait for that famous "vacuum" we talked about earlier. That "vacuum" would be anyway a confirmation in the case we know what the big players are willing to do.
  • #270
  • Jan 20, 2011 2:58pm Jan 20, 2011 2:58pm
I'll just throw a little idea in:
We may not be able to know when and where banks want to enter the market, what we know is that they NEED to get out of the market, and to do that they need another pool of liquidity.
  • #271
  • Edited Jan 21, 2011 12:49pm Jan 20, 2011 2:59pm | Edited Jan 21, 2011 12:49pm
Darkstar said "produce ideas about exploitable situations" ... "set about looking for situations where the phenomena you noticed within the model occur"

well I'm not that smart, so I do it the other way around, I see what I see and try and explain it, so here it is.

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perception is reality
  • #272
  • Jan 20, 2011 4:16pm Jan 20, 2011 4:16pm
Quoting Darkstar
Yeah, you guys probably shouldn't spend too much time looking at my trades. It's very impressive how far this thread has progresed, but it's important to realize that what your talking about are only the most basic aspects of Order Flow. I've been doing this stuff for over 5 years and what I do now is so far down the chain of understanding that it's probably counterproductive to look at.

I can tell you that your close to figuring out the stop hunting thing though.

As a side note, I find this thread extremly ironic. For the last couple weeks...

And you can see this on a chart if you but only look.
The road to pipland is arduous and fraught with challenge.
  • #273
  • Jan 20, 2011 4:21pm Jan 20, 2011 4:21pm
Quoting smjones
Wow!
So if I understand you correctly, it all keys on the ability to get the barrier info the quickest. If this is so, it all leads back to the fastest and MOST complete news AND rumor feed....

In other words, trading the rumor to the barrier seems to be the best strategy from my experience.
I think IFR and other news services rumours/orderboards provide what is common knowledge within the interbank market. This creates market expectation or sentiment but also allows players to adjust their strategies in the expection of what others will do with this knowledge

Maybe just like we can stophunt breakout failures we could trade failures of the expection/sentiment of the news/rumours
  • #274
  • Jan 20, 2011 11:12pm Jan 20, 2011 11:12pm
Quoting scott89
I'll just throw a little idea in:
We may not be able to know when and where banks want to enter the market, what we know is that they NEED to get out of the market, and to do that they need another pool of liquidity.
This is certainly something to always keep in mind!
  • #275
  • Jan 21, 2011 12:35am Jan 21, 2011 12:35am
Quoting deanz
Darkstar said "produce ideas about exploitable situations" ... "set about looking for situations where the phenomena you noticed within the model occur"

well I'm not that smart, so I do it the other way around, I see what I see and try and explain it, so here it is.
Just my opinion that VSA is worthless -- or in the very least, not needed. You're searching in the wrong direction.
  • #276
  • Jan 21, 2011 1:03am Jan 21, 2011 1:03am
Quoting Magic Trader
Just my opinion that VSA is worthless -- or in the very least, not needed. You're searching in the wrong direction.
I would consider Sebastian to be a very successful trader, but yes most will not find it profitable. Also it does open your eyes to stock manipulation and why should currencies be any different.
.
perception is reality
  • #277
  • Jan 21, 2011 1:30am Jan 21, 2011 1:30am
Quoting Carnegie
This liquidity vacuum stuff is KILLING ME. So what if there is a liquidity vacuum there, in theory it might be, but it is impossible in practice because the dealers MUST have liquidity there, so there is no vacuum in reality?
You're close dude! The underlined section: Why do you think dealers must provide sufficient liquidity at all times?

Quoting Carnegie
Also, I'm more than 100% that more orders will start pouring in and "block" that liquidity vacuum that was there (with sell orders) resulting in that price could never move back to that price area again. What is it that I am not understanding here?
Price could very well drop out and not return. One of the examples of it happening is fundamental volatility (from DS's book quote) which is when price stays the same, yet the fundamental value (latent traders) has shifted which may not take effect right away.

Quoting scott89
Thanks for the explanation =)

Now, again, what's the best way to trade it?
I dont believe there is a best way to trade this, and its not mechanical. Beiing able to consistently adapt to current market structure maybe.
  • #278
  • Jan 21, 2011 1:42am Jan 21, 2011 1:42am
Quoting EmeraldEyes
At times of high market liquidity, the various classes of market participants are correctly proportioned and a more accurate value given. When lower liquidity is present because of liquidity suppliers guarding against risk during various events the market has a high probability of episodic volatility occuring.
Good post. DS said we should start looking in this direction after figuring out stops -- which he was kind enough to help us with.

So the question is, when does liquidity drop and volatility jump? (Or: Does liquidity have to drop in order for volatility to increase?) Certainly during news which can also relate to a change in fundamentals. It can also happen during off-peak market hours. Anyone else want to chime in and keep this thread moving?
  • #279
  • Jan 21, 2011 2:32am Jan 21, 2011 2:32am
[quote=EmeraldEyes;4332305]You're close dude! The underlined section: Why do you think dealers must provide sufficient liquidity at all times?

I will take a stab at this to help another trader on there journey. When the vacuum happens the dealer has to take the other side of the trade by offering the liquidity which puts them on the wrong side. They are constantly trying to keep their order book even making money only on the spread. So if you were in this situation what would you do to even up the order book? Hopefully i didn't screw up the explaination. I would agree with magic trader in that certain news releases cause high probabilities of episodic volatility. But the real question is how to trade it do to the spread increases or can you use it another way. Hmmmmmmmm.
  • #280
  • Jan 21, 2011 2:34am Jan 21, 2011 2:34am
Quoting Magic Trader
So the question is, when does liquidity drop and volatility jump? (Or: Does liquidity have to drop in order for volatility to increase?) Certainly during news which can also relate to a change in fundamentals. It can also happen during off-peak market hours. Anyone else want to chime in and keep this thread moving?
Good question. Can limit orders slowly start dropping when market orders are more attactive to their participants (and their time to manage trades) causing increased chance of volatility rising? I'm not sure.

Pre-news release is all I got on that one. It'd be great to hear other types.
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