DislikedI 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.Ignored
Order Flow - Finding cluster of stops on chart
- #284
- Jan 21, 2011 8:08am Jan 21, 2011 8:08am
Today I found something interesting (it seems to me that I still cannot see the moves until AFTER they happened) and even though I dislike pictures in this thread I will attach one to show you what I have been looking for.
There is a yellow box marking the move I'm talking about.
IF order flow thinking is that price moves because it has to find liquidity at certain places then in FX it is more than 100% that it will find liquidity at round numbers.
The move down below 82.00 is a perfect example of what Darkstar illustrated to us in the liquidity distribution (think: vacuum) pictures. Look at how the market spiked up on that bull candle (dont' look at the price cascade, look at that one bull candle starting from 81.90 to 82.10) erasing all of those short candles down.
I figured in this movement illustrates the exact same kind of movement Darkstar is talking about. The price moved down (price shift) and left a vacuum behind it, this caused an disequilibrium in the liquidity distribution (needs to find liquidity.. can't find it.. turns around and moves higher instead, why shouldn't it? It's a open one way UP. Nobody there to block the road (VACUUM)). And the funny thing here is that price moves up to the exact same zone it started the downmove from!
Now interesting thing here is that it is below a round number. The more interesting thing is that the liquidity distribution had an equilibrium after it moved up (see it stays in a consolidation between 82.10 - 82.20) and after that you can see that price exploded up.. Wonder why
Obviously this was an disequilbirium in liquidity once again.
Another interesting thing is where price FOUND EQUILIBIRUM in LIQUIDITY AGAIN... GUESS WHERE?
You got that right - 83.00.. ROUND NUMBER
There is a yellow box marking the move I'm talking about.
IF order flow thinking is that price moves because it has to find liquidity at certain places then in FX it is more than 100% that it will find liquidity at round numbers.
The move down below 82.00 is a perfect example of what Darkstar illustrated to us in the liquidity distribution (think: vacuum) pictures. Look at how the market spiked up on that bull candle (dont' look at the price cascade, look at that one bull candle starting from 81.90 to 82.10) erasing all of those short candles down.
I figured in this movement illustrates the exact same kind of movement Darkstar is talking about. The price moved down (price shift) and left a vacuum behind it, this caused an disequilibrium in the liquidity distribution (needs to find liquidity.. can't find it.. turns around and moves higher instead, why shouldn't it? It's a open one way UP. Nobody there to block the road (VACUUM)). And the funny thing here is that price moves up to the exact same zone it started the downmove from!
Now interesting thing here is that it is below a round number. The more interesting thing is that the liquidity distribution had an equilibrium after it moved up (see it stays in a consolidation between 82.10 - 82.20) and after that you can see that price exploded up.. Wonder why
Obviously this was an disequilbirium in liquidity once again.Another interesting thing is where price FOUND EQUILIBIRUM in LIQUIDITY AGAIN... GUESS WHERE?
You got that right - 83.00.. ROUND NUMBER
- #285
- Jan 21, 2011 8:24am Jan 21, 2011 8:24am
- Joined Apr 2007 | Status: Trader | 1,522 Posts
hi,
thought i'd share my point of view cause it's without a doubt one the most interesting thread out there.
My first attachment is the picture that DS once attached showing different market participants interacting. I would see this picture as being the search for the most accurate fundamental value of a pair or the equilibrium in price. Now, when the price shifted to the right it caused disequilibrium in the market. Why ? First off, because now there are more latent interest in the right side than there is in the left side. So, this tells me that the value traders (fundy traders) are seeing the market as undervalued. Especially when the latent becomes limit orders which means that they are actually going to do smth about it. So the best option would be to join those informed traders and going long is the only thing to do. Furthermore, you can also notice the vast amount of tech traders who are seeing the same thing (technically) and thus are interested in going long as well. So, now you got: 1) value traders on your side 2) tech traders on your side.
Now about the so called vacuum. That vacuum is actually what caused the price to shift out of it's fundamental value. Cause being a stop hunt in its nature it has nothing to do with the "fair value" of the underlying currency pair. Moreover, that stop hunt creates unordinary volatility and without some crazy shit happening to the economy the fair value of a pair can't possibly decline that fast.
Also, like one member said, that vacuum doesn't have to be a vacuum literally. Of course it will be filled with orders. But who's orders ? If the fundamental value of the pair is not changed then this vacuum can only be filled with uninformed traders (weak holders). Cause no value trader is going to short that pair at these new low levels. (This is where my second example of AUDUSD is coming into play). And those uninformed traders will again start to create liquidity to the upside when their stops are starting to be taken out. And that's how the ball is rolling.
Just my 2 cents. Feel free to comment or disregard it.
My question is: can this latent interest be exploited somehow (and even further, can that shift to LMT orders be exploited) or one just has to be good at economic environment to figure that out himself (which can definitely be done, i believe). I think this is where the vast amount of reading, knowledge and experience comes in, in the case of DS
PS. At this point of writing i'm looking for this vacuum to be created on AUD/JPY where the price would move below 81. But this move has to be supported of course (whether it's econ data or smth.) I think you get the point.
thought i'd share my point of view cause it's without a doubt one the most interesting thread out there.
My first attachment is the picture that DS once attached showing different market participants interacting. I would see this picture as being the search for the most accurate fundamental value of a pair or the equilibrium in price. Now, when the price shifted to the right it caused disequilibrium in the market. Why ? First off, because now there are more latent interest in the right side than there is in the left side. So, this tells me that the value traders (fundy traders) are seeing the market as undervalued. Especially when the latent becomes limit orders which means that they are actually going to do smth about it. So the best option would be to join those informed traders and going long is the only thing to do. Furthermore, you can also notice the vast amount of tech traders who are seeing the same thing (technically) and thus are interested in going long as well. So, now you got: 1) value traders on your side 2) tech traders on your side.
Now about the so called vacuum. That vacuum is actually what caused the price to shift out of it's fundamental value. Cause being a stop hunt in its nature it has nothing to do with the "fair value" of the underlying currency pair. Moreover, that stop hunt creates unordinary volatility and without some crazy shit happening to the economy the fair value of a pair can't possibly decline that fast.
Also, like one member said, that vacuum doesn't have to be a vacuum literally. Of course it will be filled with orders. But who's orders ? If the fundamental value of the pair is not changed then this vacuum can only be filled with uninformed traders (weak holders). Cause no value trader is going to short that pair at these new low levels. (This is where my second example of AUDUSD is coming into play). And those uninformed traders will again start to create liquidity to the upside when their stops are starting to be taken out. And that's how the ball is rolling.
Just my 2 cents. Feel free to comment or disregard it.
My question is: can this latent interest be exploited somehow (and even further, can that shift to LMT orders be exploited) or one just has to be good at economic environment to figure that out himself (which can definitely be done, i believe). I think this is where the vast amount of reading, knowledge and experience comes in, in the case of DS
PS. At this point of writing i'm looking for this vacuum to be created on AUD/JPY where the price would move below 81. But this move has to be supported of course (whether it's econ data or smth.) I think you get the point.
- #286
- Jan 21, 2011 8:49am Jan 21, 2011 8:49am
- Joined Apr 2007 | Status: (Latin: statūs), rank, state | 3,127 Posts
- #289
- Jan 21, 2011 10:02am Jan 21, 2011 10:02am
- | Joined Mar 2008 | Status: shoe shine boy | 1,146 Posts
Yep, vacuum is really useful, i use it almost every day to clean my home
- #299
- Jan 21, 2011 12:22pm Jan 21, 2011 12:22pm
- Joined Feb 2008 | Status: Trader | 6,736 Posts
Time hides Nothing