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Order Flow - Finding cluster of stops on chart

  • #301
  • Edited 11:44pm Jan 21, 2011 11:27pm | Edited 11:44pm
Quoting Louie
Still looking and I am looking at the Ronald Raygun files. Haven't found it yet. As a side note. Blue Ray has a thread called VHands Trading Simulator. It goes through how to load it and how to operate it. But for this purpose you just want to download the data and see the vacuum. Also if your data doesn't work well in MT 4 Open demo with Alpari. There data loads pretty well.
here it is

Simulator: http://www.forexfactory.com/attachme...02008%208:18pm

Thanks Ronald
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  • #302
  • Jan 22, 2011 1:18am Jan 22, 2011 1:18am
One thing that I've done in the past when studying orderflow is to sit down and make a fake market on paper. I'm currently programming/building a fake market that will match fake orders for my own studies, I may share that later on.

Basically, make up trader A, B, C, D, E, F, G,... use a simple price ladder of 1 unit per tick. "A buys 3 from B @ 5," keep track of everyone's position and take note of how price jumps around as you go along. This easy exercise gives you a feel for how liquidity is supplied and consumed, and also gives insight into how the market is just a calculator.

Doing this really helped me think and led me down some interesting paths. Just a suggestion.

Jim
  • #303
  • Jan 22, 2011 6:15am Jan 22, 2011 6:15am
Quoting CindyXXXX
here it is

Simulator: http://www.forexfactory.com/attachme...02008%208:18pm

Thanks Ronald
That is the the other sim I was looking for. Thanks for posting it CindyXXXX. Also if you haven't, you may want to go to DareXau post#46 and spend some time at the link listed. It may spark your brain in looking at this buiness in a new way.
  • #304
  • Jan 22, 2011 6:49am Jan 22, 2011 6:49am
CINDYYYY.. I KNOW YOU'VE BEEN SPYING SOMWHERE.. YOU BETTER TELL US WHERE....

"Efficiency exists only so long as equilibrium exists in the underlying dynamic..."
  • #305
  • Jan 22, 2011 6:59am Jan 22, 2011 6:59am
Quoting Carnegie
CINDYYYY.. I KNOW YOU'VE BEEN SPYING SOMWHERE.. YOU BETTER TELL US WHERE....

"Efficiency exists only so long as equilibrium exists in the underlying dynamic..."
I actually got that from a book about the efficiency of the horse race betting markets believe it or not.

I found it interesting that the same or similar price discovery process seems to take place.

If you liked that heres the rest of it:

"Efficiency exists only so long as equilibrium exists in the underlying dynamic: once an efficiency is embraced by the players in the game as "law", the preponderance of opinion must necessarily neglect the exceptions to its beliefs, and thus, bring about the inefficiency which it arose to defray: the exception is undervalued, and this elevates its worth."
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  • #306
  • Edited 7:27am Jan 22, 2011 7:08am | Edited 7:27am
Quoting Scotty B
One thing that I've done in the past when...

I think a good addition to this thread would be a diagram of the Forex Market Structure (3 tier) - combined with a diagram about open market operations.

Anyone wanna have a crack?

BTW: Scotty I've been thinking about a similar idea to what you described... Inevitably id like to create a "market map" which also constitutes the order process.

Quoting Louie
That is the the other sim I was looking for. Thanks for posting it CindyXXXX. Also if you haven't, you may want to go to DareXau post#46 and spend some time at the link listed. It may spark your brain in looking at this buiness in a new way. http://cdn.forexfactory.com/images/s...m/thinking.gif
Thanks Louie I've seen a bit of Sam Sideons stuff and actually I just watched his video on how prices move but I have always had my suspicions about this guy... He talks a good game but it always comes back to basic TA and support resistance trading. In what ways does he make you think of the market in such a different way? I haven't seen enough of him to really have a justified opinion either way
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  • #307
  • Jan 22, 2011 8:37am Jan 22, 2011 8:37am
DARKSTAR!

1. Could you take a stab at this one?
http://www.forexfactory.com/showpost...&postcount=295

2. I've sent you an email to your website regarding the book. I'd love to have a copy.

3. Look further down.

Quoting Darkstar
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.
+

Quoting Darkstar
For my one quick post today...

The vacuum as I presented it does exist but it's on very short timescales. 1-3 seconds usually... never more then a few minutes. The market isn't THAT inefficient.

The vacuum on its own isn't an exploitable opportunity; it is merely a piece of the price change sequence. Its value is that it can be combined with other phenomena. The combination is what can become exploitable.

Luck be with you

I've been looking at USDJPY hourly chart. That pair has some nice ass reversals that turn right on the dime at many round numbers.

You say in your first post I found somewhere else that as a order flow trader you should think about where orders will come in or "what is going to compel other traders to get it".
In your other post in this thread you say that the vacuum phenomena isn't an exploitable opportunity, a combination with it is.

As I look at USDJPY, I see price moves below round numbers like 5-10 pips more or less and then turns on a dime. This must be the vacuum you're talking about as price has nowhere else to go in search for liquidity but to turn the other way around.

Interesting thing is that price turns (reverses on the stop-hunts) at areas of old support/resistance OR areas where there has been other turns because of price inefficiency/liquidity disequilibrium.

By the way, someone should really clear this thread up on what all these different terms are, because I believe if we know or atleast understand the terms, things are bound to get easier.
What's the difference between:

efficiency/inefficiency
balance/imbalance
equilibirum/disequilibrium

In my book, they all mean that something isn't BALANCED. Might be wrong tho', as it is used in different "sequences".

Take care
  • #308
  • Edited 9:05am Jan 22, 2011 8:53am | Edited 9:05am
Quoting Carnegie

efficiency/inefficiency
balance/imbalance
equilibirum/disequilibrium

In my book, they all mean that something isn't BALANCED. Might be wrong tho', as it is used in different "sequences".

Take care

I'm bored so if you don't mind I'll have a crack at this one - its quite simple don't let the graphs scare you


In economics equilibrium is found where supply meets demand as shown in the 1st graph below... In a competitive market the demand curve slopes down becasue as price increases less people are willing to buy. The supply curve slopes up becasue as price increases more people are willing to sell (supplies). Its all about price. You want to sell something for as much as you can get and likewise you would want to pay the least for something you want to buy...

So when this equation is maximized between buyers and sellers you find the equilibrium or efficient price and this is where things are balanced and both buyers and sellers satisfaction is maximized

Disequilibrium, imbalance, inefficiency is where this balance is thrown out..

Take the second picture for example... The demand curve shifts tho the right and therefore price needs to adjust to find a new equilibrium -

Likewise the supply curve like in the 3rd pic could also shift through a change in the sentiment of suppliers

What would cause the entire demand curve to shift to the right and cause this imbalance?

What would cause the supply curve to shift?

I might just add that the whole purpose of a market is to find this price efficiency point in order to satisfy the maximum number of people, in a competitive market it happens naturally through a process called " the invisible hand" - beacause of the reasons I described above
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  • #309
  • Jan 22, 2011 9:49am Jan 22, 2011 9:49am
Quoting Scotty B
One thing that I've done in the past when studying orderflow is to sit down and make a fake market on paper. I'm currently programming/building a fake market that will match fake orders for my own studies, I may share that later on.
You might find interesting similar academics experiments in fake markets done with people in the past. One of the most interesting conclusions was that inexperienced traders cause bubbles.

http://dl.dropbox.com/u/190212/ff/ex...al_trading.pdf
  • #310
  • Jan 22, 2011 9:57am Jan 22, 2011 9:57am
Quoting CindyXXXX
I'm bored so if you don't mind I'll have a crack at this one - its quite simple don't let the graphs scare you


In economics equilibrium is found where supply meets demand as shown in the 1st graph below... In a competitive market the demand curve slopes down becasue as price increases less people are willing to buy. The supply curve slopes up becasue as price increases more people are willing to sell (supplies). Its all about price. You want to sell something for as much as you can get and likewise you would want to pay the least for something...
Thanks cindy that actually explains quite a bit. I really should have studied supply and demand before even thinking about order flow but hey.. you learn

You explained it quite well cindy and this is my take on what you said and applied to the market:

Equilibirum is when supply and demand are even. In this case liquidity is evenly distributed so every seller has a buyer and vice versa. In this case, price doesn't move much when large orders are executed?

Efficient price is when it is the value of the currency that is "agreed" upon. In this case liquidity should be evenly matched/distributed also because there is not anyone who is regarding the value undervalued (for example) thus bidding more and causing inefficiency.

Balance is when there is equilibirum in the market and the price is efficient. I.e. it is a equilibrium in liquidity distribution and the price is efficient i.e. "agreed upon".

Right?
  • #311
  • Jan 22, 2011 10:07am Jan 22, 2011 10:07am
Quoting Carnegie
Thanks cindy that actually explains quite a bit. I really should have studied supply and demand before even thinking about order flow but hey.. you learn

You explained it quite well cindy and this is my take on what you said and applied to the market:

Equilibirum is when supply and demand are even. In this case liquidity is evenly distributed so every seller has a buyer and vice versa. In this case, price doesn't move much when large orders are executed?

Efficient price is when it is the value of the currency that is "agreed" upon. In this...
Don't forget that in markets there are two kinds of demand and supply - active and passive.

Passive is represented by liquidity. Limit sell orders above the current price are passive supply, limit buy orders below current price are passive demand.

Market buy orders are active demand, market sell orders are active supply.
You need to consider all of these 4 plus other factors. When people say "the price is rising because there's more buying than selling" it is now always true. That's why DS showed us the liquidity curve.
  • #312
  • Edited 10:49am Jan 22, 2011 10:33am | Edited 10:49am
Quoting Adal
You might find interesting similar academics experiments in fake markets done with people in the past. One of the most interesting conclusions was that inexperienced traders cause bubbles.

http://dl.dropbox.com/u/190212/ff/ex...al_trading.pdf
Thanks for this study. The part I find the most telling is pages 1149 and 1150
that basically states that the crash following a boom in both experienced and inexperienced has been on SMALLER volume than the preceding boom and that the collapse is predicted by the thinning of the bid/offer as measured by the excess bids , (number of bids - number of offers) immediately before the crash and that stabilizing of price ( I read as finding an equilibrium) tends to be presaged or foretold by an increase in excess bids.

The change in mean price in all of the experiments is positively related to lagging excess bids. They go on to state that the null hypothesis that adjustment speed coefficient is non postitive is rejected 78.71% of the time. To me that is staggering.

It seems to me there is a solid predictor in there.
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  • #313
  • Edited 2:03pm Jan 22, 2011 11:06am | Edited 2:03pm
While I find it interesting that inexperienced traders can cause bubbles according to the data in this study. They also note that there is little improvement when the subject has been trained. This to me would indicate that the boom bust cycle is inevitable; something I already strongly suspected.

The important part here for me is what do we do with that knowledge? I would put forth that there is little difference with the concept a bubble and crash to the equilibrium ( the mean ) and disequilibrium ( the moving to the bubble or the crash ) on a much shorter time arena. That is why I am very interested in the findings of the excess bid concept. This is something that is tangible and can be measured and used.
  • #314
  • Jan 22, 2011 11:13am Jan 22, 2011 11:13am
Quoting smjones

The important part here for me is what do we do with that knowledge? I would put forth that there is little difference with the concept a bubble and crash to the equilibrium and disequilibrium on a much shorter time arena. That is why I am very interested in the findings of the excess bid concept. This is something that is tangible and can be measured and used.
NP - It seems very logical. When the river runs dry the herd must run to the next river to survive - ok I just made that up lol but I like your thinking.
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  • #315
  • Jan 22, 2011 11:18am Jan 22, 2011 11:18am
Quoting smjones
While I find it interesting that inexperienced traders can cause bubbles according to the data in this study. They also note that there is little improvement when the subject has been trained. This to me would indicate that the boom bust cycle is inevitable; something I already strongly suspected.
Yeah, it's in human nature for bubbles to happen. You can't get much more experienced than the CEO of Citigroup. Let's not forget his (in)famous 2007 quote: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Quote
The important part here for me is what do we do with that knowledge? I would put forth that there is little difference with the concept a bubble and crash to the equilibrium and disequilibrium on a much shorter time arena. That is why I am very interested in the findings of the excess bid concept. This is something that is tangible and can be measured and used.
Unfortunately in the real markets we don't have perfect information about all actors as the authors of these experiments did. This will make it much harder to exploit this. But as you say it may provide a theoretical foundation for understanding price cascades in the short term.
  • #316
  • Jan 22, 2011 11:21am Jan 22, 2011 11:21am
Quoting Carnegie
DARKSTAR!

1. Could you take a stab at this one?
http://www.forexfactory.com/showpost...&postcount=295
That would definitly create inefficiency. The more important question is, why would you assume the gap would be filled with new limit orders?

Quote
2. I've sent you an email to your website regarding the book. I'd love to have a copy.
Your on the list.

Quote
3. Look further down.


As I look at USDJPY, I see price moves below round numbers like 5-10 pips more or less and then turns on a dime. This must be the vacuum you're talking about as price has nowhere else to go in search for liquidity but to turn the other way around.

It is.

Quoting Scotty B
One thing that I've done in the past when studying orderflow is to sit down and make a fake market on paper.
Thats really what the liquidity distribution model is supposed to be used for.

Quoting CindyXXXX
I might just add that the whole purpose of a market is to find this price efficiency point in order to satisfy the maximum number of people, in a competitive market it happens naturally through a process called " the invisible hand" - beacause of the reasons I described above
Excellent explination.

One thing that is important to remember though; unlike a traditional product market, the satisfaction of the maximum number of participants results in the LOWEST transaction volume.

A product like an ipod priced at the efficient value will produce the highest quantity of ipods sold. However, financial market securities provide zero utility, so there is no value in acquiring properly priced units. As such, the demand drops to zero at the efficient value.
  • #317
  • Jan 22, 2011 1:06pm Jan 22, 2011 1:06pm
Quoting Darkstar
A product like an ipod priced at the efficient value will produce the highest quantity of ipods sold. However, financial market securities provide zero utility, so there is no value in acquiring properly priced units. As such, the demand drops to zero at the efficient value.
Id tend to disagree here. A currency has the utility of allowing me to buy things. Good luck purchasing foreign goods if you don't have the right currency! An option has the utility of hedging me against risk, reducing the volatility of my speculative portfolio. Same for futures, which producers can use to hedge against price variations. All those securities have their utility.

If I need the utility those securities provide, then I might buy it even if it is overpriced.
“Nothing great in the world has ever been accomplished without passion.”
  • #318
  • Jan 22, 2011 1:25pm Jan 22, 2011 1:25pm
Quoting Darkstar
A product like an ipod priced at the efficient value will produce the highest quantity of ipods sold.
But prices are not set like that. Producers optimize the price for maximum profit. It's more profitable for Apple to sell 10 $200 iPods than 20 at $75.

Quoting Darkstar
However, financial market securities provide zero utility, so there is no value in acquiring properly priced units. As such, the demand drops to zero at the efficient value.
Wrong. An equity stock definatly has utility (voting power). The same for all the miriad of hedging products like Deevz said. Insurance always has utility, even if for the majority of people it has -EV (since only a small majority will actually exercise the insurance). This is what Taleb says - you need to insure against a small probability but with devastating impact, like your house catching fire or price of oil collapsing (if you are an oil extractor).
  • #319
  • Edited 1:54pm Jan 22, 2011 1:31pm | Edited 1:54pm
Quoting Deevz
Id tend to disagree here. A currency has the utility of allowing me to buy things. Good luck purchasing foreign goods if you don't have the right currency! An option has the utility of hedging me against risk, reducing the volatility of my speculative portfolio. Same for futures, which producers can use to hedge against price variations. All those securities have their utility.

If I need the utility those securities provide, then I might buy it even if it is overpriced.
If I could respond, just to test my understanding.

I think that he is saying that spot currencies lack demand at efficient value because they are traded for their inefficiencies - movements away from value.

I wonder though, how is that different from any market? I mean, yeah, you'll have prices where the market is temporarily efficient, satisfying both buyers and sellers. The larger market forces will most always be on the fringes though waiting for deviation, right? I guess I'm missing something.

Thanks for the great thread! Nice weekend food for thought!
  • #320
  • Jan 22, 2011 1:37pm Jan 22, 2011 1:37pm
Quoting Adal
But prices are not set like that. Producers optimize the price for maximum profit. It's more profitable for Apple to sell 10 $200 iPods than 20 at $75.

.
I think it was just a rushed example - Apple actually have the monopoly on I phones and so have price influencing powers but are still to a degree restrained by supply and demand forces... Obviously if they sell it for $5000 a pop they aren't going to do themselves any favors

A perfectly competitive market with free entry and exit however have to take the price that is set by market forces and this will maximize the quantity of units sold by trading at the efficient price. If a seller trys to sell at a price above the equilibrium buyers will simply go to the other suppliers selling lower at the equilibrium. If a seller tries to sell below the equilibrium it is likely they will not profit. (I think this is what DS was getting at)
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