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Order Flow - Finding cluster of stops on chart

  • #341
  • Jan 22, 2011 8:03pm Jan 22, 2011 8:03pm
Quoting Darkstar
That would definitly create inefficiency. The more important question is, why would you assume the gap would be filled with new limit orders?
To find a new equilibrium. An uninformed trader would see the wrong value as the new correct value and is willing to trade the various outcomes of that new value.

Quoting Carnegie
I recall I once read you said that stop-hunting doesn't have anything to do with real value. That in reality it 'distorts' real value. And in that case, that means that the stop hunt is usually in the "wrong" direction (because someone wants to unload and make a shift in his/her position).
A stop-hunt 'distorts' the real value. That's exactly what i thought and what I stated above. An informed player KNOWS that that's not the real value, and he/she knows that because he saw that vacuum.

So now, the informed player that wants to trade those situations needs just to make an educated guess of where a vacuum can happen, where is the next big order most likely gonna hit the market?
Am I wrong in my assumptions?

Quoting Darkstar
Your on the list. http://cdn.forexfactory.com/images/s...m/big_grin.gif
I also don't want to miss that bro'!
  • #342
  • Edited 10:24pm Jan 22, 2011 10:00pm | Edited 10:24pm
Core Principles Regarding How Changes in Order Flow Affect Changes in Price:

  1. Price is always a function of Supply & Demand - Regardless of the market.
  2. Changes in Supply and/or Demand effect changes in Price.
  3. Changes in Order Flow precede changes in Price.
  4. Program Trading is the Primary Cause of changes in Supply & Demand.
  5. Buy order Usurp Supply - Thereby increasing price.
  6. Sell order Increase Supply - Thereby decreasing price.
  7. Increases in Price momentum will fade if they are not backed by substantive Program Trading
  8. As changes in Order Flow precede changes in Price, it is advisable to always enter each trade via a Stop, this way, Price activity confirms the Order Flow information. Long trades are entered via a Buy Stop one tick above the most recent pivot, and Short trades are entered via a Sell Stop one tick below the most recent pivot. If after a Long Entry Stop is place, price moves down and breaches the most recent low pivot, the Entry Stop is to be removed. If after a Short Entry Stop is placed, price moves upwards and breaches the most recent high pivot, the Entry Stop is to be removed.
  9. Software can monitor this activity in real-time thereby creating ongoing opportunities to follow and feast off of the Big Money just like a Pilot Fish follows and feasts off of a Shark.
  10. 'Smart Money' really does exist. For Smart Money to profit from their insight, they must trade. When they trade in an electronic market, their transactions get recorded in real-time. Thus, they leave a footprint that can be monitored.
  11. Stop Losses are the bread and butter of short-term algorithmic trading shops. They 'know' where the stops are and can fire off Program Trades with sufficient force to trigger a bucket of stops. By doing this they create immediate liquidity which allows them to close out their positions.
  12. You can increase percentage of winning trades by incorporating Order Flow monitoring and interpretation into your analysis... by having the real-time information which offers the ability and skill to never fight the tape.

  • #343
  • Jan 22, 2011 11:52pm Jan 22, 2011 11:52pm
Quoting deanyakobs
Core Principles Regarding How Changes in Order Flow Affect Changes in Price:
[list=1][*]Price is always a function of Supply & Demand - Regardless of the market.[*]Changes in Supply and/or Demand effect changes in Price.[*]Changes in Order Flow precede changes in Price.[*]Program Trading is the Primary Cause of changes in Supply & Demand.[*]Buy order Usurp Supply - Thereby increasing price.[*]Sell order Increase Supply - Thereby decreasing price.[*]Increases in Price momentum will fade if they are not backed by substantive...
This was written of course, by Carl Weiss. Here's a link:

http://algofutures.com/wow-indices-l...re-principles/
  • #344
  • Jan 23, 2011 12:41am Jan 23, 2011 12:41am
Adal,

Thanks for the paper, you're never short on info and helpful links.

I'm thinking a lot about the Gold bubble we are currently witnessing. Think of the immese amount of built up open interest that will have no one to sell to when there are no more buyers to draw in. No one will want to touch it. When it crashes, it's gonna be messy for a lot of people. The gold crash will be a monumental opportunity for those who can time it right. I see/hear more and more "BUY GOLD NOW!!!!" commercials, we've got to be getting close...I'm thinking 2012 will do it in. If things don't get better quickly, America is going to vote out Obama and put a republican in office. I beleive it will be a political pin that pops the balloon.

Also, I agree about the commercial component of the market. Osler and Lyons talk a lot about this. I beleive they say above the three month time frame you can expect world business (fundamentals) to have a meassurable influence on a market, at least when veiwed from common fundamental models.
  • #345
  • Jan 23, 2011 12:49am Jan 23, 2011 12:49am
Quoting Scotty B
Adal,

Thanks for the paper, you're never short on info and helpful links.

I'm thinking a lot about the Gold bubble we are currently witnessing. Think of the immese amount of built up open interest that will have no one to sell to when there are no more buyers to draw in. No one will want to touch it. When it crashes, it's gonna be messy for a lot of people. The gold crash will be a monumental opportunity for those who can time it right. I see/hear more and more "BUY GOLD NOW!!!!" commercials, we've got to be getting close...I'm thinking 2012...
One more thing about bubbles...

The beautifal thing about them is that while they are difficult to predict, once they are before your eyes you can sit back and watch a gross inefficiency develop.
  • #346
  • Edited 2:07am Jan 23, 2011 1:56am | Edited 2:07am
Quoting Scotty B
Adal,

Thanks for the paper, you're never short on info and helpful links.

I'm thinking a lot about the Gold bubble we are currently witnessing. Think of the immese amount of built up open interest that will have no one to sell to when there are no more buyers to draw in. No one will want to touch it. When it crashes, it's gonna be messy for a lot of people. The gold crash will be a monumental opportunity for those who can time it right. I see/hear more and more "BUY GOLD NOW!!!!" commercials, we've got to be getting close...I'm thinking...
Off topic, but gold isn't even close to being in a bubble. All the commercials I see are 'scrape gold for cash' which tells me that gold is still cheap and they want to take it off the hands of people that don't know what is going on.

Ask a co-worker if they own gold? Do you hear folks in a restaurant talking about their 'gold investments'? CNBC constantly is saying 'gold is in a bubble'.

You'll know when gold is in a bubble and mania when everyone is talking about it, just like everyone bragging about their tech stocks in the late 90's and their homes in the 2005.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #347
  • Jan 23, 2011 2:17am Jan 23, 2011 2:17am
Quoting LasVahGoose
Off topic, but gold isn't even close to being in a bubble. All the commercials I see are 'scrape gold for cash' which tells me that gold is still cheap and they want to take it off the hands of people that don't know what is going on.
Yep, Goose is right. The Chinese are buying more and more gold. If their economy starts slowing down, then maybe we'll see indications of a bubble. But then maybe they'll just buy more ?!
  • #348
  • Jan 23, 2011 7:23am Jan 23, 2011 7:23am
Quoting deanyakobs
Core Principles Regarding How Changes in Order Flow Affect Changes in Price:

[list=1][*]Price is always a function of Supply & Demand - Regardless of the market.[*]Changes in Supply and/or Demand effect changes in Price.[*]Changes in Order Flow precede changes in Price.[*]Program Trading is the Primary Cause of changes in Supply & Demand.[*]Buy order Usurp Supply - Thereby increasing price.[*]Sell order Increase Supply - Thereby decreasing price.[*]Increases in Price momentum will fade if they are not backed by substantive...
Nice article!

Quote
Increases in Price momentum will fade if they are not backed by substantive Program Trading
This is EXACTLY what we're talking about.
  • #349
  • Jan 23, 2011 8:01am Jan 23, 2011 8:01am
Hi Pips Cruiser,

Thanks for the mention regarding the, "Core Principles Regarding How Changes in Order Flow Affect Changes in Price".

I am Carl Weiss and wrote those original principles.

We surface the output of some of our order flow monitoring algorithms along with trade signals for free at http://algofutures.com/.

The insights that are surfaced, IMHO, are quite astounding...there are also some videos and other materials that shed some light with what goes on under the hood of electronic markets.

Everything is free...we're not selling nuthin', nor do we intend to...so please have at it.

There were lot's of folks who were very helpful to me when I started out and gave their insights, time and nuggets of knowledge.

I want to give back and hopefully save others from some of the caverns that I leapt into.

We figure that we the best way to give back would be to take some of this real-time data that we are generating every day, all day long, and put it out on the web so, that other folks can have access to it also.

Hope this helps and that you find this stuff as intriguing as I do.

Please feel free to ping me with any insights and/or questions.

All the best,
Carl
  • #350
  • Jan 23, 2011 9:42am Jan 23, 2011 9:42am
Quoting Scotty B
Adal,

Thanks for the paper, you're never short on info and helpful links.

I'm thinking a lot about the Gold bubble we are currently witnessing.
Boy, do I have a treat for you

http://dl.dropbox.com/u/190212/ff/gold_bubble.pdf
http://dl.dropbox.com/u/190212/ff/gold_bubble_2.pdf
http://dl.dropbox.com/u/190212/ff/gold_bubble_3.pdf

I trust these guys, two years ago I watched live their Shanghai stock market crash call. They nailed the day it would top. Past performance is not indicative of future performance... and all that.

I'm also witnessing gold bubble mentality in my country. News reports on TV that people are changing euros to gold, don't use gold as collateral anymore at pawn shops, and small gold bullion (1g, 5g) is selling like hot cakes. Some of my coworkers, which know that I'm into finance, are asking me how to buy gold.

Currently I'm playing with historical gold prices, doing simulations and trying to find the safest way to bet against gold. My current plan is to try catching a few smaller moves (now -> 1250 for example), not the big one, which is riskier but like you said, monumental if you catch it. My gut feeling is that it will blow over around 1600-1800, but I want to catch a piece of it even if it fails faster.

Of course, you need to be on-guard for surprises, which is why I'm trying to leave a large margin of safety for upward price shocks.
  • #351
  • Jan 23, 2011 9:45am Jan 23, 2011 9:45am
You know I haven't slept properly since I started this god damned thread. There are so many questions but they become less each day. I really wish there was a way for me to study this by my own and test my own ideas but since I can't see the whole picture yet - there is no meaning in testing it on the market.

I was about to summarize the thread, but it hit me that there is no meaning to do so, because each and every post in this thread actually does contribute.

I have wrapped my head around what happens "behind" the chart on stop-hunts; like the liuqidity vacuum that Darkstar explained. I don't know how I would have solved the "behind the scenes"-thinking without it. It plays a major part in understanding the function of price behind the stop-hunting.

The last piece of puzzle now sits on what the other phenomena is. And the more I look at the charts the more I see that it has to bee old s/r areas.

When I only "listened" to technical analysis, I would regard a big move down or up (a large candle) with no tail as a major indication of price continuation in that direction. As I look at stop-hunting.. It really dictates a reversal.

If you take a look at the chart I attached, both times you will see price moving below a round number and then reversing sharply in the other direction with really big candles.
If you look at the second circle you see a really big bear candle down (think Technical Analysis.. Doesn't this candle dictate a further move down?) price snaps immediately up the other direction with some big bull candles.

What is interesting both times (and I looked at several other charts) is that price stops and reverses at old s/r-areas.. This might be the "other phenomena". This is the last piece missing for me.


Now obviously there are still some questions about stop hunting. I.e. why does it become liquidity on the other side which causes price to snap back up? Is it because latent and fundamental/value traders believe that this isn't the "real" value thus reversing the price?

Does stop-hunting only occur at round numbers and over/below? And if NOT, then WHEN do we know it's a stop hunt?
Obviouslu, every little tail on a candle below a support or resistance area isn't stop hunting. And what is to define WHEN and WHERE there is a stop hunt?

Take care. Hope you had a great weekend.. my eyes hurt
Attached Image (click to enlarge)
Click to Enlarge Name: steli.png Size: 111 KB
  • #352
  • Jan 23, 2011 10:07am Jan 23, 2011 10:07am
What I will say here is not directly related to finding stops but it's about orderflow. I'm reading Master the Markets by Tom Williams and here's how he explains why previous ranges act as supply zones in stock market.

Lets say the market formed a range and then the price went down. The buyers from the range are now in a losing position and want to get out at least at breakeven so they place their sell orders at their entry and thus create supply at that previous range.

I'm curious if the same scenario also works in fx. If it does it will work both ways at the ranges above and below the current price.
  • #353
  • Jan 23, 2011 10:34am Jan 23, 2011 10:34am
The good thing about algos is, if you know how they're working and looking for,you can front run them.
They are very dominat in the markets.
  • #354
  • Jan 23, 2011 10:39am Jan 23, 2011 10:39am
Quoting seagreen
What I will say here is not directly related to finding stops but it's about orderflow. I'm reading Master the Markets by Tom Williams and here's how he explains why previous ranges act as supply zones in stock market.

Lets say the market formed a range and then the price went down. The buyers from the range are now in a losing position and want to get out at least at breakeven so they place their sell orders at their entry and thus create supply at that previous range.

I'm curious if the same scenario also works in fx. If it does it will...
This works in all markets. This is how price "moves".
J16:ers call them PPZ (price pivot zones). Resistance turns into support when it is broken and vice versa.
  • #355
  • Edited 3:29pm Jan 23, 2011 10:45am | Edited 3:29pm
Carnegie,

Let me join your thread and contribute little bit.

I won't talk about Orders Flow theory because I'm not as wise as Darkstar or Scotty B for instance are and I have no idea how this mechanics works.

Let me express my view about Order Flow real trading. Ideas I will represent here neither are new nor are mine (I wish I would discovered them). Almost everything I know about trading I learned from Joe Ross so all acknowledgments go to him.

Since English isn't my first language I beg your pardon in advance for all mistakes and typos I will make.

What I will talk about is what I use in my everyday e-minis or currencies futures trading however this style is suitable for trading in every market.

This kind of trading is more preferred for intraday trading (at least in futures market) nevertheless it all depends on you and your trading management skills to keep position open as long as it is profitable.

Take care.

Vidas

- - - - - - - -

“Do not sell morning weakness in the strong uptrend” – old Sumer proverb.
“Do not sell morning weakness in the strong uptrend” – old Sumer prov
  • #356
  • Edited 3:30pm Jan 23, 2011 10:53am | Edited 3:30pm
First of all let us agree on several presumptions:

•It's the job of the market to fill orders (in order the market to be efficient).
•The job of the insiders, at least in large part, is to fill orders (by insiders here I mean big banks and other market makers).
•In the absence of the large order flow from outside of the market (money pools, hedge funds, central banks etc.) price will always go where the preponderance of orders are located.

Where the orders are located should be our primary consideration before entering the trade.

So where are orders located?

Orders tend to be located at support/resistance levels. What we talk about terms support and resistance are either pivot points on the chart (don't confuse with intraday - daily pivots!) or tops and bottoms of congestion areas.

Okay how can we use information which almost every trader knows?

It is when market makers (or insiders – call whatever you want) will move market to fill these buy/sell orders we want to enter the trade and swim with the flow – orders filling flow.

Market makers or insiders will move market to fill orders, go where orders are, run stops – whatever you choose to call it. That is nature of the markets and driving force behind price action.

Take care.

Vidas

- - - - - - - -

“Do not sell morning weakness in the strong uptrend” – old Sumer proverb.
“Do not sell morning weakness in the strong uptrend” – old Sumer prov
  • #357
  • Edited 3:30pm Jan 23, 2011 10:56am | Edited 3:30pm
So how we can put to the reality what we have learned so far?

As a trader our goal now is to find convenient entry point that will enable us to enter the market well ahead of an anticipated upward/downward run caused by the market makers.

It must be clear definite trading range or pivot point on the chart well ahead of the trading orders' clusters.

As saying goes “a picture is worth a thousand words” so I will attach couple of charts later on just to have understanding what I'm talking about.

In these examples I won't show you where to put stop loss or take profit or how to manage your trade. This goes far beyond of this thread scope and you can find a lot of information about these topics even in this site.

Take care.

Vidas

- - - - - - - -

“Do not sell morning weakness in the strong uptrend” – old Sumer proverb.
“Do not sell morning weakness in the strong uptrend” – old Sumer prov
  • #358
  • Edited 3:31pm Jan 23, 2011 10:59am | Edited 3:31pm
I fell few of you will be misguided by the words “well ahead of the trading orders' clusters”. What does that mean?

By the words well ahead I mean reasonable distance of ticks (pips) to cover your costs and make some profit in case market will reverse there. For instance in e-mini SP500 trade such distance averages from two to four points (dollars) on the chart. For EUR/USD or GBP/USD trade – up to 30 ticks (pips) and so on. I hope you will grasp the idea behind the figures.

Take care.

Vidas

- - - - - - - -

“Do not sell morning weakness in the strong uptrend” – old Sumer proverb.
“Do not sell morning weakness in the strong uptrend” – old Sumer prov
  • #359
  • Edited 3:31pm Jan 23, 2011 11:07am | Edited 3:31pm
Fresh examples of the GBP/USD trades (6BH1 as March 2011 futures contract).

I attached 6BH1 charts (equivalent of GBP/USD pair in cash market) by coincidence – you can find a lot of examples almost on every chart.

Attached charts are in 3 different timeframes: M5, M15 and M30. It's up to you what timeframe to choose from. In e-minis trading I usually use M1, M5 and M15 or 377 and 1597 ticks. There is no magic behind these numbers – you should find what works best for yourself.

Take care.

Vidas

“Do not sell morning weakness in the strong uptrend” – old Sumer proverb.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: 1-6BH1 M5.gif Size: 30 KB
Click to Enlarge Name: 2- 6BH1 M15.gif Size: 27 KB
Click to Enlarge Name: 3 - 6BH1 M30.gif Size: 26 KB
“Do not sell morning weakness in the strong uptrend” – old Sumer prov
  • #360
  • Jan 23, 2011 11:11am Jan 23, 2011 11:11am
Quoting Carnegie
This works in all markets. This is how price "moves".
J16:ers call them PPZ (price pivot zones). Resistance turns into support when it is broken and vice versa.
I knew of this phenomena from charts, just didn't know how it's related to order flow.
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