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Order Flow - Finding cluster of stops on chart

  • #401
  • Jan 23, 2011 5:40pm Jan 23, 2011 5:40pm
Quoting Darkstar
The retail/insti dichotemy is a bit of a red herring. The fact is insti traders do the same things that retail traders do, just on a bigger scale. So if retail disapeared tomororw, you wouldn't notice much, if any, difference in the way price behaved. Liquidity would be lower, but there would be fewer orders chasing it as well...
You think so? I'm a firm believer of that dichotomy, or the informed/uninformed, or smart money, however you call the model. The fact that there are traders out there that can be manipulating or tricking others into taking the other side of the market, thus the why retail traders are wrong most of the time. Every bit of evidence seems to point in that direction, in my opinion.
“Nothing great in the world has ever been accomplished without passion.”
  • #402
  • Jan 23, 2011 5:49pm Jan 23, 2011 5:49pm
Quoting Deevz
You think so? I'm a firm believer of that dichotomy, or the informed/uninformed, or smart money, however you call the model. The fact that there are traders out there that can be manipulating or tricking others into taking the other side of the market, thus the why retail traders are wrong most of the time. Every bit of evidence seems to point in that direction, in my opinion.
I guess Darkstar was trying to say that even after retail traders disappear there still will be uninformed traders. Do you think all that trap thing is designed purely for retail crowd? There's still a lot of automated trading going on and it's behavior is pretty much predictable.
  • #403
  • Jan 23, 2011 6:08pm Jan 23, 2011 6:08pm
Quoting Deevz
You think so? I'm a firm believer of that dichotomy, or the informed/uninformed, or smart money, however you call the model. The fact that there are traders out there that can be manipulating or tricking others into taking the other side of the market, thus the why retail traders are wrong most of the time. Every bit of evidence seems to point in that direction, in my opinion.
I'm not trying to imply that there aren't informed and uninformed traders out there. What I'm saying is that the line of demarcation isn't retail/institutional. There are informed traders in retail just as there are uninformed traders in insti, so eliminating retail isn't going to materially alter the distribution of wins and losses.

Remember, to get an institutional account doesnt require some magic trading skills or the passage of some complicated test. If you have the money and the desire, there are plenty of brokers who will set you up an account. Whether you make money or not depends on how you trade, not the type of account you trade with...
  • #404
  • Jan 23, 2011 6:16pm Jan 23, 2011 6:16pm
Quoting Darkstar
Remember, to get an institutional account doesnt require some magic trading skills or the passage of some complicated test. If you have the money and the desire, there are plenty of brokers who will set you up an account. Whether you make money or not depends on how you trade, not the type of account you trade with...
True, there is a highly entertaining book, "Traders, Guns and Money", full of stories about how "sophisticated" institutional investors trading in the hundred of millions were fooled by banks selling them products or bets they didn't understand.
  • #405
  • Jan 23, 2011 6:20pm Jan 23, 2011 6:20pm
Darkstar,

Curious, are you watching price behavior at certain levels, action inside the candle, for your clues to order flow.

regards,
  • #406
  • Jan 23, 2011 6:41pm Jan 23, 2011 6:41pm
@ DS: In order to "deconstruct the logic of participants" you need to know the actions of these participants. Where do you get that info from? IFR?
  • #407
  • Jan 23, 2011 6:43pm Jan 23, 2011 6:43pm
Quoting seagreen
@ DS: In order to "deconstruct the logic of participants" you need to know the actions of these participants. Where do you get that info from? IFR?
IFR, experience, game theory, market sentiment, news and likely responses to news outcomes... etc probably.
  • #408
  • Jan 23, 2011 7:02pm Jan 23, 2011 7:02pm
Quoting Darkstar
I'm not trying to imply that there aren't informed and uninformed traders out there. What I'm saying is that the line of demarcation isn't retail/institutional. There are informed traders in retail just as there are uninformed traders in insti, so eliminating retail isn't going to materially alter the distribution of wins and losses.

Remember, to get an institutional account doesnt require some magic trading skills or the passage of some complicated test. If you have the money and the desire, there are plenty of brokers who will set you up an...
I agree that the frontier is not that between retail and institutional, I actually dont have any opinion on institutional traders. All that I am implying is, wherever that frontier is and whatever form it takes, the vast majority of retail traders are on the wrong side of it.

No disagreements here, all is well .
“Nothing great in the world has ever been accomplished without passion.”
  • #409
  • Jan 23, 2011 7:31pm Jan 23, 2011 7:31pm
Quoting Deevz
All that I am implying is, wherever that frontier is and whatever form it takes, the vast majority of retail traders are on the wrong side of it.
But this is not because retail traders have a magical ability to trade in the wrong direction. Most of them trade randomly (that's why they are called noise traders in micro-structure books). What makes them losers is the fact that the part which traded in the right direction are quick to take the profits, but the other part waits for a retrace, hoping to avoid the loss. Thus winners exit quickly, while losers remain behind. Thus most of the time there are more losers than winners with active positions, but it's not the same losers and winners. They keep rotating, while slowly bleeding their account since their losses are bigger than their winners (as predicted by prospect theory).

This can clearly be seen here: http://www.myfxbook.com/community/outlook (frozen at Friday's levels)

Notice how the average price for long positions is opened at 1.3621 - the longs are underwater. The shorts did no better - the average short position is opened at 1.3175. This situation will repeat itself at all price levels. This is why you can't just do the opposite of what retail traders do to win - it's just the disposition effect.

To win by this approach you need to predict points where retail traders will act, where they will concentrate their positions and you need to take into account if that liquidity is needed by the market. Let's say that there are a ton of stops for EUR/USD under 1.0. It wouldn't matter in the short term. They are way too far away. Liquidity is the fuel of market, not necessarily the target of the market.

There's this 1987 Forex documentary (Billion Dollar Day) where a bank dealer says that because it's a slow day with no news, they will just "play the positions" - meaning hunting the stops.

If fundamental information hits the market, it won't matter where the stops are. The pair will just move to reflect the new information.
  • #410
  • Jan 23, 2011 7:49pm Jan 23, 2011 7:49pm
Quoting Adal
But this is not because retail traders have a magical ability to trade in the wrong direction. Most of them trade randomly (that's why they are called noise traders in micro-structure books). What makes them losers is the fact that the part which traded in the right direction are quick to take the profits, but the other part waits for a retrace, hoping to avoid the loss. Thus winners exit quickly, while losers remain behind. Thus most of the time there are more losers than winners with active positions, but it's not the same losers and winners....
To find where they concentrate their positions one should just be able to look at Oanda's books since retail traders positions seem to correlate between brokers.

But the stops issue is different I would think because do retail traders have similar uncle points? From the data on community outlook it seems that there are drawdowns of 300+ pips so is that information really actionable?
  • #411
  • Jan 23, 2011 7:52pm Jan 23, 2011 7:52pm
In my opinion these fictitious positions from retail traders,who are trading with "bucketshops", don't provide an edge.

Hunters can only profit from weak hands in real markets.
  • #412
  • Jan 23, 2011 7:55pm Jan 23, 2011 7:55pm
Quoting UnnamedPlayr
Hunters can only profit from weak hands in real markets.
Retail traders are the ultimate weak hands in a market... are they not? Usually undercapitalized... usually minimal if 0 experience in investments and trading... usually no formulated plan for trading... usually very little thought about risk.
  • #413
  • Jan 23, 2011 8:03pm Jan 23, 2011 8:03pm
99% from the retail trades stay within the bucketshop and will never be routed to the real interbank market.
Therefore, in my opinion, their positions are nonsense.
  • #414
  • Jan 23, 2011 8:17pm Jan 23, 2011 8:17pm
Quoting UnnamedPlayr
99% from the retail trades stay within the bucketshop and will never be routed to the real interbank market.
Therefore, in my opinion, their positions are nonsense.
Another myth. You have read Reminiscences, but you missed the fine print. At the end of the day the bucket WAS hedged. Back then people didn't know what was the actual price when they placed the order, they were happy if the order was filled somewhere in the range of that day.

The same with the first Forex brokers, when there was very little transparency.

The broker NET bucket HAS to be hedged. Otherwise the broker is at the mercy of the market or unexpected news. Brokers which don't hedge in the interbank market will be quick out of business, because otherwise you imply that they KNOW with 100% accuracy which way the market will go, because retail positions can rarely be squared inside the book.

As an example, at this moment 81% of Oanda traders are long USD/JPY. Since Oanda is a known bucket shop, are you saying that at this moment Oanda is short USD/JPY? That's the only possibility if the retail orders were not passed into the market as you say.
  • #415
  • Jan 23, 2011 8:27pm Jan 23, 2011 8:27pm
I say this:

a bucketshop always trades against it's clients.
Because the most traders are continuously on the wrong side and losing,there is no need to hedge anything.
  • #416
  • Jan 23, 2011 8:32pm Jan 23, 2011 8:32pm
Quoting UnnamedPlayr
I say this:

a bucketshop always trades against it's clients.
Because the most traders are continuously on the wrong side and losing,there is no need to hedge anything.
And how exactly do you know that? It is not some BS that is being perpetuated on the forums, is it?
Stubbornly persistent
  • #417
  • Jan 23, 2011 9:06pm Jan 23, 2011 9:06pm
I don't know.

But i wouldn't do it - only under few exceptions.

I'm here to make money from my clients and letting the clients play against each other.

A quick question: if i'm buying 1 single unit, will Oanda hedge this position immediately on the interbank market?

Don't think so.
  • #418
  • Jan 23, 2011 9:09pm Jan 23, 2011 9:09pm
Quoting UnnamedPlayr
A quick question: if i'm buying 1 single unit, will Oanda hedge this position immediately on the interbank market?
No, of course not. That would be impossible for them to do. They would just hedge their net exposure that would result after matching their clients transactions against each other.
Stubbornly persistent
  • #419
  • Jan 23, 2011 10:07pm Jan 23, 2011 10:07pm
Managing the net exposure from all transcations is another story.
Only Oanda knows.
  • #420
  • Jan 23, 2011 10:26pm Jan 23, 2011 10:26pm
Quoting Adal
Another myth. You have read Reminiscences, but you missed the fine print. At the end of the day the bucket WAS hedged.
Can you point out in Reminiscences where you gather that ?

I read it a couple of time and only remember reading how the bucket owners complained at Livermore that he had taken their money, and why would they ban him if they were hedged ? So I think you got that wrong.
perception is reality
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