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Order Flow - Achieving the mindset

  • #161
  • Feb 5, 2011 11:12am Feb 5, 2011 11:12am
Quoting Carnegie
But I have one thing I need to ask and that needs to be clarified.. It feels like news are the only thing that causes order flow (I know in reality it isn't) like interest rates or downgrades from grading-agencies etc.. you know what I mean.

But this would mean that we could only trade like once or twice per month (when big news hit the market) i.e. when it's NFP or the likes. But it's impossible that the order flow mentality is tradable only for news. My mind tells me that I should front run big banks orders and where they probably would trade.....
Order flow happens all the time via the uninformed. Watch price as it deviates from its current percieved value. Stop orders, momentum traders, a trail of orders like porkpie said, ect. Remember that chart DS posted? You're talking about front-running value traders who see when price is too high or low and are stepping in to correct it.
  • #162
  • Feb 5, 2011 11:14am Feb 5, 2011 11:14am
Quoting eurotrash
And yet the markets move even when there's no news... how is a given "move" related to the average perceived value of a currency? Remember that trade (order flow) also occurs for reasons unrelated to fundamental value.
all right there^^
  • #163
  • Feb 5, 2011 12:02pm Feb 5, 2011 12:02pm
Quoting EmeraldEyes
Order flow happens all the time via the uninformed. Watch price as it deviates from its current percieved value. Stop orders, momentum traders, a trail of orders like porkpie said, ect. Remember that chart DS posted? You're talking about front-running value traders who see when price is too high or low and are stepping in to correct it.

So we wait for price to deviate from its current perceived value and get in ahead of the value traders who are going to bring it back?

That opens up all sorts of questions in my mind. Off the top of my head:

How do we know what the perceived value is?
How far away from this perceived value do we wait for price to move before these value traders will bring it back?

To be honest, I feel like I'm moving backwards here (or, at least, I feel like I'm no longer making any progress). I understand the whole "art" thing that Darkstar and grkfx are talking about, and I've done the 3-column exercise that grkfx suggested, but I just still can't work out how to profit off of this. I'm using a simulator to look at prices from the past week, and it seems like each decision I make is exactly opposite of what price eventually does.

For example, when I think price is making a run to take out stops, and then is going to turn, price instead blows through the stops and continues. When I think price is going to blow through stops, it hits the stops and turns around.

Maybe I need to just forget about all of this for a while.
  • #164
  • Edited 12:49pm Feb 5, 2011 12:13pm | Edited 12:49pm
Quoting relyt
So we wait for price to deviate from its current perceived value and get in ahead of the value traders who are going to bring it back?

That opens up all sorts of questions in my mind. Off the top of my head:

How do we know what the perceived value is?
How far away from this perceived value do we wait for price to move before these value traders will bring it back?

To be honest, I feel like I'm moving backwards here (or, at least, I feel like I'm no longer making any progress). I understand the whole "art" thing that Darkstar and grkfx are...
I feel like this is where people go wrong. There's no quick fix and there's no easy answer. You need to open your mind and realize that you will never be able to do what DS does or what GRFX does as just from reading their posts you can see that they are 2 different traders and each have their own understanding of things and how things come together to work for them.

The great thing about these 2 posts

Quoting Darkstar
Yeah, that wasn't the important part. You...
Quoting grkfx
Yes what you guys talk about are information that...
is that everyone will take something different from them. No 2 people would read this the same way and if you think about it that's what its all about.

I feel these two posts are a great metaphor for trading and the markets themselves. I think you need to "become your own man" and stand on your own to feet in the battle field. No one else can do this for you but you and its a liberating thought becasue suddenly the field is an open one and you can finally be a player instead of a pawn.

The difference between DS, GFXR, UPlayer, ADA,L Scotty, Porkpie, In my eyes is that you get a feel that they are Adaptive players rather than RE active, I think theirs a massive hint in that. Just from reading their posts you get the feel that they think differently to others who are trying to be like them. Just how I see it anyway. I'm such a massive fan of those two posts I quoted above something in them sent massive epiphanies off in my head I'm just blown away, without saying very much they actually spoke volumes to me of which i cant describe.
Time hides Nothing
  • #165
  • Feb 5, 2011 12:16pm Feb 5, 2011 12:16pm
in that example I posted, yes. but that's only one of many ways to take advantage of order flow.

eurotrash said it better; average percieved value. think how would we know what the average value of a trading session is?

once price moves 67pips away then pull the trigger. jk your second question is purely discretionary. if the value has changed then it might not come back at all. unless someone can answer differently as I'm still studying.. got a book in my lap and pdfs on the screen right now :nerd:
  • #166
  • Feb 5, 2011 1:29pm Feb 5, 2011 1:29pm
Scotty, i really don't get your point.
Icebergs are common practice in FX trading.

Anyway:
here's an example of an institut. liquidity consumption order:

http://www.automatedtrader.net/artic..._venue-fx-algo
  • #167
  • Feb 5, 2011 1:42pm Feb 5, 2011 1:42pm
Tradin and Exchanges is really helping me look differently at the charts. I really had zero idea why price was moving before I started reading it. But now I think staring at a simulator is not the answer. I think really understanding all the different players and why they trade, and only after getting a grasp on that going back to the chart, is a better approach.

Relyt, I woud highly recommend that book if you have not already read it.
  • #168
  • Feb 5, 2011 1:53pm Feb 5, 2011 1:53pm
Quoting Jimmy Jones
Tradin and Exchanges is really helping me look differently at the charts. I really had zero idea why price was moving before I started reading it. But now I think staring at a simulator is not the answer. I think really understanding all the different players and why they trade, and only after getting a grasp on that going back to the chart, is a better approach.

Relyt, I woud highly recommend that book if you have not already read it.
Absolutely! Now, look up two posts to the link provided by Unnamed. In a market full of algos we need to try and understand how they are being used by the major players.

Thanks to Unnamed for the link - and all his posts!
  • #169
  • Feb 5, 2011 1:56pm Feb 5, 2011 1:56pm
Thanks for the advice guys. I'll go back and re-read those posts by grkfx and DS. I have ordered Trading & Exchanges, it's on the way.
  • #170
  • Feb 5, 2011 2:00pm Feb 5, 2011 2:00pm
Quoting UnnamedPlayr
Scotty, i really don't get your point.
Icebergs are common practice in FX trading.

Anyway:
here's an example of an institut. liquidity consumption order:

http://www.automatedtrader.net/artic..._venue-fx-algo
In the interdealer market, i.e. the interbank market, hidden orders are not permitted. You are showing me example of ECNs, not the interbank market (EBS,Reuters). But sure, in the second tier of the market (ECN's) traders can submit all the hidden orders they want. You should read the paper I uploaded. FXAll is mentioned explicitly, along with those to whom they cater.
  • #171
  • Feb 5, 2011 2:13pm Feb 5, 2011 2:13pm
Quoting Scotty B
In the interdealer market, i.e. the interbank market, hidden orders are not permitted. You are showing me example of ECNs, not the interbank market (EBS,Reuters). But sure, in the second tier of the market (ECN's) traders can submit all the hidden orders they want. You should read the paper I uploaded. FXAll is mentioned explicitly, along with those to whom they cater.
Scotty, the interbank isn't anymore what it used to be - the premier place for finding liquidity.

It's hard to call ECN's second tier these days. Hotspot daily volume is 75% of EBS's one, and growing rapidly. EBS is not built for HFT, Hotspot is, that why it's growing.

http://forexmagnates.com/hotspot-may...er-1-trillion/
http://online.wsj.com/article/BT-CO-...02-713230.html

If DB's algo is present on EBS, FXall, Hotspot, Integral, mediating and arbitraging the liquidity between all these venues, hitting DB on Integral is about the same as hitting it on EBS.

So it doesn't matter if iceberg orders are only allowed in one place. It's the same story with the equity market dark pools. The algos will look for liquidity anywhere, as the UPlayer article from above shows.

BTW, a recent paper found that liquidity on the interbank is also fragmenting - the typical deal size decreased from 3 mil in 2007 to 1.3 mil now.
  • #172
  • Feb 5, 2011 3:05pm Feb 5, 2011 3:05pm
Quoting Adal
...................
BTW, a recent paper found that liquidity on the interbank is also fragmenting - the typical deal size decreased from 3 mil in 2007 to 1.3 mil now.
Hey Adal,

I found very informative your posts, but how do you back up the decrease in the deal size, do you have some statistic on it.

all the best!
  • #173
  • Feb 5, 2011 3:13pm Feb 5, 2011 3:13pm
Quoting Adal

BTW, a recent paper found that liquidity on the interbank is also fragmenting - the typical deal size decreased from 3 mil in 2007 to 1.3 mil now.
This may have something to do with why EBS is now offering fractional pricing.
  • #174
  • Feb 5, 2011 3:26pm Feb 5, 2011 3:26pm
Quoting Carnegie
Hey grkfx thanks for that one, I will try that right now.

But I have one thing I need to ask and that needs to be clarified.. It feels like news are the only thing that causes order flow (I know in reality it isn't) like interest rates or downgrades from grading-agencies etc.. you know what I mean.

But this would mean that we could only trade like once or twice per month (when big news hit the market) i.e. when it's NFP or the likes. But it's impossible that the order flow mentality is tradable only for news. My mind tells me that I should...
Even if you only trade 1-2 times per month. That is fine. When you can potentially make anywhere between 5-100% every time you trade, it doesn't matter if you trade one time a month. Why waste your time placing 30 trades and ending the month barely up 3%? Now some people cannot be that patient, it is up to your personality.

As for figuring it out, it comes with time and experience. Slowly you are able to perceive opportunities and see how the different market participants are interacting, and how the liquidity is, and how the fundamental traders are acting, and how the stops can play a role, and how other traders can play a role, etc.

I could post a trade example, but I won't. There have been order flow examples posted in the past. Go look them up and see what was the thinking behind those trades. Darkstar has probably posted some over the years. I have posted a few last year I believe. You won't be able to gather up all the details, but you should be able to gather up a few. But then again order flow trading is not a big secret. Every time the market makes a 40 pip move, or 100 pip move, or 1,000 pip move, there is probably some good order flow reason for it....
Markets can be irrational, but as long as you can identify why the market is moving whether for rational or irrational reasons as determined by you, then as long as you follow the order flow which will be generated...

As to relyt's question, the exercise was not designed to make huge breakthroughs instantly. That is difficult to do. But if you want you can try the exercise once a month and as long as your order flow mentality is progressing, you may find value in it.
Private message me for a link to my order flow website.
  • #175
  • Feb 5, 2011 3:36pm Feb 5, 2011 3:36pm
Quoting triger88990
Hey Adal,

I found very informative your posts, but how do you back up the decrease in the deal size, do you have some statistic on it.

all the best!
This NY Fed report is not the one I originally read, but it shows the same trend of decreasing deal size - http://www.ny.frb.org/fxc/2010/vol_surv_pr_0410.pdf

Since the survey’s inception in 2004, the average trade size declined steadily from $4.3 million to roughly $1.8 million in October 2008. It has remained near this level in all subsequent surveys.

http://dl.dropbox.com/u/190212/ff/av...trade_size.png

The report I had was EBS specific if I remember correctly, that explains the 1.8 - 1.3 mismatch.

Also notice the 400% increase in the number of deals. Because now we have a lot more algos splitting large orders in many child orders.
  • #176
  • Feb 5, 2011 5:15pm Feb 5, 2011 5:15pm
Quoting grkfx
Even if you only trade 1-2 times per month. That is fine.
Thanks for that post, grkfx, it was very helpful. Especially the part that I quoted above. I think I've been falling into the trap that I should be able to see opportunities more often than that.

After reading that it makes this prior post of yours make a whole lot more sense:

Quoting grkfx
Now in the beginning it can be hit or miss as you may initially think you can do it every second of every day. But eventually when you get good at it, you can become consistent at it, and begin to very very slowly systematize a portion of it, so you can identify such trades, such inefficiencies faster, and with greater frequency.

When you have seen one of those trades, it can light a bulb in your head to search in that direction. Some people forget about it and never search further, don't make that mistake.
When you have actually placed the first live profitable trade with it, your interest grows further.
When you have actually placed a highly leveraged profitable trade, your interest skyrockets. Hopefully this is the point of no return as you realize that what you are doing is the very foundation of the markets and what makes price move.
When you have placed those types of trades consistently for months and months, eventually the process gets ingrained in your subconscious, and it will change your mindset and trading forever.

Eventually you discover that it took you a lot of searching through all the garbage and working out your inner demons to finally get to that point.
You guys have all been very helpful.
  • #177
  • Feb 5, 2011 6:34pm Feb 5, 2011 6:34pm
Quoting grkfx
Even if you only trade 1-2 times per month. That is fine. When you can potentially make anywhere between 5-100% every time you trade, it doesn't matter if you trade one time a month. Why waste your time placing 30 trades and ending the month barely up 3%? Now some people cannot be that patient, it is up to your personality.
I definitely see what you are saying, but I don't think you guys understood what I was referring to, and that was my mistake because I was unclear and chose my words wrong.

Think of it this way: order flow has many ways of viewing it. Some view it by anticipating NEWS to cause order flow and some just fade moves.
What I was talking about was fading moves.. Now the last couple of pages we have only been talking about order flow and news etc.. but nobody has talked about how uninformed trading causes moves that can be faded. That is also a inefficiency right?

This is what I was talking about, now we know by news we can front-run the informed traders. But surely another type of order flow trading should be the inefficiency of uninformed trading and fading them.
Now when I think about fading another thing comes into my mind.. And that is the other book besides T&E, that is a old ass book I borrowed about game theory.
I have a wierd feeling that with fading moves you have to - at some extent, think about game theory (I don't know why I have this feeling) so maybe we should talk a little about that.
I just don't know how to make a prisoners dilemma to a traders dilemma
  • #178
  • Feb 5, 2011 6:48pm Feb 5, 2011 6:48pm
Quoting Carnegie
now we know by news we can front-run the informed traders.
Can you explain this bit more? Informed traders act immediately and decisively, using market orders if they must.

By definition, when you have information that the current price is not correct, you act right away until the inefficiency is corrected. So how can you front-run them unless your a market-maker/predatory-algo seeing/seeking their actual order?

To front-run them you need to know what they are doing. If you know what an informed trader is doing, you are informed yourself. So how do you use the news to determine what informed traders do? If you see a 100 pip move up after the news, maybe that was caused by informed traders. But that information is useless now, you had to buy 100 pips ago to front-run them. But 100 pips ago you didn't knew what they were about to do.
  • #179
  • Feb 5, 2011 6:59pm Feb 5, 2011 6:59pm
Quoting Carnegie
I have a wierd feeling that with fading moves you have to - at some extent, think about game theory (I don't know why I have this feeling) so maybe we should talk a little about that.
I just don't know how to make a prisoners dilemma to a traders dilemma
Funny you would mention that because the section of the book dealing with reading orderflow opens with an extenisve discussion of game theory. However, game theory, as it is traditionally applied, is basically useless for financial market speculators because there are far too many participants acting simultaniously over an infinite number of moves.

The value of game theory is in the process by which games like the prisoners dilemma are solved. It's all about using inductive reasoning to work out the consequences of participant motivations.
  • #180
  • Feb 5, 2011 6:59pm Feb 5, 2011 6:59pm
Quoting Adal
Can you explain this bit more? Informed traders act immediately and decisively, using market orders if they must.

By definition, when you have information that the current price is not correct, you act right away until the inefficiency is corrected. So how can you front-run them unless your a market-maker/predatory-algo seeing/seeking their actual order?

To front-run them you need to know what they are doing. If you know what an informed trader is doing, you are informed yourself. So how do you use the news to determine what informed traders...
Actually I cannot explain this. And that's why a couple of pages ago I wondered what "value" was and Darkstar answered that it was several different things (perceived value, true value etc..) but I wanted the discussion to be pointed more towards other types of inefficiencies also, like a strong move in either direction without any real "news" or anything causing it.. Wouldn't this be "fadeable"?

I see what you are saying and it is true, I am incorrect in the way of writing it. My mistake.. In reality that sentence was not written because I know about the market, it was because I wanted to know more.
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