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  • #181
  • Feb 5, 2011 7:08pm Feb 5, 2011 7:08pm
Quoting Carnegie
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"?
But there is a cause for the strong move - somebody is buying/selling a lot. You don't need news to move a market, just orders. What you probably want to know is the actors behind the move - informed traders or uninformed traders? You would follow the first kind and fade the other.

Be aware that informed traders can act in different directions at the same time: somebody might be "informed" that over the next 4 hours EUR/USD will rise and it's buying all it can. But another trader can be "informed" that over the next 24 hours EUR/USD will fall, so it's selling all it can. Both will win, but will act differently in this moment.
  • #182
  • Feb 5, 2011 7:15pm Feb 5, 2011 7:15pm
Quoting Adal
But there is a cause for the strong move - somebody is buying/selling a lot. You don't need news to move a market, just orders. What you probably want to know is the actors behind the move - informed traders or uninformed traders? You would follow the first kind and fade the other.

Be aware that informed traders can act in different directions at the same time: somebody might be "informed" that over the next 4 hours EUR/USD will rise and it's buying all it can. But another trader can be "informed" that over the next 24 hours EUR/USD will fall,...
I see what you are saying here Adal and you point out in a better way than I do what I was thinking about.

How do we "know" (once again I say this.. we will never know) if it is informed traders or uninformed traders? Let me show you how I view this and this is obviously 100% wrong but I need to clear my psychological issues as Darkstar says.

Let's say we have a sharp move up from nowhere like 30-40 pips, how do we know if it's informed traders moving the market?
In my mind 100% of the time it would be an informed trader, because no uninformed trader would have that kind of money (this may sound stupid but think about it.. if you're uninformed, that means you are usually uninformed therefore you lose and if you lose you do not have money) so the move will be caused by orders just as you say however, it will be caused by an informed trader.

I am trying to get over some shit I just "assume" in my head that order flow is. I can't get my head around it, hopefully some of you guys will give me some clues as to understanding how informed and uninformed participants react and act.

Take care. btw adal are you in europe?
  • #183
  • Feb 5, 2011 7:29pm Feb 5, 2011 7:29pm
Quoting Carnegie
Let's say we have a sharp move up from nowhere like 30-40 pips, how do we know if it's informed traders moving the market?
In my mind 100% of the time it would be an informed trader, because no uninformed trader would have that kind of money (this may sound stupid but think about it
There is also a lot of randomness in the market. You can't explain every move or know the reasons behind it.

I understand your confusion. While I read a lot about the markets, including about order-flow, I don't know how to use just this knowledge to profit. You need more. You need actual order flow information. I want to see the stops, not guess where they are at.

Maybe it's possible to infer them, but I'm the kind of trader that believes in statistical analysis and quant methods. That's why I'm collecting order flow and positioning information from FXCM, Dukascopy, Oanda, MyFxBook, CFTC or AAII - to analyze and use in systems.

So I can't help you in trading without order-flow information, I don't know what kind of traders are behind a particular move.

Yes, I'm in Europe, where my profile says, you probably asked because it would be late here? What can I say, I work better at night on my trading software
  • #184
  • Feb 5, 2011 7:47pm Feb 5, 2011 7:47pm
I know many of you guys tend to think allot about what you are looking for with order flow mentality and what Darkstar and GRKFX are talking about.
As I said today I have found something that works for ME. I will give you a good example that is extracted from T&E (page 253).

I found this example after the fact that I had my AHA-moment about order flow mentality, but when I read it - I still sat down and thinked about the implications and it came even more obvious for me.
I am sure many of you wonder what Darkstar and Gaston say when they mean that they collect information from outside the chart.. Don't worry, they don't prey to satan, it's allot harder than that

Quoting T&E
The mechanism for subscribing to an initial public stock offering in many Asian countries differs from that in the US. In the US, an investment bank allocates shares in an IPO before the offering. Only people who purchase the shares tender the cash to purchase them.
In Asia, traders who want to participate in an offering deposit the full purchase price with the investment bank before the offering. If the offering is oversubscribed, the bank allocates the shares on a pro rata basis. If the offering is very popular, it may be oversubscribed hundred of times. Huge cash flows therefore may result.
If an Asian offering is very popular among international investors, the local currency may appreciate as investors buy it to tender to the offering. Traders who are aware of this phenomenon will try to predict when an offering will be very popular so that they can bur the currency before it appreciates.
I am sure many of you understand now what I am talking about. The trader who understood that international investors had to buy let's say JPY to buy the shares understood that it will cause order flow.
What did he do? Nothing, he just thaught about the implications.. or WHAT WILL CAUSE OTHERS TO TRADE.
He has now gathered information from off the charts.

Hopefully I got this right and the older guys agree with me on this one, if I am wrong then please tell me so that I will adjust the text.
I would not in my life want to mislead anyone, but when I sat down and thinked hard as hell.. This was the answer I was looking for regarding the mentality and what to get from outside the chart.

Take care guys.
  • #185
  • Feb 5, 2011 7:57pm Feb 5, 2011 7:57pm
Quoting Carnegie
I know many of you guys tend to think allot about what you are looking for with order flow mentality and what Darkstar and GRKFX are talking about.
As I said today I have found something that works for ME. I will give you a good example that is extracted from T&E (page 253).


I would not in my life want to mislead anyone, but when I sat down and thinked hard as hell.. This .
That's definitely good in theory and a great example but in reality is an IPO of one company going to be big enough to move the FOREX market? I find that hard to believe. The logic was spot on though which was the purpose of your post. I like the way you thinked! ahaha
Time hides Nothing
  • #186
  • Feb 5, 2011 8:18pm Feb 5, 2011 8:18pm
Quoting Carnegie
How do we "know" (once again I say this.. we will never know) if it is informed traders or uninformed traders?
How are you defining informed/uninformed traders?
  • #187
  • Feb 5, 2011 10:07pm Feb 5, 2011 10:07pm
Quoting eurotrash
How are you defining informed/uninformed traders?
I would venture a guess that he is defining it as it is in Trading & Exchanges.
  • #188
  • Feb 6, 2011 4:15am Feb 6, 2011 4:15am
Quoting Carnegie
How do we "know" (once again I say this.. we will never know) if it is informed traders or uninformed traders? Let me show you how I view this and this is obviously 100% wrong but I need to clear my psychological issues as Darkstar says.

I would adventure saying that you can "know" but after you will figure out the mechanisms, I'm not saying to predict the next movement but more acting into the NOW moment and feeling the flow.

You know what's happening after a news release the first price print is the uninformed trader reaction of the market and most often wrong, so dealers use this kind of information to take out any weak positions by moving the market against them, so never ever trust the first price.

Dealres are much more than simple order-processors, in an enviroment like FX world without an exchange the rules of the game are often broken, so watch your back because they are looking to take you down on every occasion they have, they are out for your money.

So basically an informed trader act upon an uninformed trader's decision.

The market is not perfectly efficient, and the ineficienty of market apear on the way dealers operate in the market at least on an intraday basis, if you figure this out you are in the money you just need a way to exploit these actions, but you need to put aside a lot of time and efforts.

I'm just speaking from my own perspective and my own observations

all the best!
  • #189
  • Feb 6, 2011 4:29am Feb 6, 2011 4:29am
Quoting Darkstar
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.
This was the first thing I was thinking about. The prisoners dilemma for instance, is about two people and their two choices.
Financial markets have millions and millions of participants and those participants have a billion ways of doing what they want.

Hmm this is something I will have to think about..
Process of prisoners dilemma -> inductive reasoning -> consequences of participant motivations.

As I recall from my period when reading alot of philosophy 'induction' is when you look at several things that are alike and then draw the conclusion that everything is until this conclusion has been defined "wrong". Like a black swan for example.
But how is this induction to be used?

I havent spent much time at it but the first thing that comes to my mind is that we look at different types of participants and think about their "way" of trading and use induction. Say if some group is momentum players then we think about the consequences of their moves.

Or maybe.. we should think on a "bigger" stage so to speak.. If and which type of bias the participants have; Long or Short; and what consequences will THAT have..


Quoting eurotrash
How are you defining informed/uninformed traders?
Hey euro,

Really it's just like jimmy says. I havent reached the point yet where the participants are "mine" so to speak i.e. I define them my own way. It's all from T&E.
Uninformed for me at this stage is retail (I know this is wrong because Darkstar said a couple of posts later that even in retail there are informed and insti. there are uninformed) and uninformed is like.. those who are oblivious to the value. So I would say uninformed are traders like me or atleast where I am now.. as I see it the majority of the TA are uninformed. (Sorry if I said something wrong here, if so, please don't take it the wrong way. I do not want this thread to be a discussion about wether TA works or not)

Now about informed traders.. I don't know why I have been thinking about them as fundamental traders but that might be because T&E always talks about "value". But obviously, there are several other traders than fundamental that have information about value.
I think I need to spend some time on defining this.. thanks for pointing that out euro!

Quoting CindyXXXX
That's definitely good in theory and a great example but in reality is an IPO of one company going to be big enough to move the FOREX market? I find that hard to believe. The logic was spot on though which was the purpose of your post. I like the way you thinked! ahaha
Hey cindy,

Yeah I just took a example off of T&E because I didn't want to make one up on my own.. Still a little scared and don't believe in my own capacity at this stage. Sometimes it feels as if I "know" and sometimes Darkstar/UP/GRKFX/you come out of a cage and show me that I was totally wrong but I'm working on it ya know

PS. Is FX really THAT big? I mean let's say a large ass Japanese company wants to make an IPO. Wouldn't enough international players move the market? We're not talking like 500 pips here but atleast a couple?


When euro asked me about what my defining about uninformed/informed was.. that made me think.
I am moving a little to fast here I think.. It would really be much much easier if we stated right from the beginning what a order flow beginner should start with and move thru that to more advanced topics or I (and others) will be missing out on large pieces.

As I see it; understanding the Order Flow mentality is the FIRST piece of puzzle and in my case that has been solved. Now what should I move to look at? What comes after that?
Darkstar said after stop-hunting was episodic volatility.. but the truth is that I am yet to solve the stop hunting-idea because I cant understand the last "phenomena". And that only means that stop hunting was far away from my understanding of order flow.
We need to start from the basic and understand it all before moving to the harder topics.

What do you guys think one should start with now/look at?

Take care, sorry for the long post
  • #190
  • Feb 6, 2011 4:32am Feb 6, 2011 4:32am
Quoting Adal
There is also a lot of randomness in the market. You can't explain every move or know the reasons behind it.

I would say that market aren't random but only on certain extend we can afirm that there is randomness involved in the way price move, please don't jump at my head right away.

If you bealive in random market than any research or analysis and market timing are just some futile exercises.

I would call this randomness behavior at least in the short run price manipulations that are often appear to traders highly irrational.

"Random" is a word invented by people to describe irrational and unpredictable behaviors. Randomness doesn’t really exist in nature. Every thing can be explained even if we don’t know the explanation for it.

Its true that some phenomenon’s are impossible to explain with the tools we have but it doesn’t make them random.

I think that because of what drives the markets, which is people and not the roll of a dice, predicting them it can be done. Although one could argue that such an amount of different strategies trading the markets can produce a randomness, I will say that people are predictable and the herd phenomenon created by a crowed is even more rule based.

The problem will be with the coming of the automatic trading machines(based on mathematical models). They don’t act as humans and there for harder to predict. When they will significantly out number humans in trading, that’s were troubles will begin.

markets may seem random if you do not know why price is behaving the way it is

I don't want to deviate from the thread purpose but I just want to lay down another view.

all the best!
  • #191
  • Edited 5:03am Feb 6, 2011 4:47am | Edited 5:03am
Quoting Carnegie
Now about informed traders.. I don't know why I have been thinking about them as fundamental traders but that might be because T&E always talks about "value". But obviously, there are several other traders than fundamental that have information about value.
I think I need to spend some time on defining this.. thanks for pointing that out euro!
Correct me if I'm wrong but....

In the end are the words "informed" and "uninformed" misleading?

In my understanding an informed trader is simply one who poses a threat to the dealer by way of exposure through position size not necessarily knowledge. Money makes the markets move not knowledge. A guy who knows the absolute true value but only has enough $ to buy 100,000 euros is brushed aside be the market. No one knows he KNOWS the real value, and it doesn't matter.

but the guy who walks in on a hunch and wages 2 billion Euros obviously knows something, even he he doesn't, the market still moves on his hunch and the dealers aren't going to go against him. So in this example the first guy is truly informed but uninformed by the markets definition and the second guy is truly uninformed but Informed through the markets eyes.

The second guy there is all that matters. The first guy is "informed" by the true sense of the word but insignificant

Now the third guy has seen this gross mis pricing of the dealer and has 1 billion euros himself to wager and so (informed himself by the markets definition) jumps on this opportunity to get the price the market just offered him. The news comes out as he was expecting and he got the trade he wanted at a nice price.
Time hides Nothing
  • #192
  • Feb 6, 2011 5:27am Feb 6, 2011 5:27am
Ok Scotty, now i get your point.

But don't forget an Iceberg order can also be worked manually through refilling the ladder or with inst. benchmarks.

The order isn't really hidden because when a portion has been taken the next "jumps" in.
I don't make there any big difference.
It's only a matter of how you arrange it (on the platform) to hide your intentions.

BTW:
the interbank market consists of different venues now.
Almost all major banks,MM and other big institutions are streaming simultaneously their quotes to them.
A transaction on one venue will instantly affect the other.
  • #193
  • Feb 6, 2011 5:42am Feb 6, 2011 5:42am
Quoting UnnamedPlayr
Ok Scotty, now i get your point.

But don't forget an Iceberg order can also be worked manually through refilling the ladder or with inst. benchmarks.

The order isn't really hidden because when a portion has been taken the next "jumps" in.
I don't make there any big difference.
It's only a matter of how you arrange it (on the platform) to hide your intentions.

BTW:
the interbank market consists of different venues now.
Almost all major banks,MM and other big institutions are streaming simultaneously their quotes to them.
A transaction on...

Hey UnnamedPlayr,

you make a lot of sense at least for me, but the link you provided recently explain even better the process

http://www.automatedtrader.net/artic..._venue-fx-algo.

the reading was very informative.

Ask yourself just one question who do you think owns most of these platforms anyway? So we can say that the same small group of banks control the FX market.

all the best!
  • #194
  • Edited 10:53am Feb 6, 2011 5:53am | Edited 10:53am
If you guys are looking for examples and want to do some detective work and search for yourselves I will give you a clue.

Go look up and read what happened to the GBP/USD on March 1, 2010 and June 1, 2010

Dang my big mouth talking too much again. Time to hibernate for a bit.
Private message me for a link to my order flow website.
  • #195
  • Feb 6, 2011 5:54am Feb 6, 2011 5:54am
Has anyone looked into relationship between UK Gilts and cable moves,10 year TNX and dolar moves?
  • #196
  • Feb 6, 2011 5:56am Feb 6, 2011 5:56am
how about this
rio tinto wants to acquire alcan in 2007,for 38b$,the news travels fast,
and traders get into cad ,lifts the price up
the bank thats gonna exhchcnge the currency usdcad,tries to buy cad at the lowest it can,so usdcad goes down,they wait for tops,
in this example do banks lift the price of usdollar up,so then they can make it look like demand is coming,get buyers to exchnage their offers,plus with rio tinto offers in the package ,price falls,they dumped some usd for cad at higher prices,and profited
but the traders with big cash will be informed about this
so whos really gonna buy big usdcad positions,not many,so less liqidity to exhchange therefore bigger falls and bigger spikes ,

what do u think guys?
  • #197
  • Feb 6, 2011 6:27am Feb 6, 2011 6:27am
Interesting article multiscaling http://iopscience.iop.org/1367-2630/...83021/fulltext
  • #198
  • Edited 8:07am Feb 6, 2011 6:49am | Edited 8:07am
Quoting CindyXXXX

In the end are the words "informed" and "uninformed" misleading?
Think about them as consitent winners and consistent losers not as more knowledgable or less knowledgable. In the end, the more knowledgable will ultimately win but in different situations that is not always the case.

Quoting CindyXXXX
In my understanding an informed trader is simply one who poses a threat to the dealer by way of exposure through position size not necessarily knowledge. Money makes the markets move not knowledge. A guy who knows the absolute true value but only has enough $ to buy 100,000 euros is brushed aside be the market. No one knows he KNOWS the real value, and it doesn't matter.

but the guy who walks in on a hunch and wages 2 billion Euros obviously knows something, even he he doesn't, the market still moves on his hunch and the dealers aren't going...
But doesn't higher level of knowledge ULTIMATELY mean higher amounts of capital ? Example: compare major banks like UBS and Barclays to an average retail trader. Which one do you think is the informed one ? And which one has more capital (on average)?

See, you're talking about an exception here, where consistent losers have more capital than consistent winners in a particular situation. This IS where the mispricing occurs. Yes, in short term the price moves in favor of the uninformed simply because of the supply and demand principle. But if it trades away from the fundamental value of the asset then you can be assured that informed value traders will step in with more than enough capital to push the price into "equilibrium" again.

Moreover, that mispricing can come from different scenarios. For example, a play of option barriers can clearly drive the price out of it's equilibrium cause in it's very nature a barrier hunt has nothing to do with the fundy value of an asset.

Quoting CindyXXXX
The second guy there is all that matters. The first guy is "informed" by the true sense of the word but insignificant
Of course, but if he's uninformed then the more capital it invests in the asset the bigger mispricing he "achieves". Someone once taught me this: "When you know who is creating your setup, knowing where your profit comes from is plainly evident."


Also, it depends how this guy realizes that 2B in the market place. It's 20 000 lots in our language. Do you think it's gonna be a market order ? Think about the trading cost this guy would have when simply throwing in a 20k lot market order (not in commissions of course, but in price terms). What's the available liquidity ? The thinner the liquidity the larger impact that order would have hence the bigger the mispricing will be.
  • #199
  • Feb 6, 2011 6:50am Feb 6, 2011 6:50am
Quoting grkfx
If you guys are looking for examples and want to do some detective work and search for yourselves I will give you a clue.

Go look up and read what happened to the GBP/USD on 3/1/10 and on 6/1/10

Dang my big mouth talking too much again. Time to hibernate for a bit.
Yep you should shut your mouth!!!!! You can bank on that. You're such a big player.
  • #200
  • Feb 6, 2011 7:27am Feb 6, 2011 7:27am
Quoting triger88990
I would say that market aren't random but only on certain extend we can afirm that there is randomness involved in the way price move, please don't jump at my head right away.

If you bealive in random market than any research or analysis and market timing are just some futile exercises.

I would call this randomness behavior at least in the short run price manipulations that are often appear to traders highly irrational.
I said that market contains a lot of randomness, not that it is random

Read what I said here: http://www.forexfactory.com/showpost...88&postcount=8
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