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Order Flow - Achieving the mindset

  • #301
  • Feb 13, 2011 10:04am Feb 13, 2011 10:04am
Quoting grkfx
You never know for sure. You just try to put your stop in place, where it is just beyond the reach of the market. You try to put it in a place where by the time the market reaches there, it has gone through 2-3 different layers/phases of mispricings. If certain market participants think of it as a mispricing they may come and generate order flow, whether market orders or standing limit orders. You just place it at a place where certain market participants would be just salivated at the chance to get in through either market or limit orders.

So...
Hi grkfx, I've really enjoyed your posts here. I wanted to offer a thought based on this post: is the notion of mispricing a creation of the retail forex market? I'm not sure (really don't know) is institutional traders think this way.

Big banks, hedge funds, etc, are always in the market with positions going both ways. If the euro falls 100 pips, they have positions that are in the money by 100 pips, and positions that are down 100 pips. So when the market stalls, they create the stalling process by dumping some of the positive positions and adding positions going the other way. Eventually, the market reverses and their new positions help them "rescue" the negative positions that were left when the market made the initial move.

For these big guys, do they view the market as mispriced, or is their view more related to portfolio positions and balance? I am not sure where we could find information on their thinking about this. But, the concept of mispriced may be all we can use and develop (as retail traders) to approximate what is really going on in the market.
  • #302
  • Feb 13, 2011 10:24am Feb 13, 2011 10:24am
Quoting GEfx
Big banks, hedge funds, etc, are always in the market with positions going both ways. If the euro falls 100 pips, they have positions that are in the money by 100 pips, and positions that are down 100 pips. So when the market stalls, they create the stalling process by dumping some of the positive positions and adding positions going the other way. Eventually, the market reverses and their new positions help them "rescue" the negative positions that were left when the market made the initial move.
You are talking here about stupid retail "hedging". Big banks have people which are smart enough to understand that this is a fools game.

But netting is quite difficult to do in practice, since you can have multiple desks/systems putting on positions. A lot of money was spent in the last years by big banks on internal order-flow crossing technology, so that all the flows are aggregated in a single global order book.

Quote
For these big guys, do they view the market as mispriced, or is their view more related to portfolio positions and balance?
Statistical arbitrage is all about finding mispricings. A lot of participants do this all day long, among other things like HFT which play different games.
  • #303
  • Feb 13, 2011 10:29am Feb 13, 2011 10:29am
Quoting GEfx
So to DS and others who are know much more about this than I do, is it possible to develop an order flow system even with out the order flow data, or is it necessary (required) to marry up TA/PA at some point?
Depends what you mean by data. If your asking can it be done without all the big banks and brokers providing you their orderbooks... the answer is definitly yes. Can it be done without knowing where traders have their orders? No... thats the whole point of the methodology.

How you go about getting it is the question you need to work on. There is an answer; you just need to give it some serious thought.
  • #304
  • Feb 13, 2011 10:33am Feb 13, 2011 10:33am
Quoting GEfx
Hi grkfx, I've really enjoyed your posts here. I wanted to offer a thought based on this post: is the notion of mispricing a creation of the retail forex market? I'm not sure (really don't know) is institutional traders think this way.

Big banks, hedge funds, etc, are always in the market with positions going both ways. If the euro falls 100 pips, they have positions that are in the money by 100 pips, and positions that are down 100 pips. So when the market stalls, they create the stalling process by dumping some of the positive positions and...
Well you can call it mispricing or the stars aligned for you, or whatever you want. It doesn't matter what you call it. The only thing that is important is that it generates order flow and moves prices. Because the only thing that will determine if you profit or not is the order flow and behavior of other market participants that can and will move price.

Big banks and hedge funds always have positions that go both ways? Really? Why would they want to do that? There must be sometimes they think the price should go a certain way and just bet on that. Why the hell would they want to hold positions that are both 100 pip in profit and 100 pip in losses? Now maybe the market makers have inventory that they need to manage, but that would be the big banks only and not the hedge funds.

You seem to make the assumption that somehow the market makers balancing their books and hoping to bail out of trades always causes market movement. Well I don't know too much about that. But they are not the only thing that generates order flow. Sometimes they can play a big role, other times their order flow and liquidity is just a drop in the bucket.

I just focus on things that I can objectively potentially measure.

As for what the big guys view, I just think about their positions, their emotions, their expectations, their potential pain tolerance, their sentiment etc and figure out when they can generate order flow and move price.

Sorry if it wasn't the answer you were looking for, but that's just what is going through my mind.
Private message me for a link to my order flow website.
  • #305
  • Feb 13, 2011 10:34am Feb 13, 2011 10:34am
Quoting Darkstar
Depends what you mean by data. If your asking can it be done without all the big banks and brokers providing you their orderbooks... the answer is definitly yes. Can it be done without knowing where traders have their orders? No... thats the whole point of the methodology.

How you go about getting it is the question you need to work on. There is an answer; you just need to give it some serious thought.
I think two of the easiest ones to figure out are techs and news. Because of techs, certain common patterns might attract orders from that group of persons. News will also bring people to put orders in the market, albeit in which direction it is sometimes hard to figure.

Then there is bank intervention, commercial transactions, option play... and probably a handful of other orderflow generators.
“Nothing great in the world has ever been accomplished without passion.”
  • #306
  • Feb 13, 2011 10:47am Feb 13, 2011 10:47am
Quoting eurotrash
Of course not. If there is such a thing as true/fair value (and there is), then what are deviations from said value?
Thanks eurotrash, I will appreciate your comment. However, if you asked 1000 traders what the fair/true value of the euro is, my guess is you'd get 2000 answers.
  • #307
  • Feb 13, 2011 10:52am Feb 13, 2011 10:52am
Quoting Adal
You are talking here about stupid retail "hedging". Big banks have people which are smart enough to understand that this is a fools game.

But netting is quite difficult to do in practice, since you can have multiple desks/systems putting on positions. A lot of money was spent in the last years by big banks on internal order-flow crossing technology, so that all the flows are aggregated in a single global order book.

Statistical arbitrage is all about finding mispricings. A lot of participants do this all day long, among other things like HFT...
Hi Adal, no I am not talking about retail hedging. I am talking about how large institutional operations actually work. You all should know, that these operations are always holding positions going both ways...always. Understanding this is pretty important to a discussion on order flow, at least in my mind.
  • #308
  • Feb 13, 2011 10:58am Feb 13, 2011 10:58am
Quoting Darkstar
Depends what you mean by data. If your asking can it be done without all the big banks and brokers providing you their orderbooks... the answer is definitly yes. Can it be done without knowing where traders have their orders? No... thats the whole point of the methodology.

How you go about getting it is the question you need to work on. There is an answer; you just need to give it some serious thought.
Thanks Darkstar. My answer is that I use PA and TA to do it, with the awareness of order flow working in the background. It sounds like your approach is a stand-alone order flow approach, is that correct?
  • #309
  • Feb 13, 2011 11:05am Feb 13, 2011 11:05am
Quoting GEfx
Hi Adal, no I am not talking about retail hedging. I am talking about how large institutional operations actually work. You all should know, that these operations are always holding positions going both ways...always. Understanding this is pretty important to a discussion on order flow, at least in my mind.
I think you are confusing them having limit orders in the book on both side with them having positions both ways. In one instrument you can have a single position at any given time - the net position of the previous orders, even if you both sold and bought multiple times. The orders will just average out to give you the true position.

You are probably thinking with a MetaTrader like mentality of multiple opened "positions".

This is a matter of defining the word "position". You are using the retail definition, I'm using the proper definition.
  • #310
  • Feb 13, 2011 11:07am Feb 13, 2011 11:07am
Quoting grkfx
Well you can call it mispricing or the stars aligned for you, or whatever you want. It doesn't matter what you call it. The only thing that is important is that it generates order flow and moves prices. Because the only thing that will determine if you profit or not is the order flow and behavior of other market participants that can and will move price.

Big banks and hedge funds always have positions that go both ways? Really? Why would they want to do that? There must be sometimes they think the price should go a certain way and just bet on...
Thanks I appreciate your thoughts. Yea, I guess it's either a benefit or a curse to understand how large institutions (eg, DB, Citi) manage themselves. Keep in mind that there are very sophisticated methods to manage risk, leverage opportunties, keep the portfolios balanced, etc. But I agree with you about thinking about their positions when trading, except I am not concerned about their emotions or pain tolerance, only that they are managing positions and profit/loss. LOL-I have a hard enough time managing my own emotions let alone worry about someone at DB who's under water on his trades.
  • #311
  • Feb 13, 2011 11:19am Feb 13, 2011 11:19am
Quoting Adal
I think you are confusing them having limit orders in the book on both side with them having positions both ways. In one instrument you can have a single position at any given time - the net position of the previous orders, even if you both sold and bought multiple times. The orders will just average out to give you the true position.

You are probably thinking with a MetaTrader like mentality of multiple opened "positions".

This is a matter of defining the word "position". You are using the retail definition, I'm using the proper definition....
Hi Adal, no I am thinking about how large institutional operations work. Yes, they have open trades going both ways at all times, and the aggregate of these open positions is the institution's exposure. I tend to combine my current retail trading business with my experience with large banks. Sorry if I am confusing you with that, my bad. My only reason for bring this up is that order flow is going to be influenced (at some point) by these institutions squaring up those "left behind" positions. Only in extreme situations will this not occur. It's as predictable as the sun rising, which I think is one of the objectives of order flow analysis, right?
  • #312
  • Feb 13, 2011 11:33am Feb 13, 2011 11:33am
You guys might as well just spell it out. You've already given it all away. -_-
  • #313
  • Feb 13, 2011 11:40am Feb 13, 2011 11:40am
Quoting EmeraldEyes
You guys might as well just spell it out. You've already given it all away. -_-
Great! Now can we concentrate on making the EA...
  • #314
  • Feb 13, 2011 11:49am Feb 13, 2011 11:49am
Quoting Porkpie
Great! Now can we concentrate on making the EA...
That's a good way to look at it. lol
  • #315
  • Feb 13, 2011 12:03pm Feb 13, 2011 12:03pm
It's great that this discussion is taking place to spread some awareness of orderflow. But i'm just hoping that guys who have figured out this order flow methodology would just hold their tongue and not spill everything. Ultimately there's limited profit pool wihtin the retail trader world, the less people that knows about this edge the better....

just my 2 cents.
  • #316
  • Feb 13, 2011 12:22pm Feb 13, 2011 12:22pm
Quoting hilmy83
It's great that this discussion is taking place to spread some awareness of orderflow. But i'm just hoping that guys who have figured out this order flow methodology would just hold their tongue and not spill everything. Ultimately there's limited profit pool wihtin the retail trader world, the less people that knows about this edge the better....

just my 2 cents.
Palatine, IL?
  • #317
  • Feb 13, 2011 12:30pm Feb 13, 2011 12:30pm
Quoting GEfx
Palatine, IL?
yessir
  • #318
  • Feb 13, 2011 1:10pm Feb 13, 2011 1:10pm
Quoting hilmy83
yessir
We're almost neighbors! Send me a PM sometime.
  • #319
  • Feb 13, 2011 7:25pm Feb 13, 2011 7:25pm
Gentleman, I'm right down the street as well in Arlington Heights IL. We should do a fx factory beer. On the right night there are some hot broads at Durty Nellies in Palatine or some other bar right next to it cant remember the name.
  • #320
  • Feb 14, 2011 2:55am Feb 14, 2011 2:55am
i find this interesting the dealers have 80-20 euro short
while instituions and others have 70-30 euro longs
http://www.cftc.gov/dea/options/financial_lof.htm

im wondering,is it possible for cme futures dealers to catch stops in london,
i was reading the trading and exchanges book and they say that some contracts can only be traded in one marketplace,on wikipedia it says nyse and euro exchnages have merged their exchnages and trade electronically with each other
can there be a possibility that cme shorts can effect the price traded in london
becuase right now it looks like to me that dealers are on a stophunting trip
catching longs in london open
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