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Order Flow - Achieving the mindset

  • #521
  • Mar 2, 2011 2:04pm Mar 2, 2011 2:04pm
Quoting Monroe
...

Is it really needed though?
I don't know. Darkstar said you can get some useful info from Level 2/DOM but I have no idea what he was talking about.
  • #522
  • Mar 2, 2011 2:21pm Mar 2, 2011 2:21pm
Quoting seagreen
I don't know. Darkstar said you can get some useful info from Level 2/DOM but I have no idea what he was talking about.
I don't know either...

But from plays he has described, it didn't seem like you did. Maybe he gained some insight from watching it, like after the stops were tripped he saw the transactions going on. But I'm not sure...
  • #523
  • Edited 4:05pm Mar 2, 2011 3:48pm | Edited 4:05pm
My thoughts

Is level 2 Important? I would say it depends on your morals.

I'm looking at using level 2 because after reading so much into Order Flow I can see that TA Rsi Macd Ouija Boards Fibs (I could go on) have absolutely nothing to do with price. I remember reading "Trading in the zone" the story about the analyst and the Trader. The Trader simply picked up the phone and placed an order which proved the analysis wrong. Its orders that count. What I'm looking at is seeing if its possible to monitor how the bids and offers are absorbed, which may expose an imbalance in OF that I can use to trade.

Has anyone here read the book "The art of war" by Sun Tzu?

Quote:
"So it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss.
If you only know yourself, but not your opponent, you may win or may lose.
If you know neither yourself nor your enemy, you will always endanger yourself."

This has made me think about try to think from the mindset of an institutional, and how if I had to place a large spot trade from a client how I would do it. Now if you think about the role of an institutional trader the cheaper he can make the transaction the better. So with this in mind one of first things I would be doing is looking at the current Liquidity of the market. Now if this was in the Asian session I may either think about breaking the trade in to chunks and maybe losing a good average price that the client would like or perhaps even postponing the trade until the London US overlap. I realize that Algos can do this for me but they are also written by humans.

So when we try and minimize the cost of doing business we need to examine the depth of the market as the more slippage we experience the more that it will cost. If the trade is just a swap then I don't think that Market Breadth would be important to us. One of the things I have to do is to try an minimize "Interest" in my activities by limiting impact, as this could also push price against me increasing costs as speculators may see me as "Informed".

Now whilst trying to find someone to take the other side of my order I see that for example there are Limit orders being used as an Options barrier that is due to expire shortly, or maybe a level that is being defended by some large speculators. In Forex we have three main types of orders. We have Market orders Marketable limit orders aka Stop orders and Limit orders. Out of the three types only the Limit orders supply liquidity. Therefore any informed trader looking to trade a large volume will be looking for the Limit orders to demand liquidity from.

As most of us here on Forex Factory don't have a limit order book(If we did we wouldn't be here), then it becomes apparent as Darkstar says that there is away to see it on the chart. Going on the basis that "Stop" orders tend to accelerate trends and "Limit" orders tend to reflect trends then unfortunately as recreational traders will be having to look historically for places where price has made a sharp "U" turns. I'm not 100% certain on this but maybe one of these limit orders were looking for hasn't been fully filled and there is still enough of the liquidity being offered to turn price round again.

To summarize a little from all my ramblings it seems possible that if we know the limitations of these guys handling the market moving orders then we may be able to find the suitable locations of where trades like that may be carried out. Another thought on this is that a participant slinging big bucks not only has to find a way to enter his position but also to exit. Institutional traders have to place orders whereas all of us traders here only have to if we want to!

Have a good one!

  • #524
  • Edited 4:37pm Mar 2, 2011 4:15pm | Edited 4:37pm
Quoting redbaron1981
My thoughts

Is level 2 Important? I would say it depends on your morals.

I'm looking at using level 2 because after reading so much into Order Flow I can see that TA Rsi Macd Ouija Boards Fibs (I could go on) have absolutely nothing to do with price. I remember reading "Trading in the zone" the story about the analyst and the Trader. The Trader simply picked up the phone and placed an order which proved the analysis wrong. Its orders that count. What I'm looking at is seeing if its possible to monitor how the bids and offers are absorbed,...
I like your thinking redbaron. There was a time not too long ago when I first was looking into trading order flow that I, just like you, was thinking about level 2. However, I now think that it's not important, and somewhat useless especially on the OTC spot FX market. I was thinking it could be used somewhat like how stock traders supposedly trade it on an exchange. I then thought, my best bet would be with the two main spot fx "wholesale" ECN's... EBS or Reuters depending on the pairs you actively trade. I no longer think this would help much. I may be wrong of course. If there was anyway to watch the DOM and find any imbalances, the only way to do it would be with HFT algo's because those guys would be all over it. And again, this cost's ALOT of money to get the top feeds from those ECN's... crazy amounts.. the standard EBS feed is not fast enough, you need to pay extra.

Some other things you were talking about I am interested in as well, specifically with barriers... You were saying that they were defended by limit orders, but I also think (especially from what DS originally presented with the stop hunt in the "stating the obvious..." thread, that they were actively defending the strike with market orders.

I also think not only can they find liquidity in limit orders, but also the stops to both buy/sell and to liquidate.

I don't think you have to be staring at the DOM to do this. For instance, you can see the CB levels and you get reports on them, but again this is no guarantee for the future, it all depends on what is going on in the market, things can change. They are in to stabilize their own currencies and diversify reserves. It's also about positioning of the players and what will cause them to get out or get in.. anticipating changes in central bank policy and rates, world events like what is going on in the middle east right now, etc. Why do you think we are in a range up here and not busting out just yet?

EDIT: Maybe when the market goes for a big breakout of some sort watching the DOM could help maybe? I still doubt it, but possible, I don't know... some people claim so, but it's not gonna be with Dukascopy or MB Trading or some retail MM/ECN broker like this...
  • #525
  • Mar 2, 2011 4:34pm Mar 2, 2011 4:34pm
Quoting redbaron1981
We have Market orders Marketable limit orders aka Stop orders and Limit orders.
Just a slight correction of your definitions: marketable limit orders are not stop orders; they are limit orders at a marketable price (e.g. a bid at the best offer price or higher) and therefore not a different type of order from a normal limit, whereas a stop is a "held" market order, i.e. held from execution until the market reaches or trades at the specified price.


Quote
Out of the three types only the Limit orders supply liquidity. Therefore any informed trader looking to trade a large volume will be looking for the Limit orders to demand liquidity from.

Or the trader can use limit orders to be filled by a "pool" of market orders.
  • #526
  • Edited 6:33pm Mar 2, 2011 5:56pm | Edited 6:33pm
Quoting antoine
came across a bit of order flow edutainment for ya on how warren buffet bought silver
http://www.zerohedge.com/article/dee...pulation-redux

although contrary to zerohedge's opinion i think it's just about time to start shorting it now for at least potential down bounces from 35 and 37.
Careful...When rumors of the US raising interest rates start to appear and the fed is done digging their debt hole, then you might have a shot. The metals are going to brutalize a lot of people very quickly when the US recovery germinates and begins to break the soil.

The article you cite mentions the Hunt bros, a perfect model for orderflow and market dynamics. The Hunt brothers cornered the silver market in the early 1980's. They bought bought bought but would not sell. The silver market went parabolic. Cornering a market does not necessarily have to be done by one individual or a few individuals as it is thought of in the sense of a market strategy. A market that has an extremely biased flow does the same thing but en masse, so no individual or group is scrutinized but you get the same effect in the market. Right now there is basically a corner in the metals going on. Everyone is holding their pie in the sky trades, and buying like there will be no tomorrow, pardon the pun. The problem is going to come when all of these "investors" try to realize their gains. Not everyone will be able to sell high. There will be a lucky group that can sell to the last portion of buyers at inflated prices, but when the market realizes there are no more Arnold Schwarzenegger bids to net them out, there will be panic and the metal bubble will burst in Hindenburg fashion. It's only a matter of time. The USA, IMHO will eventually recover. I think we are still about 1.5-2 years away from signs of solid progress. It will be the rumors that signal the end though. Those who can time the market right will be able to take advantage of one of the biggest most obvious market inefficiencies in decades. I think gold will reach between 16-1700 when it peaks, 1500 is too obvious. Alright I'll shut up now.

Jim
  • #527
  • Edited 6:32pm Mar 2, 2011 6:02pm | Edited 6:32pm
One more thing about the Hunt brothers..Mark Andrew Ritchie's book, "God In The Pits" (chicago futures pits), gives a first hand account of the Hunt family silver corner since he stood shoulder to shoulder with them. I highly suggest the book. Him and his brother Joe owned and operated Chicago Research and Trading before they sold it for >200 million in the late 80s/early 90s. Really cool guys.
  • #528
  • Edited 3:46am Mar 3, 2011 3:33am | Edited 3:46am
Quoting Tilt
But how would you know,when the orders of this particular deal would come through.I mean the timing of this? Isn't it to late by the time this sort of thing hits the public?
My rationale is that the institutions cannot execute $5.6 billion just out of the blue, due to liquidity constraints.

It will have to be executed in chunks...look back in your charts...

I'm thus look forward to playing a move down to 1.6250/55 and then anticipate large real money flows come in as this order flow is processed, like has been happening recently. If they do come along, then between the stops and liquidity vacuum created, maybe we will test the session high?

Is this thinking logical?

EDIT: That is of course, assuming they still have GBP to transact. If it dips much below this level, that will be enough to show me that perhaps it's a done deal.
  • #529
  • Mar 3, 2011 8:44pm Mar 3, 2011 8:44pm
Don't post much, but throwing in my two cents. I'd like others to weigh in.

Looking at the EUR/USD it moved up huge on Trichet saying they may raise bank rates as soon as next month. This is not fact it is basically speculation. I see this as a market inefficiency, because everyone over reacted to a "rumor" so I would think the orderflow would be a short back down to 1.385 where proven liquidity is.

What do you guys think?
  • #530
  • Edited 9:38pm Mar 3, 2011 9:19pm | Edited 9:38pm
Volume will be light and liquidity will be thin approaching NFP.
I think there are more players caught short that will cover before
the week-end, than LONGs who will take profits before the week-end.

EUR/USD breaks above 1.4000 with stop-run peaking around 1.4030,
by London close it settles around 1.3980, at US market close right below 1.4000.

...but I am an amateur.

(sorry...it sounds as if this should be in the EUR/USD thread, someone smarter than me
translate this into order flow jargon)
  • #531
  • Edited 12:12pm Mar 4, 2011 4:16am | Edited 12:12pm
Quoting xXTrizzleXx

EDIT: That is of course, assuming they still have GBP to transact. If it dips much below this level, that will be enough to show me that perhaps it's a done deal.
Looks like the Real Money Flows avoided transacting yesterday due to the ECB Press Conference which I believe would have affected market liquidity due to it's importance. However it looks like today they were back on the ball buying GBP. I'm guesstimating but there might still be some more left over to transact in the next week, as I doubt they will continue later today due to NFP coming up, which would affect the liquidity situation.

(Edit: From what I can see, it looks like the amounts have been just about transacted; I'm no longer anticipating those flows into next week)

I'm hoping that I'm not starting a trend that would turn this thread into one based on calls..I was simply trying to see if I could execute an order flow based trade from start-finish. I don't think that's the way this thread was intended to go, and in hindsight it may have been erroneous of me to do, so I'll put the potential trade anticipations off for now..

Hoping we can get more discussion going,

Regards,
xXTrizzleXx
  • #532
  • Mar 7, 2011 4:24am Mar 7, 2011 4:24am
Inserted Video
  • #533
  • Mar 7, 2011 6:20am Mar 7, 2011 6:20am
Here's an interesting article explaining what's going in the ECB and inflation and the problems of the euro one monetary policy fits all.

For the last 5 days in IMHO this is what's been generating order flow for the euro.

http://www.telegraph.co.uk/finance/c...the-teeth.html
  • #534
  • Mar 8, 2011 6:15am Mar 8, 2011 6:15am
Hey Guys I wish I could have posted this pre trade.

Pair: USDCAD

Previous Mentality: Macd MA Cross.

Order Flow Mentality: CMHC Release is forecast to be good for the CAD and as it is a major indicator should move the market by at least 20-30 pips.

Previous Stop Mentality: Previous Swing High

Order Flow Stop: Well above swing high out of reach of stop hunters.

Now for the news skeptics: Enter pre news with a narrow spread. Exit post news when spread narrows again.

Mr Grkfx is this what were looking for?
  • #535
  • Mar 8, 2011 8:41am Mar 8, 2011 8:41am
Quoting redbaron1981
Hey Guys I wish I could have posted this pre trade.

Pair: USDCAD

Previous Mentality: Macd MA Cross.

Order Flow Mentality: CMHC Release is forecast to be good for the CAD and as it is a major indicator should move the market by at least 20-30 pips.

Previous Stop Mentality: Previous Swing High

Order Flow Stop: Well above swing high out of reach of stop hunters.

Now for the news skeptics: Enter pre news with a narrow spread. Exit post news when spread narrows again.

Mr Grkfx is this what were looking for?
What is the CMHC Release?

Other than that, I mean everyone trades order flow differently. I can't and don't catch every move. I am not aware of every type of order flow trade/inefficiency that exists.

Order flow stop well above the swing high out of reach of stop hunters, is all nice and all, just note that it increases your stop size, and can potentially reduce your reward risk ratio. So to tweak it, you can either find a smaller stop location that achieves the same thing, or make sure the trade can make more pips. Or you can choose not to tweak it at all, thats another possibility.

Everyone progresses at their own pace, and with their own unique trade development. If you threw away the MA crossovers, then I would say you are on the better track. Although even order flow trading requires a lot of work and tweaking, both on the system, your own personal psychology and your mindset. I would much rather spend 10,000 hours figuring out order flow stuff and what can actually move the price as opposed to spending time finding the magic technical indicators that will never provide an edge.
Private message me for a link to my order flow website.
  • #536
  • Mar 8, 2011 12:52pm Mar 8, 2011 12:52pm
Inserted Video
  • #537
  • Mar 8, 2011 1:03pm Mar 8, 2011 1:03pm
CMHC is the Canadian mortgage housing corporation.

The reason why I looked at the trade was because it was classed as a market moving economic release.

To be more exact:
"Annualized number of new residential buildings that began construction during the previous month"

Its forecast was in my opinion going to be good for the CAD so I was looking to short the USDCAD. It was nice to see how the release created a "bearish outside bar" on the hourly chart for the pa traders, as for the order flow traders the move was already over and we had already exited our positions. Just goes to show that pa is also lagging.

Now heres one of the reasons I started looking at that type of trade.

http://www.forexfactory.com/showpost...4&postcount=15

Sorry Grkfx I was doing my detective work.

Good Luck,

James.
  • #538
  • Mar 8, 2011 4:05pm Mar 8, 2011 4:05pm
Quoting redbaron1981
CMHC is the Canadian mortgage housing corporation.

The reason why I looked at the trade was because it was classed as a market moving economic release.

To be more exact:
"Annualized number of new residential buildings that began construction during the previous month"

Its forecast was in my opinion going to be good for the CAD so I was looking to short the USDCAD. It was nice to see how the release created a "bearish outside bar" on the hourly chart for the pa traders, as for the order flow traders the move was already over and...
Oh I see. Just say CAD Housing Starts next time, I got confused

Yeah, thats interesting and good detective work. Good to see you realized the price action was lagging. Most people think price action is not lagging and is better than technical indicators. Well thats true price action is better than technical indicators. But order flow is the king always. Order Flow > Price Action > Technical Indicators.

Although I would not necessarily rely on the Forex Factory 'Impact' color to gauge whether it will be market moving. It does a decent job of giving you a broad view of the calendar news releases. I can show examples of where the impact color was on target, but other examples where it was way off. You can get into much deeper and more detailed and more profitable analysis.
Private message me for a link to my order flow website.
  • #539
  • Mar 8, 2011 8:18pm Mar 8, 2011 8:18pm
Quoting grkfx
Order Flow > Price Action > Technical Indicators.
Got any homework for us Grk?
Time hides Nothing
  • #540
  • Mar 9, 2011 4:00am Mar 9, 2011 4:00am
Quoting CindyXXXX
Got any homework for us Grk?
Homework? Is order flow class in session? I thought you skipped yesterday's class?

Well as for homework. The market gives you homework to do every time it makes a 30 pip move, 50 pip move, 100 pip move, 300 pip move, 1000 pip move.

You can do homework every day. You just need to decide that you will dedicate a few hours a day to homework. Then once you decide to do that, you just need to figure out what type of order flow homework you will spend your time on.

The market gives examples every day. It gives homework every day. The market is just begging you to do your homework and figure it out. The market wants you to figure out 'why' it is moving. Then it can grade you on your work. The better you get at figuring out why the market is moving, the higher grade you get, and the more pips that come with it.

In my opinion technical indicator traders have the worst edge of all. They have the worst entries/trades. Then come price action traders who do have some sort of edge, although it is not always present at all the times that they think so. Then come order flow traders, that when done properly always have an edge, usually the greatest edge of them all.

When traders first start, they may load up their charts with technical indicators. Some of them figure out that it is not working for them and they go more towards removing technical indicators and trading with price action stuff. Some people stay there. They may have an edge and they make money and that is cool.

Then there are other people who choose to attain an even greater edge. That of an order flow edge. They continue on the trend of removing things from their chart. Only this time they remove the price bars off the chart, and forget about the chart completely. They learn how to trade without a chart at all. They don't need it because they operate at a completely different level.

Here is an example of three different traders:

1. The order flow trader should always get the best entry
2. The price action trader gets the second best entry
3. The moving average crossover trader gets the worst entry of them all

It is up to you to figure out which trader you want to be. Order flow trader is the best, but it is also the most work.

My big mouth yapping again. Why I am sharing this with you guys I truly don't know.
Attached Image (click to enlarge)
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Private message me for a link to my order flow website.
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