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Order Flow - Achieving the mindset

  • #601
  • Mar 10, 2011 5:33pm Mar 10, 2011 5:33pm
Quoting UnnamedPlayr
Yeah the FX is very algo driven.
Everybody who pays attention to market depth (micro view) will notice a lot of noise.
In the cash market happens quite the same.
Hey Unnamedplayr,

I'm very interested in finding out more about how the algos are operating. From most of my research I see that they are executing a lot of orders these days so to have a strategy built up around trading them would be very handy.

In doing the detective work I would say that the best way to find them is by checking for footprints along there benchmarks on different time frames and seeing if there is any response by price being near them to ascertain if orders are being executed there or not. This would probably be sub 5 mins as the algos are also working to reduce market impact. Now I do understand that these levels are also dynamic.

With TWAP I think that if we were to see swing points being made at regular time intervals then we could maybe join them. However the algo would have had to put maybe 2-3 orders into the market before this could be recognized. This would also being based on the fact that the IOC orders being executed would leave some kind of trail.

With regard to VWAP is this calculated on a per trade basis i.e The VWAP starts being calculated as the orders are executed? So for this we would need to have an idea of the market volume being traded to ascertain our vwap calculation. This one thing I'm really not certain about.

These are two of the most well known benchmarks from what I've found are there anymore that would be important?

What I see being difficult is to track the IOC orders especially if the algo is also only trading position sizes relative to current liquidity to reduce market impact. When looking at the EURUSD a few days ago I did notice this little curve glaring at me and when I measured it with time and price there was small relationships between the time between the swing lows and also the distance the market moved? To me it just looked a little to non random and especially with it being on the 1 min chart. Was this maybe because I'd had my drink spiked??? Heres the link to the chart as I know that Carnegie wanted to keep this thread chart free.

http://img263.imageshack.us/i/timewe...eragepric.gif/

I'd be interested to hear a few opinions on this.

Darkstar: Thank you for your words of encouragement its people like you and the other guys helping us out that keeps us on track if not this thread would probably be dead in the water by now.

All the best folks.

James.

PS Maybe we need to start looking for these patterns on the chart.
Attached Image
  • #602
  • Mar 11, 2011 2:56am Mar 11, 2011 2:56am
random post by me again.

To become an order flow trader you need to stop spending time on the things that will not or almost never will generate sufficient order flow to move price and start spending time on the things that can generate order flow and move price and give you an edge.

You need to have a good reason, rooted in sufficient order flow for your trade to be successful. You need to have a good reason for the positive expectancy of your system. You need to have a very good reason for placing a good trade. You need to have a very good reason for believing that the market will move after you establish your position.

After all you are going up against some other good traders that may have executed trades a few pips before you. What makes you think that your trade is at the right time? What is the reason for your trade being successful?

I wish I could just place great trades without having done the necessary work to determine if there will be sufficient order flow that will come into the market. I wish I could just spend 5 minutes a month, wave my magic order flow wand and come up with these killer order flow trades.

Unfortunately you need to put in the order flow work to catch the killer trades. Now it does get much easier over time, but there is still some work involved.

So whats your reason?

/end of random post
Private message me for a link to my order flow website.
  • #603
  • Mar 11, 2011 4:06am Mar 11, 2011 4:06am
Quoting grkfx
random post by me again.

To become an order flow trader you need to stop spending time on the things that will not or almost never will generate sufficient order flow to move price and start spending time on the things that can generate order flow and move price and give you an edge.

You need to have a good reason, rooted in sufficient order flow for your trade to be successful....
Your rants always help to put the focus back on the main methodology of order flow trading... what will generate order flow... future orders that push you into profit, and finding the reasons behind them.

This takes a lot of hard work and I completely understand why DS has said a long time ago that you have to start from the bottom and build the foundation... understanding market structure and micro-structure and the basics behind the price change, and build from there.

Happy hunting players....
  • #604
  • Mar 11, 2011 5:00am Mar 11, 2011 5:00am
Quoting relyt
There are several possibilities:

1. The option will expire before price gets back near that level
2. Price gets back near that level and the option writer (with help from stop hunters) successfully takes out the level
2a. The stops above the level are larger than the positions of the hunters liquidating into them, which causes price to raise even higher
2b. The stops above the level are smaller than the positions of the hunters liquidating into them, which causes price to drop back down
2c. The stops above the level are pretty much equal...
Relyt, I wrestled with the same for years before this came together with a whole lot of other stuff in a fairly monumental way. Right before DS's book comes out, effin typical . Why wrestle? Because the probability of a barrier breaking is roughly... 50%. But if you know the why, it becomes beautifully clear. Try:
a) Recognising the attack and piggybacking into barriers is probably the easiest. You recognise it because you're seeing unnaturally strong buying/selling in areas that jar with normal play.
b) Playing the wider picture is the other. Barriers are there as liquidity magnets - a sponge if you like to draw in people to go long .... because you, the bigger player is going short. Knowing this, you look out for wider reversals (think days/weeks).

Like with every single play, within the context of orders everything makes a hell of a difference. For eg - no longer are you looking at the breakout beneath support and resistance. You're looking at breakouts at areas that are simply not obvious unless you're thinking in the context of orders. For limits, you're recognising the bigger money flows and positioning yourself in the stops (liquidity) in the appropriate direction.

Re your options above, what I would change is control. The options you presented are passive: you say if X>Y, then this will happen. Whereas in reality the outcome is most likely known in advance. There are players with pockets deep enough that if they decide the market is going down - it IS going down. Due to size, it may take a few hundred pip barriers to unwind and reverse, but this is what's actually happening. So you're looking out for demand/supply that's manipulated rather that natural ebb and wane of daily play.

And do they get it wrong? Of course - but then knowing that X is short and hurting will also impact PA: support turned resistance? It's most likely an entry point gone sour, and looking for an opportune moment to escape. In many respects, these players act exactly like we all do - once you know you're in a bad position the place you want to get out is at break even.

And what's been mind boggling for me, this isn't just FX. This is how every market works since the dawn of time. Every time you zoom out a timescale, you see different examples. Sure FX has certain intricacies and drivers and events but it's the same shit played out everywhere. If you're large and you need to unwind, you need to draw people in. If you're lucky, that's going to happen naturally with a million and one retail punters all deciding to buy the runaway stock (gold anyone?) - and your work is done. Sell into the crowd. If you're not, you have to create that demand yourself by any means necessary.

Zoom out again - investment funds. What's the difference between an investment and a trade? An investment's out the money, and a trade's in the money. Liquidity. Same shit, bigger timescales thats all.

And zoom out again? Boom and bust cycles.

And again? China & US.

I realise some of this is as old as the hills, but for me personally - while I've known a lot of this for years - I only really understood many of the real applications recently. Hat tip to Carnegie BTW - this is the best thread ever on FF.

Back to barriers anyway... .
  • #605
  • Mar 11, 2011 5:32am Mar 11, 2011 5:32am
Quoting triphop
Relyt, I wrestled with the same for years before this came together with a whole lot of other stuff in a fairly monumental way. Right before DS's book comes out, effin typical . Why wrestle? Because the probability of a barrier breaking is roughly... 50%. But if you know the why, it becomes beautifully clear. Try:
a) Recognising the attack and piggybacking into barriers is probably the easiest. You recognise it because you're seeing unnaturally strong buying/selling in areas that jar with normal play.
b) Playing the wider picture is...
Totally agree. BUT let's not run away with the idea that big players always know what's going on themselves and they too are subject to the unpredictable. Its the unpredictable (Japan earthquake for example !) that always has to be factored in. That said, I'm sure with the right insights and experience an edge can be found using order flow. But it sure ain't a matter of 'click and win'.
He was looking for the card so high and wild hed never need to deal another
  • #606
  • Mar 11, 2011 5:36am Mar 11, 2011 5:36am
Yes that are the two most common and there are more.
Institutions also develop their own algos and tweak parameters.
All of them have one in common: seeking for liquidity depending on the urgency (time and/or volume limit).

The problem with footprints and i guess you're pointing to the futures is, that it's still a derivatives market.
There are phases where it's very divergent among them so i wouldn't necessarily take everything for real (in the futures).
On the other side there are times when it's strictly inventory driven and algos don't play a major role.
The levels are dynamic because if you're hiding a buy intention it wouldn't be wise to execute a 800M order at one piece and getting slipped on expensive prices with big market impact.

The t and vwap can be calculated differently: here kicks in the parameter: urgency

Your chart can be an explanation for an inst. drive and how it can look like.

The only problem is: how do you get in front of them.
That's the most difficult part but it's possible.
  • #607
  • Mar 11, 2011 6:13am Mar 11, 2011 6:13am
Quoting dr_who
Totally agree. BUT let's not run away with the idea that big players always know what's going on themselves and they too are subject to the unpredictable. Its the unpredictable (Japan earthquake for example !) that always has to be factored in. That said, I'm sure with the right insights and experience an edge can be found using order flow. But it sure ain't a matter of 'click and win'.
Sure, I agree with that and that's the whole point - they're not clicking and winning. They're clicking and getting into/out of position. Winning happens when they unwind their position. Intraday, you're just hitching a ride on this process of the specs ebb and flow. And if you go even smaller TFs, you can do the same on the ride of the dealer flow.

That really is the true beauty of retail trading. The edge you lose by not being big enough to swing the market is compensated by the fact you jump in and out of position without anyone so much as blinking.
  • #608
  • Mar 11, 2011 6:31am Mar 11, 2011 6:31am
So.... Japan rocked by the biggest earthquake in 140 year yet the USD TANKS against the Yen today

Thoughts?

Perhaps someone took the opportunity to SELL a size they could now obtain at perceived high prices. Does this demonstrate whats going to happen long term on the JPY? Obviously some big buyers in the neighborhood.
Time hides Nothing
  • #609
  • Mar 11, 2011 7:05am Mar 11, 2011 7:05am
Quoting UnnamedPlayr
The only problem is: how do you get in front of them.
That's the most difficult part but it's possible.
Unnamedplayr,

I was actually making the references to spot fx not futures. I'd say that with all these order flow concepts thats the difficult part. I know that the market acts like a liquidity munching monster and I guess the main objective of an order flow trader is identifying these areas so we can have our order in ready.

Going slightly off subject to Market Profile I know that the areas where price hangs around for longer than normal can be considered as high volume areas. Dalton describes them as an area where the cost of doing business is cheaper than elsewhere as theres a lot of people willing to do business there. Now I almost look at these areas as accumulation/distribution. When comparing volumes these areas certainly have a lot of transactions. So I'm starting to look at these almost as Bus stops for liquidity, where the major players can do business for cheaper. They also tend to have a certain magnetism for price which could also explain the search for liquidity. I hate referring to charts but from what I can see markets always move from states of balance/imbalance and these are certainly very visible.

Whats strange is that most traditional TA does not pay any respect to these areas rather its more swing highs and lows, but if i am correct in my interpretation they are highly relevant.

What do you think guys?
  • #610
  • Mar 11, 2011 7:58am Mar 11, 2011 7:58am
Quoting dragan53
how can u see the fx order book
if the market is not centralised

im looking at euro futures orderbooks,theres more buyers then sellers ,and the market still tanked 20p,on german balance 11b
theres too many things affecting the price of currency,
and we cant see the big guys orders,only retail ones,and as darkastar mentioned retail orderbook is not true orderbook


as medici mentioned,u need to have someone in big dealers and hedge funds to tell u wats goin on,but sometimes u cant even trust them

i would say if anyone wants to trade with full...

1st to Darkstar's comment, he's correct as closed end systems are not true orderbooks, they are visible, but not true to the sense as they are only what the broker wants you to see. If your using any sort of retail firm that calls themselves an ECN chances are your being told a bunch of bull sheet! MBT is notorious for BS.

As far as a true OrderBook for FX it must aggregate the institutional ECN's that your broker connects to. Currenex, Hotspot, Lava, EBS, Reuters etc etc etc and provide a low latency feed of a 'scrubbed' but raw data feed. This is how global liquidity can be analyzed and a full OrderBook be presented.

I contributed to an article in Jan 2010 issue of E-Forex on Direct Market Access. In this print magazine article I spoke of our proprietary arbitrage software and the need for market transparency to evolve. Technology has now developed sufficiently to present true market transparency to everyone who wants it, regardless of their trading account size. So the task was to use DMA and aggregate total liquidity flows into one centralized view just as our multi currency arbitrage and market making software did. We've done that, and now seeing the benefits of true market transparency are rather fruitful.

As far as liquidity imbalances.. first of all futures lag to cash market, just as most of the ECN's bounce around the trading activity in EURUSD/EBS. Market Makers task is to take their incoming orders and balance inentories. You will do much better on price runs trading more contrarian, and on cycle reversals trading on sentiment. Watch activity in book for new order placement and clusters for pockets of liquidity on price runs that are ready to reverse.
  • #611
  • Mar 11, 2011 8:10am Mar 11, 2011 8:10am
Hey guys,

How are you all? I see you've been busy and so have I. Hope everything is working out for all of you.

I don't want to be disrepsectful as you all know I respect all of you very much but after 40 or so pages the discussion about the order book should be closed. Think about what is happening behind the chart and how you think it will affect this FX order book that none of us will ever get our hands on.
Not that I am trying to sounds as if I know everything.. it's just that I think that way and it helped me come to my first conclusion about why order flow is ORDER flow.

Nice to see you guys working on it, hope it's going well for all of you!
Anyway, just wanted to say hi to you guys as I have nowhere to go in between studying trading and eating shit in school..
Take care guys and have a great weekend
  • #612
  • Edited 8:29am Mar 11, 2011 8:11am | Edited 8:29am
Quoting CindyXXXX
So.... Japan rocked by the biggest earthquake in 140 year yet the USD TANKS against the Yen today

Thoughts?

Perhaps someone took the opportunity to SELL a size they could now obtain at perceived high prices. Does this demonstrate whats going to happen long term on the JPY? Obviously some big buyers in the neighborhood.
Whats interesting is the flow pattern USD/JPY made the first 2 hours after the quake hit.
  • #613
  • Mar 11, 2011 9:01am Mar 11, 2011 9:01am
Quoting EmeraldEyes
Whats interesting is the flow pattern USD/JPY made the first 2 hours after the quake hit.
well, all the companies that work in Japan will have to buy yen to do the business repairs for what is happening there. So it kinda makes sense, right?
A woman drove me to drink, and I forgot to thank her
  • #614
  • Mar 11, 2011 9:09am Mar 11, 2011 9:09am
Quoting simpleguy
well, all the companies that work in Japan will have to buy yen to do the business repairs for what is happening there. So it kinda makes sense, right?
No because (assumingly) their money is already in Yen so there's no Exchange necessary.
Time hides Nothing
  • #615
  • Mar 11, 2011 9:10am Mar 11, 2011 9:10am
Quoting Rockshore
1st to Darkstar's comment, he's correct as closed end systems are not true orderbooks, they are visible, but not true to the sense as they are only what the broker wants you to see....
For a retail trader, who would you suggest as a broker to satisfy your requirements ?
He was looking for the card so high and wild hed never need to deal another
  • #616
  • Mar 11, 2011 9:12am Mar 11, 2011 9:12am
Quoting CindyXXXX
No because (assumingly) their money is already in Yen so there's no Exchange necessary.
What I was thinking is they have to put a lot more money into the country. I don't know, just a thought on why. I just go with the flow till I can figure this out better.
A woman drove me to drink, and I forgot to thank her
  • #617
  • Mar 11, 2011 9:21am Mar 11, 2011 9:21am
Quoting simpleguy
What I was thinking is they have to put a lot more money into the country. I don't know, just a thought on why. I just go with the flow till I can figure this out better.
I don't know either. Hm so maybe they have to borrow money from somewhere? Like USD maybe, this means they would borrow USD and then convert them into Yen meaning an increase in the supply of YEN and decrease in the supply of USD. This in theory should have the opposite effect of what it did where demand for the USD should have risen and supply of the Yen increase meaning the USD/JPY should have gone up not down in this scenario...

Hm

Maybe another possibility is some sort of defense against the USD/JPY hitting a higher price.

I honestly have no clue but I find it very interesting
Time hides Nothing
  • #618
  • Mar 11, 2011 9:28am Mar 11, 2011 9:28am
http://www.forexlive.com/172588/all/...appen-in-japan

plus a bit from boj manipulation
  • #619
  • Edited 9:43am Mar 11, 2011 9:29am | Edited 9:43am
Quoting dragan53
http://www.forexlive.com/172588/all/...appen-in-japan

plus a bit from boj manipulation
Thanks for the link Dragan

Because Japan is a net-exporter of capital. Money that would otherwise be slated for overseas investment in search of higher yields is suddenly diverted to domestic use. In Addition, Japanese insurers invest large amounts overseas on higher-yielding instruments and are forced to bring those funds home to pay claims. Foreign insurers also have to buy JPY to pay claims.

That clears a few things up, cheers. To find a logical answer in such a seemingly impossible scenario is a great thing. This is my homework for the day lol Dragan did it for me. I think on Monday I will start doing my own.

If you had knowledge of these facts before the quake when it hit and everyone else was trying to sell the yen you could have been on the informed side of that equation.
Time hides Nothing
  • #620
  • Mar 11, 2011 9:44am Mar 11, 2011 9:44am
redbaron1981,

i wasn't referring to market profile.
HVN (liquidity concentration areas) can be "static" reference points but the algo traders don't pay necessarily much attention to them if they're shifting heavily money.
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