Order Flow - Achieving the mindset

Yeah i agree that signals i mentioned will decrease profits also sometimes i may not get the signal altogether to get in a move that i believed would happen.

But i dont think i am there yet to exploit short term OF to get in early in the move and have small stops.I dont know where i am with this OF thing cause i have not even started reading about market micro-structure. I dont know yet if i want to go down that road.

I like the mindset side of it.

I mean i'd like to develop the mindset of an OF trader. I want to process the information and construct tradable scenarios around it. Its pretty repeating what have been said many times before that i want to know what will make people trade in the future. I dont know how much microstructure knowledge i need to do that but i am trying with basic Fundamental/Intermarket/Technical things i already know.

If i can achieve a mindset that enables me to take trades into direction of the overall market order flow than i am comfortable with entering on a Pinbar, Trend line touch or even a RSI 50 line cross knowing that my trade is a winner no matter what tool is used to get in the market. After i can achieve the mindset and trade successfully for sometime than i maybe i will venture into microstrusture stuff to get closer to short term dynamics.
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A few days ago I meet a professional trader from my country by pure coincidence ona social venue. After I found out he is a trader I knew I have to take the oppurtunity to get as much from him as I can...and he was kind enough to answer every Q i had.
He told me he worked for a bank abroad,then in a privete equity firm as a trader and analyst and now he trades from his home,as he is financialy secure and preferes to be home.

I asked him about the orderflow and he said something like this:
You wan't to learn orderflow,just observe the price on tick chart or 1-5 second chart but not at every time and every price level!
The trick is to first find previous S or R level on bigger TF,then you have to know the trading hours of institutional traders. If you observe price on such fast TF's at the right time on these specific supply & demand levels you can see what is going on and you can react much faster.

As we all know big boys need to brake down their positions into peaces,and he said he can usualy detect when the first round of big buying/selling is starting and he jumps on the second wave!

Now this is basicly scalping,but he doesn't close the trade for only 5-6 pips!
He sometimes catches 100+ intraday moves with only 5 pip SL!!! Amaizing!

He said that some guys tend to fade brakeouts on 1H chart and this is very dangerous,because as a retailer you can NEVER know for sure. But for him it is not fading becuse he trades on such small TFs,he already knows where the momentum is going to take the price.

The most important thing he said was TIME & PLACE (of price).
If you got that right you can get away with minimum drawdawn and great reward.
But as I understand fundamentals does not play a part in his methodology. He is only using short term orderflow to take his trade in positive.

I don't know if it's all true or not,but I intend to find out,as I am going to trade with him next week (can't wait)

Is anyone from you OF traders doing something similar?

Tilt, I used to try and do something similar, I didn't call that order flow though, just trying to scalp....

There are some rumours about China holding DNT option 80/85 in UJ.
If that is true, i wonder when does the option expiry and who is the writer.

So I am new to this, but have been reading this thread. I was wondering if anyone could help me with trying to figure out what was happening around 8am GMT in the EUR/USD yesterday. What I have so far is this: the run up to 3950 was some kind of stop hunt or options barrier (though there are none listed) and there were not enough bidders at that level to absorb all the sellers so the price fell precipitously until just ahead of 3900, the first level with buyers because everything else had been cleaned out. These buyers were more numerous that the sellers, maybe fundamental guys trading on the EU meeting? From this point the rise was quite quick through 3950 because again all the orders had been cleaned out. Then London lacks the firepower to push it much above 3980 and who knows what the americans will do when they come n at 1300gmt, so better to wait and hover. The americans come in and the market cycles through again, orders at 3980 kind of thing and then breaks above 4000. Am I on the right track? Thanks

it was a gap that got closed at 3905.

Normally BOJ would be defending 80 level, but who knows how they see the situation now.

but the gap didn't close all the way

Thanks for that Tilt, oanada has very clean (or cleaned) candles on small time frames, from a 30 second chart on thursday at 3:15pm EST I watched the euro drop 25 pips below 1.3800 (seems to be the approx distance that cleans out stops from 00 levels or recent hi/lows) then change it attitude, its hard to describe but when you see it you'll know, price slowly dropping then it stops and moves up a little, has a few wriggles up and down and then starts to get all aggressive.

It's easy to say in hind site but thursday looks to have been a stop run on the bigger time frame guys who were hanging on for the break above 1.4000.

Anyone know when institutional traders work ?

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it did for me. 3904...


about 1-5second charts... - this may just be a personal thing of course, but 5 second charts give me no edge, if anything they shake me out of trades too soon. I have spent months when i started just watching them and trying to work the patterns.

Whatever you prefer... but thats not the order flow trading that is being discussed here.

I have bad news... I'm not going to get the introduction posted today. Its really really close. Maybe 2 or 3 more hours and it will be finished, but my eyes are going to fall out of my head if I spend any more time on it today.

I feel terrible that I couldn't get it done. I know how much everyone is looking forward to it.

On the bright side, I PROMISE it will be done tomorrow.

I just can't wait for the book. Some of the great posts from you besides all the stop hunting and order flow stuff is your posts on risk calculations, system expectancy and what not... I hope thats in there... more on how to do it with discretionary methods of these sorts.

Nice to hear that. Is that warm feeling down in my stomach called excitement?

Take as long as you need and do it right.

Thanks for letting us know, I wasn't going to go to sleep until I read the intro. Now I can.

Take your time man. I greatly appreciate your effort. Thank you. So excited for tomorrow though lol.

No problem, DS. You don't owe us anything. We're very grateful for everything you've done already. Take a breather, get some rest.

Thanks for the update. I'm looking forward to it when it's ready.

Hey guys,

My latest mental excursion is the product of a foray into Market Logic, grkfx's suggestion of placing our stop losses in areas where they are likely to be rescued by the orders of other participants, and one of Darkstar's old charts where he was trading AUD/USD in anticipation of an interest rate hike, which reminds me very much of the current situation with EUR/USD.

I believe I have found a crucial stepping stone that will allow me to jump from looking at short term set-ups, like gapping regions void of open interest, and gapping stop clusters, to placing trades with a more longer term view, but based on order flow principles. And that component is that of longer term participants, or as Darkstar termed them in his chart illustrating liquidity vacuums, value traders.

It is the presence of these gentle giants, who by their orders, take advantage of mispricings in the market place. I envision a primary scenario which is capable of generating potential order flow, being overtaken, or overshadowed by another one, causing price to diverge from the value it would obtain when the first scenario becomes realized. Price responds to the newer scenario, because the primary goal of the marketplace is to facilitate trade, and the only way trade can be facilitated; the means of providing the impetus for short term paticipants to conduct transactions, is by conforming to sentiment to neutralize/discount the prevalent market theme du jour. Such highlights in my opinion, a mispricing in its simplest form.

Putting myself in the shoes of such participants, seeing price diverge from value, mispricing itself further and further would be a mouth-watering opportunity. When it has moved to a level I deem (as a value trader) to be significantly under/over value, I then enter the market, upsetting the prevalent market conditions.

Thinking of things from this perspective, it becomes possible to observe where these value traders enter, and we can pivot off their presence as they exert their constrictive forces on the market, by entering in a general manner, or use a short-term order flow inefficiency of our choice.

But what if the level at which the value traders enters gets overwhelmed by even more divergent order flow due to divergent market themes du jour? With the primary scenario still in focus, I posit that there will be value traders further and further away, increasing in size and thus impact as successive levels of value trader participation get breached.

I'm thinking there are many ways to deal with this, and I can even see where averaging down may play a part if one is confident in the outcome of the primary scenario, but due to my risk-averse nature (I disagree with averaging down) I propose to simply find low-risk opportunities on a shorter time frame, via our arsenal of inefficiencies, which will allow us to quickly take risk off the table.

The trade-off as opposed to averaging down? In so doing, many of entries may be knocked out, ultimately decreasing our overall profit in the larger scheme of things if things materialize according to our initial analysis. The benefit is that we would be able to limit our losses somewhat if our analysis does not go the way we planned. I'm sure there are many other flavours of management possible, but don't know whether it's within the realm of this thread to go along discussing them.

Please bear with me as it's quite late, and I am not even sure if I sound coherent, but it's not everyday that a concept seems to knock you smack in the middle of forehead, and I like to pen these happenings down.

Of course I would also love to hear further contributions from the ret of you, so I can correct these premises as necessary.

At the end of the day, it feels like the irrationality of the market, and its inherent need to respond to various scenarios different from a primary one, may provide the means to further one's bottomline. How ironic...

Thanks for listening,
xXTrizzleXx

Thats good thinking! Deep thinking and different scenario analysis are very important and you are developing great skills.

Just a few thoughts of mine.

Just as you say a primary scenario is overtaken by a second newer temporary scenario, that second scenario can be overtaken even more temporarily by a third scenario as well. That happens sometimes as well. I don't want to over complicate things, but don't assume the market is rigid and only has a primary and secondary scenario. Every time you do deep thinking and scenario analysis you need to be completely flexible and take into account a lot of different potential options. Yes some may be far fetched, or have a low probability of occurring, but you still keep them in the back of your mind, so that when they do occur, you can take advantage of them, or cut your losses, so you do not take unnecessary losses.

How many people you think had done deep scenario analysis for the Japan earthquake scenario? I guarantee you most traders did not. Maybe even many order flow traders did not do that deep analysis as well. If you do the work, the research, the deep thinking, the thinking about the fundamental value can be affected, how the liquidity situation/distribution will be affected, how stop orders are affected, how other players will adjust their orders to various situations, that is a killer edge.

I also guarantee you many traders will be caught off guard the next time another earthquake/crisis/shock to the market hits, because most human beings forget about things and don't learn their mistakes. That is how it always is and how it always will be. Do the work, develop the right habits, constantly push yourself and join the group of people who take their money.

Value traders are great. They can provide great limit orders to soak up a lot of liquidity and take the brunt of the market's momentum. They can even execute market orders too, if they find prices very attractive.

But even value traders require aggressive order flow from other market participants, or other value traders in order to push prices in their favor. In other words they require other market participants and value traders to be willing to execute market orders further and further away from your entry price. They need to be willing to accept worse and worse pricing, or something else to cause them to be gladly willing to accept those prices.

As for what happens if the level at which the value traders get overwhelmed. Well value traders sometimes can scale in. If they have a massive position to put on, they prefer to scale in (unless something else makes them do it in a hurry), or even if they have a mediocre position , due to the nature of their trades and them willing to potentially absorb many hundred pip drawdowns, they can scale in with those as well.

That is where the value traders would be smart to use the intra day inefficiencies to time their trades better. Although many of them do not, people are just not that efficient.

The first and foremost risk control measure is not the placing of the stop losses in areas where they will be rescued. The best risk control measure (besides not placing a trade) is to ensure that your entry is as close as possible to the high/low that you are trying to catch. You try to make sure that once you get your entry that there will be massive order flow, so that your stop loss is never threatened, and that it would be crazy and suicidal for other market participants to try to take them out. So you should always be striving for the ideal of catching the high/low to the pip. Yeah, yeah I know it's hard but you should be striving for it as you may develop interesting new strategies and techniques to help you out. That is where placing trades that are impossible to lose come into play.

Obviously not all market highs/lows are the V shaped spike highs/lows. The ideal situation for value traders would be a rounded high/low where the market stays or retests the level on several occasions, providing them ample liquidity to get in a large order. The V shaped spike highs/lows are great too, but they may not be able to get in a large enough order due to the fact that the market may only spend only one day at those exaggerated prices and they cannot get in a big enough order and they do not want to chase the market.

Value traders have pain tolerance points as well, and they do get hit at many different times during the year, where they need to unwind their positions. Sometimes when certain value traders are unwinding their positions, the people providing liquidity to them are the more skilled value traders who are getting in at a better price.

There are just so many different scenarios and possibilities, but you should think about them all! It's information overload in the beginning for sure, but you will eventually figure it out.

GRKFX xXTrizzleXx

Great posts.