Order Flow - Achieving the mindset

[quote=Adal;4515920]UBS historical calls (inflection points) below. I'll let you judge how good they are.

2010-07-18: EURUSD 1m 1.20, 3m 1.15
We expect any support the euro receives in the run-up to the release of bank stress test results on July 23 to be short-lived.

Don't much care about the historical. Only interested in the technical.

[quote=Louie;4515977] yea im looking at the technicals.

this part

and I read the market part.

Yes, the technicals are better, but you both mentioned the 3 months projection which is the fundamental section.

The funniest thing is that their technical trend model is most of the times opposite to their fundamental value model.

Unfortunately the technicals are not very profitable after you factor in spread and slippage. I've backtested it with 3 years of information. Of course, maybe I'm not using it right.

no I didn't mention that part, someone else did. all i did was give the link. I find it useful to read through their daily reports with the technicals.

but yea I notice the same.

actually, what you guys are calling the market projection from UBS report.... I thought that too, but it's so off sometimes that i wonder if that's what that even means.

Ok, here is the response I promised you guys.

I will introduce sentiment order flow and fundamental order flow into the equation.

Sentiment - Can provide a bias for a certain period of time.

My experience has taught me there are different types of sentiments. There can be a sentiment that lasts for a really short time, like less than an hour. There can be sentiment that lasts for a few hours towards the whole day. There can be sentiment that lasts for a few days. There can be sentiment that goes strong for a few weeks. There can be sentiment that can last a few months. It can definitely go longer than that as human beings can do anything and be lulled into complacency for long periods of time.

You can definitely have a shorter term sentiment embedded within a longer term time frame for sure.

Sentiment can sometimes be a leading indicator. In other words, depending on how strong the sentiment is it can lead to market orders being executed in the market, thus causing the market to move. Sentiment can sometimes be lagging behind the market and cause a large amount of bargain hunter bids/offers to come into the market at key levels and soak up liquidity. Sentiment can also sometimes converge with price. Meaning sentiment can sometimes be equal with price, so there isn't much sentiment order flow being generated at that specific moment.

Sentiment can definitely sometimes change within seconds. Other times it can be gradual and take minutes, hours, days, or weeks, or months. Now you may say well, you are talking about every single time frame out there. Well yes, when we are talking about order flow, we are talking about human beings and they can be fairly unique and crazy at times, so you need to cover all the situations as anything can potentially happen within seconds.

Fundamental - Is similar to sentiment. But the difference is that fundamental order flow can be more concrete at times. In other words in my experience, it can be a more reliable indicator and order flow generator, as sentiment is sometimes harder to track than the fundamental value.

Can be a leading indicator. In other words, the fundamental value of a currency pair might be 300 pips away lets say, and the market will gradually move towards that value.

Can change in an instant. Fundamental value can change within a split second. Other times it can take minutes, hours, days, weeks, or months. While the fundamental value can change in a split second, that does not mean that all the fundamental order flow was consumed within a split second. It is entirely possible for the fundamental value of a currency pair to have moved lets say 200 pips higher, but only 60 pips of fundamental order flow having been generated. The rest of the fundamental order flow can come in over the next few minutes, hours, days, weeks, months, etc.

Price can sometimes slowly reach the fundamental value, other times it can be violently quick reaching the fundamental value. It can be slow at times as the order flow from the latent orders/fundamentals can be slow to materialize. It can take some market participants a while to correctly interpret all the information and make a decision. So fundamental order flow can be slow to be priced in, other times it can be priced in very quickly. It can be slow to be priced in also because forex is a 24 hour market and therefore the order flow can be slowly spread over the course of the day as different market participants are pricing in different things throughout the course of the day. With stocks it is more visible as there can be huge gaps as the market needs to account for overnight changes in fundamental value, and a lot of it happens at the market open the next day. Stocks don't have time to spread the fundamental order flow pricing in over the course of 24 hours. A lot of it gets done in one shot. That is why forex is so good, because of the inherent inefficiency of a 24 hour market.

Price does not always reach it's fundamental value. Sometimes because of order flow unrelated to fundamental value stops it, or because the fundamental value changed again. Remember fundamental value can sometimes change in a split second.

Sometimes fundamental value has changed, but many market participants are oblivious to it yet, but they can change their minds over the next few minutes, hours, days, etc.

Sometimes fundamental value can converge with price. Yes, that can happen as well.

It is important to assess what the market is focusing on at the given moment. Remember not everyone is going to interpret things in the same way, at at the same time as you do, and it is immensely important you understand that. Every human being is different and interprets thing differently. That is just the way humans are.

Read this post of mine again, it might help: http://www.forexfactory.com/showpost...&postcount=173

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The market can misjudge sentiment/fundamentals constantly and the market participants do not necessarily position themselves correctly.

The market can do anything it wants. It can push a trend/retracement to extremes, past extreme sentiment, to even more extreme levels on different occasions.

Just because the market has moved x number of pips, lets say 1,000 pips doesn't mean it can't move another 1,000 pips even faster than before. The market can do anything it wants as long as the order flow scenario/situation takes place and the liquidity is consumed, the market can do anything it wants.

There is nothing wrong with top and bottom picking. Some people like to do it for large trends, which obviously happen less often. Others like to do top and bottom picking of the retracements inside a major trend, which happen more frequently. Other times it does not matter if your a top and bottom picker, because price is about to breakout from a tight congestion, so there is no real clear top or bottom.

If you really think deeply about the markets over the past few decades, there is usually always a good reason , or series of reasons, or order flow scenarios that caused the huge moves, medium sized moves, small moves of the past. Whether it was in 1978, or 1985, or 1998, or 2011, or boom, or bust, or rangy, or anything. There is a good order flow reason for pretty much everything. There is always a reason why the market moved 30 pips, 50 pips, 100 pips, 500 pips, 1000 pips, 3000 pips, etc. And no it is not because of a moving average crossover or stochastic. If you can isolate the true reasons why the market moved in the past, and more importantly why it will move in the future, then that is a true trading edge, an edge that can persist indefinitely into the future.

I would recommend to people to stop spending time on the things that will not, or almost never will generate enough order flow to move price, and start spending time on the things that actually generate order flow and move price and give you a true edge.

Small moves, medium sized moves, large moves will always occur at various points in the future. Can you figure out what are the order flow generators/scenarios that will cause the market to move?

Rangy markets, false breakout markets, trending markets, super trending markets, etc will always occur at various points in the future. Can you figure out the order flow generators/scenarios that will cause such market conditions to occur?

All of the information is out there for you to collect and interpret. The only barriers that exist are pretty much in your mind. Some are visible, some are invisibile. Some of known, others are unknown. You can go collect information from every single day going back decades for you to find what truly caused the market to move. You can do order flow analysis today to find the real reason why price moved and help you be better prepared for the days ahead. Can you get razor sharp clarity on why the market moved everyday? Definitely not. There is such a thing known as noise, and the market can do some very weird things that catch even the most prepared order flow trader off guard. But the beauty of trading is that you can choose to stay out of the market.

People generally do not suffer from lack of order flow information/examples. the market gives you examples and information every day, going back decades. It is all about if you can properly assimilate the information assign proper meaning and sensitivity, and know when/if to trade, and how to structure the trade properly.

Everyone starts out the day with the same information pretty much. It all depends on how you interpret it, what your mindset is, what your expectations/limitations are, if you know how to properly use the information, depends what meaning you assign it, and what you do with the information.

Yes in the beginning it is very hard as you are learning something new. I am trying to provide some damn good information for you to work with. In the end it is your choice if you want to take action on it, your choice on how to interpret it, your choice on how much short term pain and discomfort you want to tolerate, your choice on what to do with the information. I can't (nor can anybody else) make you an order flow trader. Only you can do that.

Back when I learned, I was putting in 100 hour weeks into order flow trading for about 6 months straight. You need to eat, sleep, and breathe order flow trading within a short time span to make the breakthroughs needed. Generally you will need to work very hard for a short while, and endure through short term pain, in order for medium term and long term success. Some people maybe are gifted and can do it in less time, for others it may take longer. I really don't know if I could of become an order flow trader with just 10 hours a week. I never wanted to take that chance, so I poured my time, effort and determination into it.

Get out there and place some live trades with very small risk. Get some winners and losers and analyze them. Find out what truly caused the market to move in your favor or against you. Often times many people are placing far lower probability trades / guaranteed losers and they don't know it. Get out there and find the order flow generators. Find out what will cause the market to move. Play out the scenarios in your head.

Apply the knowledge. Find more inspiration to help you along. You need repeated exposure to order flow knowledge, trades, information, examples. Go figure out that next piece, then the next piece, then the next. You generally need to process and then attempt to apply a lot of information as fast as possible. I go through a lot of information each and every day and searching for the 5-10% of the information that really matters, then I can assign proper meaning and sensitivity to it, perform order flow analysis and scenario analysis to prepare me for the next trading day.

I attempted to condense a few years of order flow knowledge/wisdom into one post.

Absorb that for a while. I may post some charts/examples at a later point in the week.

Just as everyone interprets information about the markets differently, so too with everyone reading the above post. Some people may find it very useful, other people completely useless. Others may find value in it only after they have been on the journey for a few years. Everyone is different, thats just the way we are, and the way we will always be.

Thanks man, I really appreciate the time you must put into these posts. They've had a huge influence on me in the past couple of months, and were exactly the kick in the pants I needed (which I had originally hoped to get from DS's book) to continue my progress.

Hey grkfx,

That was an excellent post, and it felt remarkably like a comforting push in the right direction. There have been points in time over the past few months where I have banged my head on the proverbial wall, at what seemed like a dead end, but the human subconscious is a powerful thing. I have found that like you indicated, the initial information overload, is what helped me to overcome those barriers to my progress.


It would pay everyone to firmly internalize this concept, and cement it within their trading persona. There are a plethora of reasons why the market moved, and by identifying these situations/scenarios, they become an arsenal in your order flow toolbox. In the future, it may just happen that the factors needed for the scenario you just happened to play out are slowly beginning to manifest themselves, but because you are cogniscant that these factors are indeed capable of generating orderflow, you allow yourself the ability to position yourself adequately to take advantage of the future orderflow, to secure your position's profitability.


This is precisely why there is no substitute for experience. In my opinion, the nuts and bolts of the order flow mindset have been outlined in the past 2 recent Order Flow Threads, coupled with various insights/nuggets from the posts of experienced practicioners. All one needs to do is immerse oneself in the market and try to get bearings on what is going on. The sooner this process happens, the sooner one begins to notice those little things that enhance the discretionary approach...under these conditions, I should not fade these stops, but under another set of conditions, it can provide me with a good position...Knowing which trades to take, and which ones to skip; which anticipations should be made, and which shouldn't, is a direct product of one's experience.

To this avail, I have spent less time posting and more time observing the markets, and with each passing day, I learn something new.

I am thankful that I was able to inculcate this approach from early on in my trading experience, for I shudder to think of the valuable years which go by, where people approach the market day-in, day-out, fixated with things that do not generate order flow. Think of all the years wasted, where they could have been gathering invaluable order flow generators and scenarios to add to their toolboxes!

There are a few more things I wanted to address.

@redbaron, that is a nice diagram you have taken the time to present, but like grkfx has mentioned, sentiment is not as rigid as a trend line. The best way I can describe it, is as a curve of constantly changing first derivative (slope), depending on what's going on in the market presently. Sometimes it will be smooth, and at other times it may jump sharply - sometimes it may even be flat for brief periods. By virtue of the market's need to facilitate trade, price in the short-term will seek to discount short-term sentiment, and may appreciably lag, or diverge with longer-term sentiment. The key to note is that there is not just one short-term sentiment, or one longer-term sentiment, but there may be several, all superimposed on the market to produce the observed price action.

I also commend the fact that you are creating new ideas which fit your trading style, for this is the creative skill which will allow you to generate possible scenarios of how order flow generators can play out. Once you have this skill, obtaining new ones simply becomes a function of time and experience. Some of the concepts which have been presented, I initially took them, dissected them, and built them back with my own understanding; in a way that resonates with me, and the shocking thing is that they are quite different, but both logically sound. I guess it's just that different people have different reasons that suit them better for explaining what's going.

Finally, knowing what's happening in the big scheme of things, allows one to more efficiently assess what effect these scenarios will have on price. For example, today we got some relatively high NFP numbers - slightly better than expected, coupled with a slight drop in unemployment. The US economy in recent months has been picking up. This data seems dollar positive, and should have a negative effect on EUR/USD, which it did - in the short term. However, we saw the pair resume its previous levels and rally higher shortly afterward. If you had been paying attention to this pair in the last few months, it would make sense why what the majority of uninformed traders perceived as a good opportunity to go short, was translated to a bargain opportunity for value traders. It is up to you determine which side of the liquidity exchange you want to be on. Perhaps you can play both sides if you are so inclined.

@grkfx,
That post you highlighted was a real kicker for me! What I gleaned from it the most, was when you asked us how do we determine the fundamental value of a currency, and how can we ascertain when and whether that value changes. It helped me somewhat to stop looking at it in terms of a number and more in terms of concepts. Once one is aware of this, it becomes possible to assign factors which will change the fundamental value, and here objectively measureable criteria can help.

I share many of the same insights as you grkfx, but where we differ is how we execute trades. You advocate picking tops and bottoms, whereas I only advocate the former for hygienic reasons. To each his own.

There are a few more things I would like to address, but at the expense of making this post a winding ramble, I will save them for later. This will be my last post until May for my exams begin now, and I will not have as much time to devote around here. But you can be sure that I will still have my order flow sensors on, observing what is transpiring in the markets each day.

I wish you all good luck,
xXTrizzleXx

As a side-note, ScottyB, I was not an avid fan of commodities for no apparent reason, and would like to thank you for the heads-up on Gold!

I'm of the opinion that the end of QE is bringing a close to the wonderful chapter that was Gold, and that interest rate hikes in the US will be the pin that pops the bubble. I heard of the gold ATM machines, but when Alpari starts offering gold-denominated accounts, something has to give way, and soon! However, I would love to hear other suggestions from different points of view!

Ok, that was the real last post!

Thanks for sharing that. I too get inspiration on here from OF guys who have been doing it awhile. Makes me want to work that much harder.

The Forex spot market is definitely inefficient. If it weren't, price would revert back to fundamental value much more quickly than it does. A big part of the problem is determining what fundamental value really is. It is an exceedingly difficult thing to do and might only be done in hindsite IMHO. And even if one could determine it quite accurately, being able to trade it is another story. Like you said, it may take months before the market gets price back to fundamental value.

Market sentiment may be a much more valuable option to both determine and to trade.

Whales are marvelous creatures the biggest animals in the sea, and the largest mammals in the world, these fascinating warm blooded creatures roam around sometimes in packs sometimes on their own, feeding off plankton, ironically one of the smallest creatures in the sea. Unaffected by the raging currents, the world is their oyster and they need not grow teeth as their plankton supplies are in such large numbers that they quietly glide along and live happily on the plankton. They mess with no man (creature) and no man messes with them. They simply ARE and perhaps the closest link to prehistoric lifeforms there is. In saying that, Whales are perhaps where its all began, they exist to exist, and without them there would be no ocean.

Sharks don't fk with whales they are instinctive creatures using their sonar to detect unfortunate prey, sharks sometimes even attack other sharks, these creatures are merciless animals who attack on site and even take bites out of potential prey just to test if this is a worthy dinner. Make no mistake when the sharks are about there WILL be blood. Sharks have even been known to feed off their own kind although a shark will be reluctant to fk with another shark becasue there are so many more easy targets in the sea, there is usually no need for a shark to risk its own life when there is no need.

School fish are just that... They swim in numbers and follow the current, this is only natural as its what all the other school fish are doing. In numbers they are strong, but on the other side they are easily spotted and their movements predictable. These fish follow the same paths they have for years, migrating south then North wherever the sea takes them they roam and they breed faster than they are eaten, so although an individual school fish stands no chance against an impending attack by a shark, their species will continue as strength in numbers ensures that they will always be in plentiful supply.

School fish are plentiful, sharks not so much, natures balance has kept it this way. If sharks were too plentiful then there would be no school fish left to feed on and sharks would have to turn on themselves, basically extincting their own kind and having devastating effects on the rest of the food chain. To make a long story short without sharks to keep the school fish numbers in check, their would be too many school fish which in turn (going down and down the chain) there would be no plankton and indirectly the whales would also die.

By this line of thought we can conclude a few interesting things 1) Whales are interesting... 2) Bloodshed is necessary, sharks ensure this and fill this role with unique ferocity. 3) School fish are unwilling participants of a calculated game, but perhaps in their slaughter are the most important link in the chain. they think they are important but for reasons other than the true reason t hat they really are.

With this in mind one may feel reluctant to jump into the sea, and who could blame you... These strange creatures are so unlike land dwelling animals, that to join this food chain one must be simply crazy... But being on the outside looking in we have a unique perspective unlike any other of the players of the sea. Whilst those other animals exist specific instincts, all we need to do is take advantage of their predictable nature and to learn these instincts like as if they were our own, but always remembering they are not.

When the current is flowing North I know a few things, school fish will be swimming in packs to migrate north, Sharks will follow but not to migrate North as the school fish do, sharks will follow North because that's where dinner is. They will wait on the outside and when they are hungry enough they will pounce with precision at the exact right time... THIS I know.

Whales don't care much about this perverse and sadistic game of hunt or be hunted, they simply want to facilitate their own existence are are happily transferring plankton from the sea to their bellies all day long. Whales are special and also know that when the school fish are North, there will be more plankton South, they transfer their weight North to South to West to East accordingly, in order to facilitate their populations and keep their bellies full.

Dogs will hunt, but everybody knows a dog can only swim in the sea in certain conditions and for only a certain length of time. Some dogs can't even swim, some are scared of water. Others learn...For a dog to hunt in the sea he must be careful as this is not his natural environment. To be a dog in the sea is quite unheard of but none the less possible so long as the dog knows what lies beneath. The dog must know his limits and know what is out of his depth. A dog must clean up on scraps of other battles or get in and out before the sharks join his party, after all there is a food chain in place and no matter how full a dogs belly he must always remember the sea is not his environment.


CXXXX

excelent....

Thanks man just felt like tapping something out. Hope no one reads it whilst under the influence of drugs lol

I'm studying medicine, and I can pretty much say that reading Darkstar's posts is like reading a theorical text, some nice and big book where there's a lot of information. grkfx's posts, on the other hand, are like the supervisor surgeon that is telling you what to do during an operation.

I'll tell you, without studying you wouldn't even know what the surgeon is talking about, and without a surgeon telling you how to apply it, you wouldn't know what to do, if not by experience and killing many patients while practicing.

It's up to ourselves, now. We had the chance to study the manuals and we even had the help of an experienced surgeon, and both allowed us to avoid killing 10s of patients without knowing what we are doing exactly; but they cannot do the operations for us, because one day we won't be able to read the manual during an operation, and we won't have an experienced doctor to tell us what to do, we have to take what they taught us and apply it.

Some patients might die for our mistakes, but then one day we will be operating with our eyes closed.


P.S. Don't say it to the patient that you are keeping your eyes closed while operating. The worst thing for a patient is falling asleep anaestethized, while hearing the doctor asking to the nurse "And now what?".

Holy shit! I'm never going under the knife again lol

Just kidding but great analogy there of DS and GRK between a text book and a supervisor its interesting.. They both seem to have completely different mindsets but as you narrow it down it comes back to the same thing. And I guess thats the whole point...

While studying I found out that medicine can be "analogyzed" to many things.
For example, not every surgeon will operate the same way, and not every doctor will give you the same drugs, but the aim is the same, and if they don't know what's the cause of the desease (read: cause of orderflow), they don't know what to do or prescrive you, so they might try things untill they find out that something actually cures the patient, if they even find it (read: Trading Systems forum section).
But even then, it's up to them if they really want to discover WHY that kind of operation or medicine is working.


Oh, and great analogy on your side with sealife.
I'm thinking of making an analogy thread LOL so then I can use them in real life to explain what forex trading actually is xD

Trizzle I gotta say buddy first of all for being 18 in your first year of trading and stumbling onto this orde flow concept... Am I jealous? Noooo ()

But speaking as one of those unfortunates you talk about I gotta say that I don't feel my time was wasted in the slightest. In fact I spent the first 3 years of my trading thing (career? maybe) in front of charts and in that time although net not profitable I picked up a great understanding of how the markets tick. never underestimate experience. They know not what they do, Our praises do, I'm big like easy ya big bamboo... Or something

Secondly don't forget that there are many a traders out there adopting technical or other approaches that still are profitable. Orderflwo is not the only way. I actually had the pleasure of meeting one recently who tried to teach me his method. He's retired now but his sole purpose was momentum based and used some customized indicators to trade.

Long story short... Years wasted with eyes wide open are not necessarily wasted unless one chooses to ignore what they saw.

Respect to Darkstar but he once told me charts were impossible to trade from alone and naturally I believed him and I guess I still do in a way but that's not to say that DS (or I)knows every conceivable way of making money in the market. He has his views and that's fine but IMO to dismiss any notion in the market without is to dismiss trading itself as no one can know FOR SURE whats actually possible and what isn't. People speak English cause that's the language they've been taught and therefore that's the language they understand. Markets are too vast to make assumptions of a broad variety and therefore assumptions about trading them are dangerous.

Just IMO

What up guys?

From Monday I will be trading live on my OANDA account. Just want to feel the psychology and all you know.. Darkstar empathizes allot about it.

What I will be trading is stop hunts and inefficiencies.
Wish me luck (I really hope I blow up the account.. in all seriousness, more to learn )

Take care lads and have a great weekend! I'm preparing for battle!

Good luck dude/ knock em the fk out!

I gotta get off the mic here but it's the most boring Saturday night I've had in a while and I'm home alone on the forum so what can I say...

Just wondering, I know from reading a few of DS's posts that he personally specialized in the USD/JPY (still? I'm not sure)

GRK do you specialize in some specific pair?

When I start to think of specializing in AUD/USD (being an Aussie n all) to learn, this seems to make the mountain that bit smaller and seems like an obvious way to go... But just wondering if anyone else is taking this approach

When you're learning to try and gauge Everything (every pair) seems like quite a load to take on... Who is specialising in what?

Seriously I like the idea of having a Team, whereby everyone specializes in a different currency... the consensus would evaluate the USD (as the major) in the same light but then each individual would go about applying the USD current conditions to their own area (currency).

If I were more advanced I would go about forming a team but I'm a long way from that. When I start applying what I've been learning I think I'll go about forming a team of some kind.

Anyone else trade like this? or specialize? what? why?

Thanks champ!!

I think that is a fucking great idea seriously. If I were you I would definitely specialize in the AUD being a major currency and all.. Try specializing in SEK (Swedish Krona) and paying 50 pips spread, but I would definitely do that if I could! So I really think you should consider AUD, I'm sure you know more of your own country and have the "feel" of it than any of us others do.

I'm specializing in the EURUSD (who isn't..) but that's just because of conveniency (spread etc.) and allot of info/news tends to be directed towards eurusd so yeah.. I think you get the grip.

Take care bud