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Order Flow - Achieving the mindset

  • #1,541
  • Edited 11:39am May 6, 2011 11:25am | Edited 11:39am
Quoting lumesh
However (and this is where you surely disagree), you have no REAL basis to support your argument here.
I get what your saying... Yes, there is a fundamental reason for gold to go higher... inflation is rising, governments are acting the fool, the dollar is falling, and (even though there is zero evidence to support the hypothesis) gold is considered a good hedge in that type of environment.

However, that only gets you so far... Right now, gold is priced for an inflation rate in excess of 30% a year for the next 3 years. Even if you 100% agree that inflation is on the rise and that developed world countries are too inept to do anything about it, you have to agree that thats not at all realistic.

But all of this misses the real point that Scotty and Grkfx are making. Regardless of the fundamental justification (or lack there of) for a continued rise in prices, those prices can only rise so far before anyone and everyone who wants to buy becomes fully invested.

Once they are - as was evidenced within the housing market back in 2007/8 - a little bit of profit taking can start a stampede for the exits. Without buyers, those taking profits push prices lower, which trigger stops which push prices lower still. Falling prices induce panic and suddenly you get a stop cascade. Within minutes prices drop 30-50-70%.

After that happens, it dosnt matter what the fundamental picture looks like because too many people will have been burned on the trade. Stories will come out in the news about how foolish people were to value gold that high... the sec/cftc/congress will rail against the evil speculators who fleeced unsuspecting grandmas out of their retirements funds... then they will push some damn fool legislation that makes commodity investing even harder... scores of "we buy gold" shops around the country will go bankrupt (mainly because they were too greedy to hedge their exposures)... and ultimately, gold will return to its historic role as a jewelery metal.

This same pattern has played out hundreds of times throughout history (across a wide range of securities) and will likely play out hundreds more. Many of you haven't been around long enough to have watched the process unfold a few times, so you still assume that a good fundamental driver is all thats needed for prices to run to the moon... but for those who have been around the block, its all to evident what is happening and how it will likely end.

Thats really what scotty's and grkfx's posts were about.
  • #1,542
  • May 6, 2011 11:28am May 6, 2011 11:28am
Quoting lumesh
Hi,


Here's why gold has been rising (fundi reasons):

1) economic slowdown in developed countries that causes stimulative actions
2) expanding debt crisises in developed countries
3) media circus coupled with Austrian school of economic theory conspiracy theorist fueling that bull run with their anti-government statements where they are against ANY bailout or stimulus and how all of that will only lead to a broader disaster.


take care.
People are morons. I can still buy a Coke for $1.00 up the street. The gas station told me to go flour my nuts when I tried paying with some gold dust I had in my pocket. My reasons given for gold crashing and why it's a studpid "investment" still stand. Not very many people will experiance the wonderful profits that protected them from the world ending inflation.

You sound convinced though. You should buy a few hundred contracts. Good luck with that.
  • #1,543
  • May 6, 2011 11:34am May 6, 2011 11:34am
Quoting Darkstar

Regardless of the fundamental justification (or lack there of) for a continued rise in prices, those prices can only rise so far before anyone and everyone who wants to buy becomes fully invested.
I'm just waiting for supermodel Giselle Bundchen to request payment in gold. Then I will sell.
From November 2007:
http://news.bbc.co.uk/2/hi/7078612.stm
  • #1,544
  • May 6, 2011 1:26pm May 6, 2011 1:26pm
Quoting Darkstar
This same pattern has played out hundreds of times throughout history (across a wide range of securities) and will likely play out hundreds more. Many of you haven't been around long enough to have watched the process unfold a few times, so you still assume that a good fundamental driver is all thats needed for prices to run to the moon... but for those who have been around the block, its all to evident what is happening and how it will likely end.

Thats really what scotty's and grkfx's posts were about.
Bingo! I haven't been around long enough...
  • #1,545
  • May 6, 2011 1:40pm May 6, 2011 1:40pm
Quoting Darkstar

But all of this misses the real point that Scotty and Grkfx are making. Regardless of the fundamental justification (or lack there of) for a continued rise in prices, those prices can only rise so far before anyone and everyone who wants to buy becomes fully invested.
So true, can't argue with that. But how do you know the majority of gold speculators is fully invested? As I see it the main players are futures speculators and central banks. Futures open interest peaked in November 2010 when gold hit 1400, so the last spike to 1575 could be the top. But what about central banks, how can you tell they won't buy anymore?
  • #1,546
  • May 6, 2011 2:27pm May 6, 2011 2:27pm
Hiking margin requirements consistently in a market that is saturated with bullish participants also makes it that much easier for a ripple to produce a wave downwards.

Quoting seagreen
So true, can't argue with that. But how do you know the majority of gold speculators is fully invested? As I see it the main players are futures speculators and central banks. Futures open interest peaked in November 2010 when gold hit 1400, so the last spike to 1575 could be the top. But what about central banks, how can you tell they won't buy anymore?
When the populus has been bombarded with information about 'the next best investment strategy' then not long after, one can conclude that in order to not miss the move, a great deal of the investment slated to take place would have been transacted.

Ask yourself what motivation Central Banks have to buy any more. If it's inflation and fear of the USD losing value, then if the end of QE is around the corner, this motivating factor is not so valid anymore. It's all economic cycles - it's not any 'different this time' than it is from previous times.

@ScottyB - you must be sitting pretty on some Gold Shorts - hope things work out in your favour.
  • #1,547
  • May 6, 2011 3:24pm May 6, 2011 3:24pm
Trading is all about order flow and liquidity, no matter which market you trade, whether it is currencies, gold, etc. There is absolutely nothing wrong with playing the greater fool game, so long as you can manage your risk, leverage, know how to place good trades, and know when the trend is going to end.

It is all about if there is liquidity available when you decide to exit your trade and what price did you get. If you are in a profit on a position, and your system tells you to take profits, and there is liquidity, great! That is all that matters.

There is a lot of money to be made in playing trends when they start and before they get into a bubble. There is also a lot of money to be made when the bubble accelerates and the greater fool order flow starts to take hold. There is nothing wrong with playing either of them. There are different order flow generators, and different mindsets, but you can play both. It's all about the order flow and liquidity...

There have been a ton of people who have made so much money on the gold/silver trends and were able to protect their downside with minimal cost and/or know when the market is about to reverse so they can go flat or go short. The amount of money some people have made has been mind boggling. For some people they haven't seen such profits in years.
Private message me for a link to my order flow website.
  • #1,548
  • May 6, 2011 3:30pm May 6, 2011 3:30pm
Quoting xXTrizzleXx
Hiking margin requirements consistently in a market that is saturated with bullish participants also makes it that much easier for a ripple to produce a wave downwards.



When the populus has been bombarded with information about 'the next best investment strategy' then not long after, one can conclude that in order to not miss the move, a great deal of the investment slated to take place would have been transacted.

Ask yourself what motivation Central Banks have to buy any more. If it's inflation and fear of the USD losing value, then if the...
Honestly I haven't seen much "buy gold" commercials in the mainstream media and I don't think there should be. General population does not take a big part in gold speculation anyway. Like I said, it's central banks and futures traders (I might be wrong here, hence why I'm asking). I can see the bubble in the futures market but how big is gold futures market in relation to the whole gold market? You're right about central banks, their main concern is about weakening of the dollar and dollar weakness/strengh totally depends on the Fed policy. Will they end QE2 in June and stay flat? QE3? Rate hike? I don't know. But if I was long gold I'd exit now.
  • #1,549
  • May 6, 2011 6:13pm May 6, 2011 6:13pm
Quoting Scotty B
People are morons. I can still buy a Coke for $1.00 up the street. The gas station told me to go flour my nuts when I tried paying with some gold dust I had in my pocket. My reasons given for gold crashing and why it's a studpid "investment" still stand. Not very many people will experiance the wonderful profits that protected them from the world ending inflation.

You sound convinced though. You should buy a few hundred contracts. Good luck with that.
it's interesting how darkstar gave the answer that you should have. it was clear, concise, made sense, and had no emotions evident behind the post.

but you... you just became butt-hurt that someone had an opposing view and felt threatened and had to puff your chest out. not very constructive dude.
Congratulations ScalaFX for coming out of the closet!
  • #1,550
  • Edited 6:59pm May 6, 2011 6:42pm | Edited 6:59pm
Quoting nubcake
it's interesting how darkstar gave the answer that you should have. it was clear, concise, made sense, and had no emotions evident behind the post.

but you... you just became butt-hurt that someone had an opposing view and felt threatened and had to puff your chest out. not very constructive dude.
To be more clear, I wasn't calling the poster a moron, I was referring to people who spend all their money on gold. Sorry for the offense.

The portion of his post that I originally posted was what I was responding to. I don't think it's a stretch to call people morons who blindly follow "investment advice." No matter what the "fundamental" reasons are, the structure of the market makes what all of these people are trying to do (hedge against inflation) completely counter productive. You are not actually hedged against anything until you are out of the trade with a profit to offset what inflation would have taken. When there is no liquidity, many end up losing their tails plus any inflation costs they were originally trying to avoid.

One thing I've been pondering lately is the direct correlation I see between order flow and inflation. It's all about order flow in the financial markets and the cost's that industry passes on to you and me. IE, order flow in energy sectors inflates most of the things I spend my money on. I'm a simpleton, not an academic, but I was really surprised at how much disagreement there is in the world of economics on the causes of inflation. It's like the Calvinist and Armenian debaters I encountered at my faith based college.

Again, to all, I apologize for coming off as abrasive. For future reference though, don't be surprised by sarcasm/satire you see in my posts.
  • #1,551
  • May 6, 2011 6:45pm May 6, 2011 6:45pm
Quoting Scotty B
To be more clear, I wasn't calling the poster a moron, I was referring to people who spend all their money on gold. Sorry for the offense.
fair nuf. everyone is dumb when they are part of the unknowing herd. someone has to scrub the toilets at the mall.
Congratulations ScalaFX for coming out of the closet!
  • #1,552
  • May 6, 2011 6:58pm May 6, 2011 6:58pm
Quoting nubcake
fair nuf. everyone is dumb when they are part of the unknowing herd. someone has to scrub the toilets at the mall.
I'm tired of scrubbing the FX toilets!
  • #1,553
  • May 6, 2011 7:04pm May 6, 2011 7:04pm
I like dow theory on the three phases of bull market:

1) Accumulation
2) Public Participation
3) Mania

I believe we are still in the early part of the public participation phase of this bull market. With that said there is still lots of upside. Buy the dips and ride until it turns and then you do it all again in reverse. Make that money in both directions.

This blow off in commodities is to shake loose the weak hands and an opportunity to buy at a great price. A healthy market corrects and moves up, corrects and moves up. We haven't even broken the all time highs adjusted for inflation gold: 2200 silver 140.

We'll know who's right when it is all said and done. The guy with the biggest profits wins.

One day gold will be in a mania type bubble, but that day isn't today. I going all in for the big win or the big bust.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #1,554
  • May 6, 2011 7:33pm May 6, 2011 7:33pm
Quoting Jimmy Jones
I'm tired of scrubbing the FX toilets!
i keep forgetting to bring a brush. i have to lick them clean. tasty :/
Congratulations ScalaFX for coming out of the closet!
  • #1,555
  • Edited 9:26am May 7, 2011 9:14am | Edited 9:26am
Quoting mzvega
I apologize for the intrusion on the thread. I have found the subject of order flow fascinating. I have been declining to comment, as I have not read through all the valuable info found in this thread....
Hello Claudia,

As another intruder on this thread, let me try to give my view on that.

AMT provides a framework for reading the market and, yes, order flow. But it doesn't provide an understanding of the actual order flow as that would require some insight into the actual micro-structure of the market.

I hope you forgive me for saying that I believe that some of what goes on in the AMT thread is taking the hopes of what the framework can provide a bit too far. Some seem to hold the belief that by developing expertise in reading market profiles one doesn't have to gain a deeper understanding of the actual specifics of the market.

While it would be convenient if such a simplification were possible, that belief is not unrelated to the hopeful newbie searching for the holy grail indicator that will provide a quick road to riches. Darkstar expressed the view that AMT is another form of TA, which in this simplified form it actually is. But there is no short-cut around learning how markets actually work.

Then there's the added complication that the fx market is more of a dealer market than a pure auction market. For historical reasons the major dealing banks still exert significant influence on what goes on in the market, in particular intra-day and in particular during the London morning.

Still, it is clear that AMT/MP is one of the technical tools used by dealing desks, and the levels it provides, such as Points of Control and Value Area Highs and Lows, are useful to keep track of as potential S/R levels. Also, as you and I have observed, AMT/MP can be useful for setting targets for reversals outside the daily value area.

So, in summary, AMT asks the right questions and provides the conceptual framework, but it doesn't provide any answers to those questions. For that you would have to research the micro-structure of the fx market specifically.

A deeper understanding of markets and market logic doesn't hurt either, as the posts by ScottyB and grkfx on the correction in the commodities markets illustrate. Could have kept some on the AMT thread out of recent €/$ longs

Neither AMT nor any other theory could possibly be the be all and end all of successful trading. Life spills over the rim of every cup.
  • #1,556
  • May 7, 2011 1:12pm May 7, 2011 1:12pm
Can you trade without the chart ?, take for example the eur/usd and the events that happened on thursday and friday and what's going on right now, what made the eur/usd to have such a fall, is it a good buy right now ?

Do you think that the fall is overextended and it was just a result of panic and position squaring, or the "a strong dollar is in the best interest of US and the global economy"

http://www.reuters.com/article/2011/...ness%20News%29

What do you think is going to happen when traders come to their desks on sunday and monday and read what happened over the weekend, will the ACB bids show up again ?

Suddenly you have a lot to think about, a lot of reading to do and set up possible scenarios.

And all of this is outside the chart ....
  • #1,557
  • May 7, 2011 1:38pm May 7, 2011 1:38pm
Quoting Lasker
Can you trade without the chart ?, take for example the eur/usd and the events that happened on thursday and friday and what's going on right now, what made the eur/usd to have such a fall, is it a good buy right now ?

Do you think that the fall is overextended and it was just a result of panic and position squaring, or the "a strong dollar is in the best interest of US and the global economy"

http://www.reuters.com/article/2011/...ness%20News%29

What...
What you see in EU is profit taking. If Greece was booted out the Euro would only strengthen further. Because nothing significant has changed in the relationship between the Euro and the Dollar, I think the Euro will only continue to strengthen. There will be those who enjoy profits at the 1.5 mile marker, but I would not be surprised to see EU @ 1.6 in a few months.
  • #1,558
  • Edited 2:05pm May 7, 2011 1:42pm | Edited 2:05pm
Quoting Lasker
Can you trade without the chart ?, take for example the eur/usd and the events that happened on thursday and friday and what's going on right now, what made the eur/usd to have such a fall, is it a good buy right now ?
Yes you can.

Mainstream media: http://www.google.com/trends?q=dollar+index
Drudge last week: http://twitter.com/DRUDGE/status/63589134844956674
Front page on Drudge this Thursday: http://www.drudgereportarchives.com/...504_161453.htm
Front page on Reddit this Thursday (look at number 5): http://redditsnapshot.sweyla.com/#2011_05_05_00_00

Stuff like this makes it too easy. BTW, there was a thread on this, where I said the same thing: http://www.forexfactory.com/showthread.php?t=278903

I liquidated my EUR/USD longs at 1.4760 average due to the extreme sentiment shown above. The sentiment sources I have at this moment are conflicting (FXCM and Oanda traders are short EUR/USD, Myfxbook is long, public is still dollar bearish) so I am waiting for now. I still think that 1.5 is possible, especially because of Greece - a great ambush possibility.

EDIT: I forgot to mention the unbelievable extreme sentiment in the silver market before the recent drop. On Business Insider, a news aggregator I follow, every article, no matter the subject, had a bunch of silver bugs talking about the fall of the US empire due to their buying of silver (physical, of course). Zero Hedge was also full of silver stories. It was clear the bubble was close to popping. However I don't trade commodities (except gold) or exotic currencies, so I stayed out.
  • #1,559
  • Edited 4:32pm May 7, 2011 3:31pm | Edited 4:32pm
Quoting Scotty B
What you see in EU is profit taking. If Greece was booted out the Euro would only strengthen further. Because nothing significant has changed in the relationship between the Euro and the Dollar, I think the Euro will only continue to strengthen. There will be those who enjoy profits at the 1.5 mile marker, but I would not be surprised to see EU @ 1.6 in a few months.

ok, no offense but i think you got something really wrong here. You are calling a top on commodities AND a weaker dollar ?? In what world does that happen ? Or you are implying that the euro will be so strong that it'll clearly override the strength of the dollar when gold collapses ? Plus your timing is awful. What happens in a few months ? The end of the QE.

Europe is in the middle of a very big possbile debt crisis after U.S. (i have my reasons why i'm not mentioning Japan). Greece isn't the problem, contagion is the problem. Look up the exposure that France has on Italy to get an idea. Profit taking in eur ? Dude, markets are not that illiquid that a simple profit taking is causing the most liquid currency pair to fall 600 points in 30 hours. This time the market WAS wrong. It was wrong because it assumed that, since Trichet raised the rates the inflation was real, caused by real demand. Last meeting Trichet said what should've been said way before that price increases are due to high commodity prices NOT excessively expanding economic activity with vast amount of borrowing going on (WHICH should be the reason to raise rates).

We are in the midst of nothing more than a confidence crisis here. The resources have not gone anywhere. Confience is something that is only in the minds of the people who should create that very needed economic activity. Yes, the same people who are investing into gold right now. Do you see the irrationality now ? You can stimulate the growth all you want but the final move must still be taken by the guys/girls next door. That's why the monetary policy is such a fcking tricky business. Yes, we are having a few good months on economic data but this can very easily get killed...again.

Now that the eur is falling the headlines will be filled with europe debt crisises again. This fuels uncertainty. This leads to lower europe stocks (especially now where borrowing costs are higher). Stocks are the benchmark of health for the average joe and he once again loses confidence. This leads to weaker data and the ball gets rolling. The irony is that all this could very well lead to your long awaited gold stop cascade because cash is still king (think oil and 2008, even gold tanked 350$ on the back of the crisis).

All this is of course my sole view of things and you might definitely disagree here. Rational, calm and unsarcastic arguments are all welcome. I would very well be totally wrong on my speculation, cause, like i said, it's up to the people. If the consensus suddely realize that the current environment is the best time to start a new business cycle then all will be well

Darkstar, good to see you around here. Thanks for replying to my post. Love your simplicity as always and i agree on most of the things you said.


god i should start my own thread not to spoil this one
  • #1,560
  • May 7, 2011 3:44pm May 7, 2011 3:44pm
Quoting lumesh
You are calling a top on commodities AND a weaker dollar ?? In what world does that happen ?
How else will gold bulls liquidate? There would still be buying of gold with a selling of the dollar but the selling pressure caused by profit taking in gold would cause it to top out.

I think thats the sort of world where that would happen. Buyers of yesterday need buyers of today to get out
Time hides Nothing
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