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Order Flow - Achieving the mindset

  • #1,581
  • May 9, 2011 4:59am May 9, 2011 4:59am
I wanted to ask, to those who know more than me, what's the link between Interest Rates and Orderflow?

I mean, I know that the more an Interest Rate is high, the more the currency attracts investors, but how long term is it? And how strong can the Interest Rate be compared to other things?

I'm trying to track back to orderflow generators.

Another question, I once read somewhere here on FF that stop hunts and option barriers are the orderflow drivers of daytrading. Is that so?

I'd like to talk about some basics here, to me the thread is too much going on a philosophical track. Let's get real and find out what are the usual orderflow generators that drives the market short, mid and long term.

Are you with me, guys?
  • #1,582
  • May 9, 2011 7:21am May 9, 2011 7:21am
Quoting scott89
I wanted to ask, to those who know more than me, what's the link between Interest Rates and Orderflow?
I mean, I know that the more an Interest Rate is high, the more the currency attracts investors, but how long term is it? And how strong can the Interest Rate be compared to other things?
I was about to write an indepth response here but figured it would save me some time if i just copied darkstar's explanation (i hope you don't mind, darkstar )

"The question of why interest rates are important depends on what type of security you’re looking at. For stocks higher interest rates are bad because it raises a companies cost of capital. For bonds it's good because it reduces the risk of inflation.

Forex is a bit more complicated in that interest rates affect a currencies relative value on several levels. There is of course the swap rate that is charged/paid for borrowing/holding a currency. But this is only a small portion of the equation. International portfolio flows (which account for a vast majority of the forex volume) are investors in search of better yields on their capital. Depending on what a countries stock, bond, and real estate markets (as well as its inflation rate) look like, an interest rate increase could be seen as good or bad for the underlying investments."




Quoting scott89
I'm trying to track back to orderflow generators.

Another question, I once read somewhere here on FF that stop hunts and option barriers are the orderflow drivers of daytrading. Is that so?

I'd like to talk about some basics here, to me the thread is too much going on a philosophical track. Let's get real and find out what are the usual orderflow generators that drives the market short, mid and long term.

Are you with me, guys?
NO, stop hunts and option barriers are not THE drivers of daytrading. They are part of it, some days more some less but the general sentiment and the overall price movement depends on many other factors as well.

If you see a large junk of stops 100 points away the current price it wouldn't be very wise to push into them JUST because of it's existance.

As far as this "thread is too much going on a philosophical track." goes
i believe if you spend more time here you would be able to finds many things that would be of educational benefit to you (you could go through the attachment files for example).
  • #1,583
  • May 9, 2011 7:41am May 9, 2011 7:41am
Quoting lumesh
I was about to write an indepth response here but figured it would save me some time if i just copied darkstar's explanation (i hope you don't mind, darkstar )

"The question of why interest rates are important depends on what type of security you’re looking at. For stocks higher interest rates are bad because it raises a companies cost of capital. For bonds it's good because it reduces the risk of inflation.
That's not correct. High yields are directly correlated with risk, ie: your bond is riskier, so you have to pay more to convince people to buy it - look at Greece, it's borrowing 2y at 20% now, because everybody assumes it will restructure.

More about this here: http://en.wikipedia.org/wiki/High-yield_debt

Of course, if you know that the risk is over-rated, you can buy them and make a small fortune, just like the junk bond traders did in the 80s.
  • #1,584
  • May 9, 2011 10:11am May 9, 2011 10:11am
Quoting scott89
I wanted to ask, to those who know more than me, what's the link between Interest Rates and Orderflow?

I mean, I know that the more an Interest Rate is high, the more the currency attracts investors, but how long term is it? And how strong can the Interest Rate be compared to other things?

I'm trying to track back to orderflow generators.

Another question, I once read somewhere here on FF that stop hunts and option barriers are the orderflow drivers of daytrading. Is that so?

I'd like to talk about some basics here, to me the thread is too much...
About order flow generators, that's the key point, what we need is several factors to line up, that way it will create an imbalance in supply/demand, take for example the EUR/USD, so far today it looked like it found some support until s&p cut greece sovereign rating, after that it all started going south again, now let's say there are a bunch of stops below last friday's low, those stops will add more fuel to the move down.



  • #1,585
  • May 9, 2011 10:38am May 9, 2011 10:38am
Quoting lumesh
As far as this "thread is too much going on a philosophical track." goes
i believe if you spend more time here you would be able to finds many things that would be of educational benefit to you (you could go through the attachment files for example).
Don't worry about that, I have spent and currently spend enoguh time in here, maybe too much.

I'm not saying that the info found in this topic and on forum in general are not useful, I'm just feeling like the things we're talking about in here are not so practical. I mean, there can be 1000s views and whys of a falling in euro or gold or whatever we talk about.

I'm trying to direct the discussion directly to what generates orderflow and we are sure that it does, because, to me, we cannot discuss WHY it does generate flow if we don't even know WHAT it is.
As an example, I picked interest rates, and I wanted to discuss more about the WHY and HOW it generates OF, because we are sure that it does and we know what it is.^^

Anyway, this is my view, sorry if I seemed like deviating from the topic discussed.
Claudio
  • #1,586
  • Edited 11:24am May 9, 2011 10:44am | Edited 11:24am
Quoting Adal
That's not correct. High yields are directly correlated with risk, ie: your bond is riskier, so you have to pay more to convince people to buy it - look at Greece, it's borrowing 2y at 20% now, because everybody assumes it will restructure.

More about this here: http://en.wikipedia.org/wiki/High-yield_debt

Of course, if you know that the risk is over-rated, you can buy them and make a small fortune, just like the junk bond traders did in the 80s.
What Darkstar said is correct. He was talking about relationship between interest rates and bond attractiveness (put risk aside) while you're talking about high yielding bonds due to their high risk level.
  • #1,587
  • May 9, 2011 10:48am May 9, 2011 10:48am
Quoting Adal
That's not correct. High yields are directly correlated with risk, ie: your bond is riskier, so you have to pay more to convince people to buy it - look at Greece, it's borrowing 2y at 20% now, because everybody assumes it will restructure.

More about this here: http://en.wikipedia.org/wiki/High-yield_debt

Of course, if you know that the risk is over-rated, you can buy them and make a small fortune, just like the junk bond traders did in the 80s.
If I'm correct, he talks about Central Bank rates, such as the Federal Funds Rate in the US. Hypothetically speaking, low rates stimulate money growth, leading to inflation.

You seem to be talking about yield, which indeed it correlated with risk.
The nail that sticks out gets hammered back in
  • #1,588
  • May 9, 2011 10:59am May 9, 2011 10:59am
Hunters look to move price when it's cheap to move price in their favor, correct?
Cautiously optimistic. . .
  • #1,589
  • May 9, 2011 11:02am May 9, 2011 11:02am
Quoting Noloqy
If I'm correct, he talks about Central Bank rates, such as the Federal Funds Rate in the US. Hypothetically speaking, low rates stimulate money growth, leading to inflation.

You seem to be talking about yield, which indeed it correlated with risk.
DS talked specifically about interest rates and bonds, not Central Bank rates. Read the quote again. Yield is another name for interest (not strictly correct). I apologize for introducing HY bonds into the discussion, I see why this can be confusing.

http://www.investopedia.com/terms/y/yield.asp

Quoting seagreen
What Darkstar said is correct. He was talking about relationship between interest rates and bond attractiveness (put risk aside) while you're talking about high yielding bonds due to their high risk level.
Well, if we are putting risk aside, I guess I should go buy some Greek debt. It has a very attractive interest rate

In other news, interesting read about real-world order-flow trading: http://www.reuters.com/article/2011/...7480AI20110509
  • #1,590
  • May 9, 2011 11:31am May 9, 2011 11:31am
Quoting Adal
DS talked specifically about interest rates and bonds, not Central Bank rates. Read the quote again. Yield is another name for interest (not strictly correct). I apologize for introducing HY bonds into the discussion, I see why this can be confusing.

Depending on what a countries stock, bond, and real estate markets (as well as its inflation rate) look like, an interest rate increase could be seen as good or bad for the underlying investments."

I think he was talking about a central bank rate increase. Anyway, there's nothing to argue about here, I think we both understand what we're talking about.
And if you live in eurozone you will be buying Greece debt whether you like it or not.
  • #1,591
  • May 9, 2011 11:33am May 9, 2011 11:33am
Quoting Tact1cal
Hunters look to move price when it's cheap to move price in their favor, correct?

That's the general premise, yes.

Keeping that in mind, look out for stops at least in the direction of the trend if you don't want to mess yourself with the underlying sentiment. Look what the chart is doing to understand what tech traders are thinking. Also, it's beneficial to consider limit order importance cause those could very well offset the outstanding stops making it more costly and thus more risky for the hunters to run them.
  • #1,592
  • May 9, 2011 11:45am May 9, 2011 11:45am
Quoting Adal
DS talked specifically about interest rates and bonds, not Central Bank rates.

I have to cut in here. DS still talks about central bank rates not (government) bond yields. If you look further you'll notice that this was what scott89 was asking in the first place: "what's the link between Interest Rates (as in central bank rate) and Orderflow"

You probably misunderstood that statement when he said "For bonds it's good because it reduces the risk of inflation"

put in another words it means:

For bond PRICE higher central bank rates are good because it reduces the risk of inflation
  • #1,593
  • May 9, 2011 11:54am May 9, 2011 11:54am
Quoting lumesh
Also, it's beneficial to consider limit order importance cause those could very well offset the outstanding stops making it more costly and thus more risky for the hunters to run them.
Thanks, good point.
Cautiously optimistic. . .
  • #1,594
  • May 9, 2011 1:42pm May 9, 2011 1:42pm
Quoting scott89
Don't worry about that, I have spent and currently spend enoguh time in here, maybe too much.

I'm not saying that the info found in this topic and on forum in general are not useful, I'm just feeling like the things we're talking about in here are not so practical. I mean, there can be 1000s views and whys of a falling in euro or gold or whatever we talk about.

I'm trying to direct the discussion directly to what generates orderflow and we are sure that it does, because, to me, we cannot discuss WHY it does generate flow if we don't even know...
IRD is a bit more complicated in the way it generates the flow (frankly, even I don't really understand it )

I find it much easier to look at stops and trade them out.

Lets take an example:
Many systems have their stops near the swing high's/low's. This information is given. So when the price approaches near it, there is an anticipation and flow builds. Now it might not really explain the rise and the fall of EU but is a good place to start off. You need to introspect on why and how will someone take the price up to that point. If he does, what is his motivation? What are the motivation of the price whose stops might be there? Will they try to defend it?

You can start of by looking at the weekly ones, then water down.

Just my two cents.
  • #1,595
  • May 9, 2011 3:22pm May 9, 2011 3:22pm
While indeed portfolio flows/capital movement in search of better investment yields may lead to direct order flow, it usually does so over a prolonged period of time, making it conducive to swing and position traders.

Instead, it may be easier to play on the expectations of participants in relation to interest rates. In a market where a significant portion of interest is harbored in speculation, it would not be prudent of you to coat-tail those who can generate order flow to propel your position into profit.

Despite the fact that these speculators may use automated methods to efficiently build positions with minimal impact, the fact remains that their is an undeniable human component which can be exploited. The speculators are subject to all the undesirable traits which traders are supposed to eradicate, and furthermore they are under pressure to meet their overheads and generate returns for their investors. My personal favorite to capitalize on, is impatience; the fear of missing out a potentially profitable move.

It may sound mushy, but an edge rooted in the humanistic aspect of trading can augment an order flow mindset greatly, as I have picked up in the posts of particularly grkfx.

As it relates to interest rates, how will changes in Central Bank stance influence participants to take action? How will they react when their expectations are fulfilled, or unfulfilled? How can one objectively exploit situations which will invoke greed or fear into participants - or when their behavior is diverging from the norm? Along the way, you continually assimilate incoming information to allow yourself to have a rough idea of what the outcome of a particular scenario should be, and then it simply remains for you to assign an entry and exit as you deem fit. I am of the opinion that this constitutes effective trade management.

When you start to view the market in terms of expectations and events, then everything else falls into place. Instead of viewing orders in isolation, you begin to identify how they relate to each other in the context of what's currently happening in the market. One can then make educated guesses as to how changing events will change order structure at certain points, and this discretion will enable you to more accurately assess which levels have a higher probability of holding, compared to others, providing one with greater confidence in their trades.

When coupled with a cursory knowledge of how the market operates, it an order flow mindset quickly becomes a very potent tool in a traders arsenal.

Seems I may have got a bit carried away, but just wanted to add my 2 pips.

Good luck
xXTrizzleXx
  • #1,596
  • May 9, 2011 4:09pm May 9, 2011 4:09pm
Quoting xXTrizzleXx
While indeed portfolio flows/capital movement in search of better investment yields may lead to direct order flow, it usually does so over a prolonged period of time, making it conducive to swing and position traders.
...

xXTrizzleXx
Good thinking, Trizzle. Thanks for the post.
  • #1,597
  • May 9, 2011 9:37pm May 9, 2011 9:37pm
Quoting xXTrizzleXx
When you start to view the market in terms of expectations and events, then everything else falls into place. Instead of viewing orders in isolation, you begin to identify how they relate to each other in the context of what's currently happening in the market. One can then make educated guesses as to how changing events will change order structure at certain points, and this discretion will enable you to more accurately assess which levels have a higher probability of holding, compared to others, providing one with greater confidence in their trades....
Important words here. Read it again and again and again. Make this concept a part of your trading and you'll be well on your way to profitability.
  • #1,598
  • May 9, 2011 10:39pm May 9, 2011 10:39pm
You're too young to be that wise XTrizzle, nice post man
Time hides Nothing
  • #1,599
  • May 10, 2011 12:48pm May 10, 2011 12:48pm
TWotD at work.
.
  • #1,600
  • May 10, 2011 12:59pm May 10, 2011 12:59pm
Can I pose a few questions for thought or answer:

How can one gauge the focus of the/a current market?

How can one determine true expectations?

How is it even possible to determine the true price that's been priced into a news announcement instead of the posted expectation figure... The markets being as efficient as they are you would think that the consensus would price in a well known and established number...

The market is a big world, how do you cut the shit and spend your time on the right factors?

How do you learn to take the markets pulse?

So many participants doing so many different things for so many different reasons... How do you sort them into relevant categories, who matters and when?

How do you achieve a birds eye view of the market and follow along when there are literally millions of markets operating at one time?

Where is the book that explains how all these different markets (bonds, currencies, commodities, equities, derivatives) fit together and function? If this is so obvious then where is the beginners book?

Why am I such an idiot as to not have worked all this out by now?
Time hides Nothing
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