Order Flow - Achieving the mindset

There is a shortcut... eliminate all the shit your reading everyday and just watch CNBC.

CNBC is predominently a US stock channel. This is valuable for us because in concentrating on US stocks, they only report critical info regarding other markets/countries. Ergo, if they are talking about it, you can bet big that the story they are highlighing is an important one for the markets it impacts. Combine that with tactical info from IFR and you have all the news you need to exploit the flow.

And as an FYI for anyone interested, I still advocate that you focus on 1 pair. There is too much going on in the world and if you try to follow all of it you'll miss important details. Once your making consistent profits, you can expand.

This is something that I recently decided to do and it has been helping tremendously.

Hey guys, some of the things in my recent post may have been a tad unclear, but CindyXXXX has asked a bunch of pertinent questions which I'd also like to provide my input to. This may be a lengthy post, and before I'd begin I just wanted to point out that these are just things viewed from my perspective, structured in a way that resonates with me. It may differ with your views, especially since I may be at fault with my reasoning, but as long as you can use logical principles to establish your own foundations, then at the end of the day we will arrive at the same door of profits.

This was a major stumbling block for me, and I can guarantee that once you get it, things will become much clearer moving forward. The problem is that while it seems like a simple statement, it involves a fair bit of discretion and the need to gauge market sentiment. In a simple sense, one can boil it down to what is/are the most dominant themes or factors affecting the market currently. If you keep abreast of the market, then these factors should be the first things that would jump out of your mouth if a trading friend were to ask you for your stance on the market. Generally, its the set of factors that a cross-section of the participants are focusing on - the frequency with which it comes up can be a rough measure of how releveant it is. Take the EUR/USD this week for example. If I were to ask you to name the first 'off-the-chart' event associated with the pairing that comes to your mind, I'm sure it would not be difficult for you to come up with an excellent response.

The issue is sometimes it may be clear-cut, like the various issues happening in the EuroZone currently, while at other times it may be more obscure. At times there may be a handful of different factors affecting the pairing simultaneously, with different ones being brought to the fore at different times, motivating particular participants to act. Sometimes it may simple be noise moving the market, as it lacks a particular topic to focus its attention on. It's not something that lends itself to being determined by a system; - it's like trying to create a system to determine if an individual is happy or sad. The only way this component can be upskilled is raw experience; by keeping abreast with the various events happening, and watching how markets react to them through time. It may then be possible to tie expectations to these events, and depending on how these events unfold, these expectations may be met or unfulfilled, and both of these instances can be capitalized on. Put yourself in the shoes of involved participants...if you along with the other motivated participants had a position on the line expecting X, and something totally unexpected came to the fore, how would you react? How would the participants as a whole react, and how can you use your knowledge of market microstructure to construct a trade based on this information?


I am of the opinion that markets are definitely not as efficients as academics paint them out to be. The truth is that there's not really a true price that comes with a news announcement; it's a fuzzy thing really. However expectations do come with these events, and we can observe the effect these expectations have on price, once we have isolated the factor(s) affecting the market. One approach may be to observe how far or fast price has moved in light of the event to assist you in determining a sort of...weighting (if we can call it that) for these expectations.


Like medici pointed out, these are very valid inquiries. But again I stand by my previous statements that just identifying what the 'buzz' of the market is, can suffice. Pulsing and sorting the market is a by-product of experience, and it becomes easier with time to the point where when you read an initial headline, you begin to draw scenarios in your mind of the potential outcomes, and can feel your stomach doing flip-flops at the magnitude of their impact. Certain scenarios tend to be repitive, and it may be that a particular set of participants are motivated to act under these conditions, and you can use this information to your advantage. There may be a lapse of time before it catches the attention of other market participants to produce resultant effects on price, but it at least allows you to have a heightened alert to what may be occurring.


Sure there are millions of markets operating, but if the participants are only focusing on a handful, then you can generally glean this insight, and again use this information to your advantage. Keep in mind that the focus on a particular market/event may only be for a period of time. When the market appears to stop responding to it/less mention is made of it, then it becomes a candidate for your Recycling Bin - until it pops up again.

Monroe has provided a list of excellent market sources, and my humble suggestions is perhaps you should start with just one that provides comprehensive information to suit your trading methodology. Do you trade longer term? Perhaps The Economist may pique your interest as opposed to a cutting edge service like Reuters. I don't know how many markets you monitor, but pillager made the useful suggestion of focusing on just one. DarkStar I believe did it with USD/JY, I did it with EUR/USD, you may do it with AUD/USD. When you have one, note how events play out, how it reacts to them, it's little intricacies (eg. whether its Central Bank actively intervenes etc.) and this should foster skills which you can then transfer to other markets.


seagreen has suggested a wonderful book which I was surprised that I have in my possession. It can generally give you some basic relationships between markets, but by no means do you have to become an intermarket analyst! :nerd:


Hardly. The fact that you are actively devoting time to this endeavour is justice enough that you are capable of seeing its merits, and I know you have the will to make it work for you. I think I speak on behalf of all us when I see we are making great progress in this thread.

I hope I don't come off as being the authority on this/overly pedantic, because you can rest assured that I'm not perfect, and there are incidents where I still get my rear handed to me by the markets, but it's happening less and less.

Good luck,
xXTrizzleXx

Holy cow trizzle, you took many steps ahead in these 3 or 4 months, didn't ya? I'm amazed!
Really, congratulations man, I can actually see that you spent a lot of time thinking about this shit, or you might just be more brillant than me and others!

Anyway, you and all the others are helping me much by handing us down these informations, infos that I could have thought myself and could have came up with already, but i didn't, in part because I'm busy studying for uni exams, but in part even because... I don't think I was thinking too deeply into it, I was not concentrating on the important aspects.

About the pairs to concentrate on, I would tend to avoid EUR/USD, because the European Union is an union of many countries, and i think there might be many infos to concentrate on at the same time. I think that Darkstar had choosen USD/JPY because it's just 1 country to keep under observation in relation with U.S., and that might help to make some order of thoughts, and because there's almost as much liquidity as in E/U.

This is just what I think, though; anyway I'll follow the suggestion and will concentrate on 1 pair and will spend the time to try to find out what's the current dominant information/event at any given moment, if there's any in that moment.

Thank you guys, keep it coming

Much respect to all of you

You go where the volatility and massive order flow is and will be generated into the future. That is why it is ideal to have a working knowledge of many different currency pairs and markets. So you can cherry pick the best opportunities where an explosion of volatility or trend will occur. That is where the money is and not in ranging markets.

Now if the choice is between you cannot handling the pain of information overload and thus quit trading, then by all means focus on just one currency pair. If that allows you to stay in the game, and continue to play while you master one currency pair, then by all means do it. The other alternative is to quit and feel depressed and that is not going to get you anywhere.

However, the very best traders have a good amount of knowledge about various types of currency pairs and financial instruments/markets so they can nail the big market moves and just ignore the choppy markets. So for example, if you felt information overload and just decided to focus on USD/JPY for example, then you would be missing out on huge moves in eur/usd and eur/aud, eur/cad.

You want trading to be as easy as possible and that means you go with the massive order flow that will be generated as those moves are the easiest on the mind and psychology.

You can make a lot of money in choppy/rangy markets. But the even bigger money is in the multi day/multi week moves of 100-1,000 pips.

Speaking about order flow generators......
In an hour, Ecb meber Jurgen Stark will have his speach.

"Arguably, he is the second most influential member of the executive board after Jean-Claude Trichet."

"Regarding the subprime mortgage crisis Jürgen Stark said in August 2008 that "weak banks should be allowed to disappear from the market""

"Juergen Stark for The Financial Times:
The current big challenges faced by some countries are mainly the result of the failure of governments over many years to conduct sound policies and implement the reforms that would benefit their people and make their countries fully fit for monetary union.
All eurozone countries need to implement the long overdue structural economic and financial reforms, enhance their competitiveness and rapidly restore sustainable public finances.

Basically, Stark is saying that the ECB's roll isn't to protect these countries, rather, they should be making the reforms necessary to get in line with the eurozone's core."

Every member have mind of its own and FWIW i wouldnt expect this man to support loan for Greece.

It doesn't take much time to just breeze through the info... you don't NEED to use all of them I just want to make sure I didn't miss anything. but it shouldn't be info overload. If I wanted to cut it down, I would just go with bloomberg and reuters and IFR that would be fine.

During trade, I'm just watching the news feed and IFR. it's not too much, but I am daytrading.

I also stick to one currency pair mostly, though I do try and be aware of what's going on with other pairs also. If I went longer term, I would trade more.

And what is the conclusion that you are making here in regards to order flow generation ?

I, for instance, see zero catalytical impact here.

There is nothing new in this statement.

Even if there was how would you interpret it ? There are also tons of strong statements that Greece leaving the euro is in NOBODY's interest thus making it clear that the EU will do all it takes to support that statement.

If you read the comments you'll also notice that there are practically just as many guys saying that greece leaving the euro will only benefit the eur while others are having the exact opposite view...


All in all, i definitely wouldn't be expecting some directional bias from that statement.

To me any of that PIIGS story will have a negative impact on the eur ONLY if there is any delay on the solutions, any denial of the need of a bailout etc etc. Couple that with the public's anger about the austerity measures, couple that with the media starting to focus on the euro area problems again, starting to focus on other problematic countries besides Greece. What all that does ? It generates fear and that fear leads to withdrawals of euro area investments done by foreign investors.

And of course the opposite can also happen. If there is fast, rational (publicly accepted), straight-forward solutions to those problems then the market will focus again on the growth of the best euro area countries.

However that's not the point i was trying to make. See, you can be smarter than god in economics and still get a margin call if u don't play it right.

Was it Keynes who put it best: "Markets can stay irrational longer than you can stay solvent."

So, you can win 99 trades out of 100 but can lose it all in that one trade if you get caught (mostly phycologically) in this somewhat irrational environment (which are clearly evident today)

And this is where the order flow trading comes into play.

Someone asked a bit earlier what are all the different participants reasons to take on a certain trade. I am asking from you why are the reasons important if they are collectively making the same "mistake" (of course this is simplified explanation, there can very well be fundamentally justified reasons to have a gradually growing interest in a certain asset). To me this is what orderflow is all about - an imbalance between positions and THUS a possible imbalance in future trading interest. If traders are collectively betting on the same direction (for whatever reason) then they will have to come out of their positions eventually. There can be time-catalysts, there can be event catalysts. And this is what i'm trying to do, I am trying to look for those "dead ends".

Hi Lumesh,

I am just waiting for clues about the Greece outcome in order to join the long side. Market is very vulnarable to news about it and Stark (speaking right now) just repeats the avarage crap about the currency stability. Market is very stubborn at the moment and it looks like it needs some decisions to be made before any/if move higher. Greece leaving the euro might be good in the longer term but i doubt it will bring anything good in short/medium term IMO.

Just compare the market reaction to hawkish speach on the way up and now. Nobody is buying that cheap talk....
Are we on the same side of fence or the oposite becouse i am not sure really

Cheers

I opened a demo account (FXTRADE PRACTICE ACCOUNT) but i cant seems to access the news.

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http://www.orangejuiceblog.com/wp-co...1/01/clown.jpg

I can only imagine what the hell was going on on Geppynius'es mind when you said that, UnnamedPlayr

Back in the day i remember he was SUPPOSEDLY the guru on VSA here in FF...at least by his attitude anyway.

But in all honesty VSA is definitely not lagging. It can't be cause it uses real time volume and price action to make trading decisions. Inaccurate ? hmm, that is for you to decide. There are OF implications in VSA plus it could prove to be an eye-opener in terms of OF thinking.

What they are doing is basically buying into stop hunts that happen in the retracements of an underlying (up)trend (catching a falling knife so to speak). If you wanna know what their next call is then pay attention to eurusd and look for steep price declines on 4H chart

Actually, now that i think of it they are also looking for some sort of confirmations too like a price candle that doesn't have activity or smth like that.

It's a pretty neat strategy cause you'll be trading with underlying (both fundi and price based) trend and capture the mispricing that occurs on a retracement. IMO the REASONS of why they are thinking that the price SHOULD reverse are flawled (relying on tick volume plus they think that there are some sort of God trading out there who they call "big players" who wins all the time plus that those big players are predominantly speculating in SPOT fx) but that doesn't matter cause the mispricing would still be evident in this situation.

The Dashboard is vital to my decision making. Thought I'd share it. Took me a Half a weekend to get it all linked up. I want you all to check it out and lets discuss over the next few days what it means. The highest differentials are not necessarily the best trades, the highest returns are...In most cases. This should always be your first filter for a trade. I'll discuss more over the coming weekend.

Regards,

Jim

P.S. Google is great for the flow trader!

Even a normal chart does lag.

We're talking about the OF mindset and not about price action or other lagging stabilisers.

yes lets, nice work thanks. ((almost 50 views and not one "TY" "good idea" "thanks for sharing"... (amazing))

giving with the expectation of something in return? i've given away some of my own work, and i don't expect a thing in return. what i get freely given is more valuable than what i could demand to be given as payment for my time and effort.

Just thinking. Nothing really to add a t m.

Scotty-Jim, why did you put interest rate differential as a separate order flow generator? Isn't it a part of the cause of inter-country investment?

I guess you're talking about AUDUSD. I don't think you can consistently capitalize on such expectations, I mean defenders having access to market moving news to help them save the option. I found a much more interested play on the downside in AUDUSD. Has anyone else done it?