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  • #2,681
  • Edited 3:26pm Jan 7, 2012 12:30pm | Edited 3:26pm
Quoting nasir.khan
You mentioned three things, i am sorry but i cant see the difference between the three of them.

Price Action, Price Flow and Price Language. I am not sure about Price Flow ( maybe you wanted to say order flow) but i cant see the difference between price action and price language.

Anyway as you said you have read the whole thread, you should know better that this thread had nothing to do with any of above things you mentioned.

Yeah its a long thread and many people had posted their thoughts in it and the topic of PA came up many time's...
I am not telling you that you are
wrong about being passionated for it, neither that it is crap. I' am just telling that it is too complicated if it is about trading. And i do know that some people prefer complexity, and no problem with that. But i also know lot of people here and out here who can see from a naked chart where the stops are, where the insiders and the institutions are and what they are going to do. These people are proving it every day by posting live their charts here, their targets their stops and are right nine times on ten before it happens.
Price flow for me is how the market moves and is highly discretionary (almost intuitive) the only way to master it is massive screening time. PA for me is a tool based on bars formation recognition to detect the dynamic behind it (this one is textbook). The sum of these two are the price language. And of course there are orders behind the market, but orders are always price driven.This, probably have nothing to do with academic definitions of trading and what we learn here and there. And again I am not criticizing, I even found the content of this thread very instructional and liked it. The only thing that disturb me, is that through years we are losing our singularity as fx traders coswe are using more and more technics from futures traders. I rember few years before, futures traders were scared of forex and how hugely it moves.
I am probably mixing things up, cos lot of links to associated threads and external articles, but I will read again. And it's sad that this thread is not more active.
Edit: I have also never said that this thread was about PA, but just mentioned that it is a complicated way to understand price language, in other words how and why the market moves. My English is not very accurate.
ReEdit: the point above is very important, cos whatever your system or strategy is, wathever you use over saturated charts or naked or a simple tape or level2, it is always a translator of what the price is saying. And, more interesting, one could be very succeful with a saturated chart and another a permanent loser with accurate understanding of PA. Because the ability of the trader to understand what the price is saying, whatever is the translator, is more important than what have been said.
This a bit foggy, but probably this is why we use complicated means to talk about things we are not able to explain.
Rien ne sert de courir il faut partir à point.
  • #2,682
  • Jan 7, 2012 4:57pm Jan 7, 2012 4:57pm
Quoting flytox
I am not telling you that you are
wrong about being passionated for it, neither that it is crap. I' am just telling that it is too complicated if it is about trading. And i do know that some people prefer complexity, and no problem with that.
Again its not complex for me. I know that you are a praised trader at "Price is everything thread" and i dont mean any disrespect but If you dont have sufficient knowledge about a subject you will call it complex. I think medicine is complex but for a doc its not, i think rocket science is complex but for a rocket scientist its not. The way the little chips on this laptop that i am writing this post work is out of the world complex for me but guys who built it dont think so.

Now as we are talking about trading, we know there are complex ways and their are simple ways to do it. I will present an analogy for you.

If two foreigner's are introduced to a local sport let say Baseball. They wont know what those guys on the field are doing and why. Now there are two ways to learn about baseball.

1- Watch the sport live and try to make sense as as you go, it the fun and simple way.

2- Get the rule's book and read it. It's a little complex and boring way.

It will take some weeks to months for the guy who picked the first method and he probably may loose interest and may give up altogether on the sport.

On the other hand the 2nd one will understand the whole thing in from couple a days to a week.

Now complex is convenient here.

Quote
Price flow for me is how the market moves and is highly discretionary (almost intuitive) the only way to master it is massive screening time. PA for me is a tool based on bars formation recognition to detect the dynamic behind it (this one is textbook). The sum of these two are the price language.

It makes sense now.

Quote
And of course there are orders behind the market, but orders are always price driven.

I dont agree that orders are ALWAYS price driven. Different people have different motive's to trade in a market and their order's represent their motives which are further translated into price.

There are different types of orders though. Sometimes people will only place an order if price should perform a certain action (technical traders come to mind) and fulfill certain conditions. So these orders are price driven.

But they are not always price driven as you said.

Quote
But i also know lot of people here and out here who can see from a naked chart where the stops are, where the insiders and the institutions are and what they are going to do. These people are proving it every day by posting live their charts here, their targets their stops and are right nine times on ten before it happens.

I can agree that there are people out there who can spot orders on a naked chart and so can many people from this thread too. But you cant just learn all this stuff from a naked chart. It require's the knowledge that is not available on charts and yeah a lot of chart experience as you said. and this where the baseball analogy come's in again.

It would take an intelligent trader months if not year's before he understand why market does what it does after it crosses a trend line or an S/R level. But it will take significantly less time for a fellow who knows there are Stops hiding behind those TL's and SR's and what are implications when a market hits a cluster of stops. Than its all about building profitable methods around this valuable knowledge.

In the end both may become successful. Though one learnt it by simple by watching charts and the other one had to go through the complex stuff of market microstructure. But who saved time?

Quote
I am probably mixing things up, cos lot of links to associated threads and external articles, but I will read again. And it's sad that this thread is not more active.
Edit: I have also never said that this thread was about PA, but just mentioned that it is a complicated way to understand price language, in other words how and why the market moves. My English is not very accurate.

Yeah you are mixing things up cause what read you in this thread is pretty much the final stage of the order flow trading evolution (as it stands now). It's like reading final chapter of a book. If you start by reading the old posts from darkstar it will make more sense to you.

P.S: Dont know a thing about Baseball but i think it's very complex so i used it. Sorry if i offended any fans.
.
  • #2,683
  • Edited Jan 8, 2012 3:29am Jan 7, 2012 6:54pm | Edited Jan 8, 2012 3:29am
Quoting nasir.khan
Again its not complex for me. I know that you are a praised trader at "Price is everything thread" and i dont mean any disrespect but If you dont have sufficient knowledge about a subject you will call it complex. I think medicine is complex but for a doc its not, i think rocket science is complex but for a rocket scientist its not. The way the little chips on this laptop that i am writing this post work is out of the world complex for me but guys who built it dont think so.

Now as we are talking about trading, we know there are complex ways...
You are right to believe in what you're saying, and I agree with what you said on almost everything. I assure you, during my long journey through trading knowledge I used things very complicated as spectral analysis and polynomial derivatives and get good results. I don't consider that complexity is useless in trading for the very reason that some people need it to understand the market (and as you said some find it easy). I even find that cracking market microstructure is probably the most accurate formalized way to explain price behavior, but some simply don't need formalization.
I just want here to say something to those who are looking for a way to trade successfully, based on my experience and the experience of others i know who are more than good at tracking price with or without a chart (tape, Dom... ) : you will be ok the day you find or build a market understanding that is compatible with what you are, complex or not is not that important.
Nasir, it was good to chat with you and I hope that you will revive this interesting thread.
Rien ne sert de courir il faut partir à point.
  • #2,684
  • Jan 8, 2012 8:43pm Jan 8, 2012 8:43pm
Thank's to this thread I'm now trading really naked, without chart, even less looking the book. Just read and feel world's economy change to catch the turning point -in long term of course- But yeah, some might need a complicated things to start, others may not.
  • #2,685
  • Jan 8, 2012 8:58pm Jan 8, 2012 8:58pm
this talk of complicated or not complicated is such a big fat something something.

you know what's easy? driving. you know what's complicated? how cars work.

do you want to be the dumb blonde who ignores the engine warning light because you are too stupid to understand that there is a problem, or do you want to drive confidently and easily with the knowledge that if there is an issue at some point you are smart enough to see it coming and know what to do?

if you don't care to understand the nuts and bolts then go find a typical indicator / system thread and knock yourself out. if you want to understand some nitty gritty details and interactions to get a proper understanding of what is going then put your seat belts on and get reading / learning.

you get out what you put in.
Congratulations ScalaFX for coming out of the closet!
  • #2,686
  • Jan 12, 2012 12:59pm Jan 12, 2012 12:59pm
Quoting flytox
You are right to believe in what you're saying, and I agree with what you said on almost everything. I assure you, during my long journey through trading knowledge I used things very complicated as spectral analysis and polynomial derivatives and get good results. I don't consider that complexity is useless in trading for the very reason that some people need it to understand the market (and as you said some find it easy). I even find that cracking market microstructure is probably the most accurate formalized way to explain price behavior, but...
I think the thread has achieved its purpose and most of the people who participated have hopefully found their ways around the markets, and most of them are on DS's PF anyway so wont see this thread going back to be active again. Maybe that's what everyone wants, Greedy bastards.

Nice to talk with you too man, have a good one.


@ Nub; Blondes can find "help" very easily (dumber the better) so they dont need to know much about their cars anyway.
.
  • #2,687
  • Mar 14, 2012 11:08pm Mar 14, 2012 11:08pm
heres some writing bout order flow.
Attached File(s)
File Type: pdf Gehrig Menkhoff use of flow analysis.pdf   154 KB | 1,713 downloads
  • #2,688
  • Jun 30, 2012 4:39am Jun 30, 2012 4:39am
Hi,

Could any of the order flow experts please explain me this quote:

Quote
When order flow is positive, prices must rise to draw additional sellers into the market. When order flow is negative, prices must fall to draw additional buyers into the market.

Does that mean when OF is positive, price is rising because market makers want to trigger buy stop & take profit orders and let sellers enter short at market when price has risen?

Thanks
  • #2,689
  • Jun 30, 2012 5:17am Jun 30, 2012 5:17am
Quoting Forex5050
Hi,

Could any of the order flow experts please explain me this quote:



Does that mean when OF is positive, price is rising because market makers want to trigger buy stop & take profit orders and let sellers enter short at market when price has risen?

Thanks
Yes and No.

What is mean is simply put '' buy low, sell high'', '' sell high, buy low''.
you don't want to buy anything that has been overvalued.So you wait
for price to become cheaper,either for longs and sorts.
What you describe is a failed breakout or so.

The quote is all about the behaviour in every market.
When price falls attract buyers and when it rises sellers.
Who is moving the price or who is buing/selling is a different story.

I hope you understand.
  • #2,690
  • Jun 30, 2012 12:31pm Jun 30, 2012 12:31pm
I see.

When order flow is positive - overall orders are net positioned above the current market price - price trades up and it brings additional sellers into the market.

Thank you for your explanation.
  • #2,691
  • Jun 30, 2012 11:32pm Jun 30, 2012 11:32pm
A SOLID ACADEMIC PAPER ON ORDER FLOW(a bit academic, just so everybody knows.)

http://arxiv.org/PS_cache/arxiv/pdf/...809.0822v1.pdf

BELOW IS A PRIMER:
(it cogently summarizes what the article is about)

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy or sell can only be traded incrementally, over periods of time as long as months. As a result order flow is a highly persistent long-memory process. Maintaining compatibility with market efficiency has profound consequences on price formation, on the dynamics of liquidity, and on the nature of impact. We review a body of theory that makes detailed quantitative predictions about the volume and time dependence of market impact, the bid-ask spread, order book dynamics, and volatility. Comparisons to data yield some encouraging successes. This framework suggests a novel interpretation of financial information, in which agents are at best only weakly informed and all have a similar and extremely noisy impact on prices. Most of the processed information appears to come from supply and demand itself, rather than from external news. The ideas reviewed here are relevant to market microstructure regulation,agent-based models, cost-optimal execution strategies, and understanding market ecologies.

_____________________

SKYNET: for those wondering what tatonnement means.
.
" It may mean something. It may mean nothing at all "
  • #2,692
  • Edited 3:19am Jul 1, 2012 2:43am | Edited 3:19am
Thanks for this. I don't think the simplistic concept of order flow being a long memory process, and that most of the information come from supply/demand rather than from external news is new. But its interesting to read it in a scholarly paper at more depth. From a simpletons view point, the available liquidity being sufficient or not is relative to the size of the orders being put through of course which dictates the time it takes to put these orders (blocks of) through and therefore market has memory. It ,makes sense for larger orders to be generally put through in the direction of long term fundamentals, and in areas which are likely to attract liquidity. As a result hese areas are then reinforced as being areas of support/resistance or SD areas due to the large orders and market shifts from those areas. These areas may react time and time again over weeks or months due to the release of these blocks of orders, but become less effective the more times they are hit, due to the erosion of orders at that level, compared to the volume of orders attempting to break through it..obviously the article goes a lot more in depth.

Quoting Skynet
A SOLID ACADEMIC PAPER ON ORDER FLOW(a bit academic, just so everybody knows.)

http://arxiv.org/PS_cache/arxiv/pdf/...809.0822v1.pdf

BELOW IS A PRIMER:
(it cogently summarizes what the article is about)

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy...
  • #2,693
  • Jul 1, 2012 2:07pm Jul 1, 2012 2:07pm
Very well put, porkpie. I couldnt have said it better myself.

What pique my interest inside the article(i currently at page 39 out of 111 pages...i havent finished reading it.). What piques my interest at this point is how they applies power law analysis/equations to order flow long memory process at s/r levels. Secondly, how the market impact of new orders follows a concave function. AND ONLY A CONCAVE FUNCTION. Nothing else!
They also pointed out that at S/R levels market is absolutely not at equilibrium, in fact, that is when market is at its most information asymmetry. That is when people with the better information and valuation model are slowing taking positions, slowly absorbing counterparty orders, ahead of big moves(long or short). They merely keep hidden their intentions through the process of bleeding their orders slowly into the market.

However, there is a unique statistical pattern to the concave function of such an "accumulation orders"....on top of that, power laws analysis apply specifically to S/R levels did well.

You know what i am thinking?

Can one use write an algorithm using the properly derived power laws and concave functions to map out order flows pattern at S/R levels? For use in taking positions with the big boys? Or at least, in quickly and rapidly determining if a breakout is fake or not? It could potentially map out liquidity oasis.

A layman's intro to power laws. For a more serious research on power laws in finance.

On concavity of financial transaction orders. Or you can google "financial orders concave function"

regards,

skynet


Quoting Porkpie
Thanks for this. I don't think the simplistic concept of order flow being a long memory process, and that most of the information come from supply/demand rather than from external news is new. But its interesting to read it in a scholarly paper at more depth. From a simpletons view point, the available liquidity being sufficient or not is relative to the size of the orders being put through of course which dictates the time it takes to put these orders (blocks of) through and therefore market has memory. It ,makes sense for larger orders to be...
" It may mean something. It may mean nothing at all "
  • #2,694
  • Jul 1, 2012 5:35pm Jul 1, 2012 5:35pm
i've read all other topics on order flow here on FF...and now reading this one...just wanted do drop a thought...

first of all, i want to say that i'm learning about this stuff and can't state any firm conclusions. just thinking out loud.

from what i've learned so far, price determination on fx market is far, far more complicated than just looking at order flow data (looking by anyone that has access to it) or should i say - at aggregate order flow data.

this is what i've understood so far:

1) price is being quoted by the dealer
2) each dealer keeps his own order book and trades with his own customers
3) the most valuable thing for the dealer is to know who places the order and why

that leads us to the conclusion: $100 million order from informed customer or from an uninformed one are completely different thing regardless of the fact that they can look exactly the same in dealers order book. so, the price is determined based on the order flow but not on it's net weight but rather on the information that is carried by order flow. in other words, does the order come from the customer that have some non-public informations or not.

now, the question is - are we as a spot traders too far from EBS to even think about it (meaning, is it tradable or just a pure academic debate)? i have no idea about the answer to that question.
big numbers are our friends...
  • #2,695
  • Jul 15, 2012 2:05pm Jul 15, 2012 2:05pm
Hello,

I would appreciate it if someone could comment on the following.

I read that stop loss orders consume liquidity, while limit orders provide liquidity. I thought a lot about this and worked out some scenarios and this is what I came up with:

Stop loss orders are not only consuming liquidity, but could also provide liquidity for traders who are willing to take the opposite side at a certain price.

Let's say Trader A enters long $10M EUR/USD at 1.25 and gets stopped out at 1.2450. Someone had to take the opposite side of his trade at his market order at 1.25, but someone has to take the other side of his SL order too. I mean, the $10M didn't just disappear. It is possible that the dealer may still have the $10M short in inventory along with others, but he may decide to not take profits at 1.2450 but at certain other prices.

My point is, every order becomes a market order when executed, so someone has to take the opposite site and provide the liquidity. So, I think it is wrong to say stop-loss order only consume liquidity, as for the buyer, the stop loss provided liquidity.

Let's say there is a $10M buy limit sitting at 1.2450. A dealer may just match those two orders, leaving him without inventory.

Trader A gets stopped out - Sells €10M for $12,4M
Trader B enters long - Buys €10M for $12,4M

Maybe I'm completely wrong, so I'd like to hear the comments from some experienced order flow traders.
  • #2,696
  • Jul 15, 2012 6:47pm Jul 15, 2012 6:47pm
You got this right.

Stop loss orders provide liquidity to hunters and vice versa.

Example:

2 or 3 major banks with most revenue constantly provide competitive prices: best bids 1.5453 and best offers 1.5454

Sometimes it's evident that they will hunt stops by just observing the market depth.
What happens is that the 3 leading banks don't provide the best bids anymore but quoting still the best offers.
They have lowered the best bids to 1.5439 while other banks are now the best bidder.

Now (they can initiate some sell orders and) price falls through 1.5450
Stops get triggered but there isn't enough liquidity to fill all stop loss orders till price reaches 1.5439

It now depends what kind of stop hunt it is. Let's say the pool is very small then the banks can absorb the liquidity with iceberg orders or other methods around the 39 level.
Otherwise they will work the book as long as it takes to liquidate a much bigger pool with the intention to lower the average buy price.
  • #2,697
  • Jul 16, 2012 5:28am Jul 16, 2012 5:28am
Thanks for your reply.

Now, when analyizing where orders are resting, beside SL-orders, are only "true" limit orders (entering a new position) important? I mean, the dealer earns the spread as it is opening a new position. Take profit orders provide liquidity too for the opposite site, but the dealer hasn't much interest in it, as he doesn't earn the spread on a closing position.
  • #2,698
  • Jul 18, 2012 2:27am Jul 18, 2012 2:27am
Quoting Forex5050
Let's say Trader A enters long $10M EUR/USD at 1.25 and gets stopped out at 1.2450. Someone had to take the opposite side of his trade at his market order at 1.25, but someone has to take the other side of his SL order too. I mean, the $10M didn't just disappear. It is possible that the dealer may still have the $10M short in inventory along with others, but he may decide to not take profits at 1.2450 but at certain other prices
Market orders demand liquidity, limit orders supply it.

Someone could, but no one had to take the other side of the trade when he entered. A buy stop long entry at 1.25 would mean he buys when the dealer's bid is @ 1.24975 (2.5pip spread). The dealer is able to sell to retail at this price bc the dealer buys it from his bank/interbank for say, 1.2498.
If the trader's sell stop order is hit, it will also demand liquidity. If there isn't $10M worth of it waiting at 1.2450 then it'll fill lower when there is enough buy demand.
  • #2,699
  • Jul 22, 2012 5:27am Jul 22, 2012 5:27am
Regarding the spread and market maker you can read this:

https://www.hightable.com/financial-...ot-or-currenex

Hope that helps a bit.
  • #2,700
  • Jun 17, 2013 12:35pm Jun 17, 2013 12:35pm
HI Guys, I have always had this thought process problem, here it goes, and I have heard the term accumulation / distribution in reference to range periods, never mind the time Frame.
I wanted to know when price is ranging, what is exactly happening?

I have read that when this is occurring, there is no surplus of demand or supply, so the market is at an equilibrium sort of speaking. My understanding with this is that it means no high demand and no high supply to tip the scale in any direction.
1. Now I have also read that when price is ranging, that orders are being aggregated, meaning supply and demand are being absorbed ( for every buyer a seller), maybe this is the same thing as I stated above but I don’t know in which context to look at it from, hoping someone can help me to understand this?

2. When price moves from its range, that move up or down from its range, this means that there is high supply or demand that has to be met?

3. Now when that happens is it market orders that move the price or is that standing limit orders, reason for this question is that, if a market order is responsible for the move, from the range period, then why would one look to place a limit order when price comes back to the initial level where price left, if it was not limit orders that caused the initial move, it was market orders?

4. Now I am asking this question from a purely range period stand point, because if I can understand why this happens , then I will know why some levels work and some don’t, at least I’m hoping it brings a higher understanding.


Now another confusion of mine when there is congestion, (range period) I have heard that this is a period of inactivity, is it inactivity or a period of orders coming into the market and when all orders are finished being aggregated, (Hence the term accumulation/ Distribution) the surplus of demand or supply is left, which drives price higher or lower, or the other scenario, no surplus od demand or supply and price ranges or stops moving all together, for the moment?

5. So in saying all of that what justifies placing an order to go short or long at a level where price moved sideways when it was not a surplus of demand or supply just sitting there and it was a market order that drove it to another price point? You don’t know what was the reason for the price move in the first place?

6. I am trying to understand how order flow works and maybe I am not looking at it in the right context, I have yet to find anyone to answer these doubts and questions with straight forward answers. Can someone point me to the right answers? I have a hard time getting my head around the whole order flow concept, I understand it, but I don’t know if I fully understand it!


Now, second I read that market orders move price, so is it market order’s that consume standing orders and that in turn moves the market along with the high supply/ demand that is placed at different price points? Just looking for some clarification
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