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Order Flow Trading

  • #21
  • Apr 17, 2013 1:20pm Apr 17, 2013 1:20pm
Stop hunting is a small part of order flow trading, far from being the most important component of it.
What is any ocean but a multitude of drops?
  • #22
  • Apr 17, 2013 1:25pm Apr 17, 2013 1:25pm
Quoting Xhale
Stop hunting is a small part of order flow trading, far from being the most important component of it.
I don't disagree. I think it is far more important to me to have a pretty good idea where large blocks of orders are going to be sitting and also have a pretty good idea which direction to expect those orders to send price. I want to know where traders will take action.
  • #23
  • Apr 17, 2013 1:37pm Apr 17, 2013 1:37pm
Quoting Xhale
Stop hunting is a small part of order flow trading, far from being the most important component of it.
I agree - it's one of many methods that can be applied within OFT, but I found specializing in one method more efficient for my trading style.

Sentiment reading/thinking about other players' actions is for me the most important component.
  • #24
  • Edited 2:05pm Apr 17, 2013 1:45pm | Edited 2:05pm
Quoting CaymanTrader
Sentiment reading/thinking about other players' actions is for me the most important component.
Bingo. Ultimately that is the determining factor in what generates orderflow. It's info you won't find on a chart.
What is any ocean but a multitude of drops?
  • #25
  • Apr 17, 2013 2:55pm Apr 17, 2013 2:55pm
I think it's possible to find order flow on the chart:

Attached Image
  • #26
  • Apr 17, 2013 5:58pm Apr 17, 2013 5:58pm
Quoting Seneca pilot
I wouldn't say the media has any useful information. All you need to know about market microstructure and liquidity needs of large traders is out there in cyberspace. Tier one banks definitely have the power and money to move the market to a place where their customers are looking to transact. If Caterpillar wants to exchange two billion euros for dollars to bank profits on a contract, their bank will do whatever is necessary to make sure that transaction is done at the price Caterpillar wants. If that means creating a small breakout to entice traders...
So, you haven't worked at a bank?
Play the players, not the cards.
  • #27
  • Apr 17, 2013 6:11pm Apr 17, 2013 6:11pm
Quoting GnarlyPips
So, you haven't worked at a bank?
No, I wouldn't know what to do if I had to wear a suit every day.

All the information I have learned has been found in on line searches and through researching the mechanics of the market. I do not have first hand knowledge of trading practices at banks and do not know any bank traders. I think I have a pretty good handle on how they operate but I could be totally off base. I certainly don't put any faith in any media sources like CNBC etc. I do lay my faith in Trading and exchanges and the papers by Osler and others.
  • #28
  • Apr 17, 2013 8:16pm Apr 17, 2013 8:16pm
Quoting GnarlyPips
So, you haven't worked at a bank?
What does working at a bank have to do with any of this? It's fairly basic stuff. Orderflow trading isn't some "secret" society like many on here on FF make it out to be.

Seneca, in regards to the media..... I know your trading style revolves almost entirely around important price levels, but saying the media has no useful information is a bit nonsensical. First I think we need to define the media. If we are talking about some editorial written by a market analyst at CNBC.... then I agree. But ignoring news, general sentiment, and other global macro forces at play is a mistake I believe the majority of traders here make. In fact I think most traders struggling to trade would find more success if they got rid of charts entirely and traded using only the news/sentiment. Of course over time you begin to develop a filter and know what to ignore and what to take note of.

You speak of identifying areas of high liquidity on the chart, which I agree with entirely. But ultimately what will determine whether that level is respected or broken through is found off the charts......
What is any ocean but a multitude of drops?
  • #29
  • Apr 17, 2013 9:31pm Apr 17, 2013 9:31pm
Quoting Xhale
What does working at a bank have to do with any of this? It's fairly basic stuff. Orderflow trading isn't some "secret" society like many on here on FF make it out to be. Seneca, in regards to the media..... I know your trading style revolves almost entirely around important price levels, but saying the media has no useful information is a bit nonsensical. First I think we need to define the media. If we are talking about some editorial written by a market analyst at CNBC.... then I agree. But ignoring news, general sentiment, and other global...
To say one knows how the banks work without having actually worked at one is like saying one knows what sex feels like without having actually had sex. There are a multitude of corporations and a number of banks that operate in this world. To say that one single bank will be able to take advantage of an illiquid market while the others won't is a bit absurd to me. I would think that all the banks would compete for the illiquidity once it's known. I don't even know how you can "identify liquidity" on a chart. I'd think order books and inside knowledge would be more helpful than charts.

I was trying to figure out if he actually knew what he was talking about, because it sounded like he could've worked at a bank. Yet, he states he doesn't work at a bank and could be entirely wrong.
Play the players, not the cards.
  • #30
  • Apr 18, 2013 1:36am Apr 18, 2013 1:36am
Guys,keep the thread going.
  • #31
  • Apr 18, 2013 9:17am Apr 18, 2013 9:17am
From a retired MM

Quoting fti
Hi Merlin, Yes, the function of marketmaking is to provide liquidity. In most every market, theres always the bands of orders sitting looking at each other. namely the stops orders. They mostly congregate at the critical S/R bands, sitting there staring at each other. In not so many ways our job was to move the market around to match them. So we have to use our capital resources to move the markets around to fill them. The reward for that would be the spreads between these order. Of course there are other players , the limits orders which we try...
  • #32
  • Apr 18, 2013 9:24am Apr 18, 2013 9:24am
more from him, he made some very important points in this post too..

Quoting fti
I think you may have mis-understood. My mentioning of marketmakers sweeps is not to imply that this is done to manipulate the markets. Be clear, that, the function of marketmakers is to provide liquidity. ie. providing the market at large , with a price to buy and sell , at all times, while under his watch. To carry out this function, he would have to use the sweeps to create market movement and to create liquidity to extend the swings, seeking out price levels of least resistance. Marketmakers do not create artificial pip moves, where-ever they...
  • #33
  • Apr 18, 2013 11:06am Apr 18, 2013 11:06am
Large Players always run for stops because them must have liquidity to get in or get out without moving price against themselves ... and for sure they know where stops are ---> it is specially good visible when some good size option barriers on nice round numbers.
  • #34
  • Apr 18, 2013 11:31am Apr 18, 2013 11:31am
If you wanna focus on just stops and/or barriers ((knockout) options) i think it's helpful to know what pairs are traded most on the 2 different prime instit. fx platforms:

EBS: ------ EUR/USD ------ USD/JPY ------ EUR/JPY ------ EUR/CHF ------ USD/CHF

Reuters 3000: ------ GBP/USD ------ EUR/GBP ------ USD/CAD ------ AUD/USD ------ NZD/USD


From
http://www.londonfx.co.uk/autobrok.html

Bit old but i guess still valid.
  • #35
  • Apr 20, 2013 7:37am Apr 20, 2013 7:37am
Good point @ Unnamed.

There are several patterns that can help us when stop hunting. For example, GBP/USD tends to trigger stops during the London Opening, especially if we had larger than usual volatility in the GBP-pairs during the previous Asia session.

EUR/USD has seen plenty of stop hunts during the NY open lately, while the the last few hours of NY trading have also become more active.
  • #36
  • Apr 20, 2013 4:44pm Apr 20, 2013 4:44pm
Stop hunting is such a vague and cryptic term these days. That is NOT all there is to orderflow trading imo. A better way to visualize the stop-hunting process is to think about what is happening in terms of auction theory: it's value trading. It's a cause/effect relationship between price and value, the effect just happens to be stops get hit, and 'some' traders get fantastic pricing. If I could give any advice to any individual who wants to learn orderflow, I would suggest to stop trying to trade the stop-hunting process that so many think is the gold nugget to trading. Most people on here who try to make this cryptic as hell have no idea what they are talking about to begin with, and send most on a goose chase with the idea that there is the mystical and magical end to the tunnel if you can decipher what they are talking about. The best way to learn orderflow: understand liquidity. Understand what consumes liquidity (market orders), and what supplies it (limit orders). Read volume on a chart in terms of liquidity takers, and none of this "smart money" bs so many talk about as well. Watch the DOM and Tape on futures, and pick up patterns that the liquidity takers and suppliers do on a consistent and regular basis. This will also show you where true inventory is as well (which is more than just highs and lows), via the Tape + DOM.

/endrant
  • #37
  • Apr 21, 2013 2:34am Apr 21, 2013 2:34am
Quoting Benevolent
Stop hunting is such a vague and cryptic term these days. That is NOT all there is to orderflow trading imo. A better way to visualize the stop-hunting process is to think about what is happening in terms of auction theory: it's value trading. It's a cause/effect relationship between price and value, the effect just happens to be stops get hit, and 'some' traders get fantastic pricing. If I could give any advice to any individual who wants to learn orderflow, I would suggest to stop trying to trade the stop-hunting process that so many think is...
Hi,

I've been using the DOM mostly for entering trades/placing orders, but have not found much value in watching it. However, in futures we can see the price areas that traded with the highest volume. This can often be a good indicator where price will head in the short-term and during the trading day we often see the high-volume price area getting re-tested (especially in ES & YM). It's a better way to see "true S/R" than just noting the recent highs and lows. I assume this is what you meant with "true inventory"?

Would you like to explain a bit how you use the DOM and if you use volume in a similar way like I described above?
  • #38
  • Apr 21, 2013 4:39am Apr 21, 2013 4:39am
Stop hunting with keeping macroeconomics and market sentiment is a part of OFT, Stop hunting solely based on a price chart is just breakout trading or whatever you want to name it.

Because if you dont know 1)whats the current market sentiment is in terms of RoRo and fundamentals 2)where/why the orderflow will be generated that will push market towards the stops, then it becomes a guessing game like most other trading methods. You still could make money no doubt especially if have looked at enough stop hunt plays in action but it still will be a hit some miss some.

You throw away the edge that is the very essence of OFT when you stop thinking about

when/how/why orders will hit the market?
What's the current market positioning?
.
  • #39
  • Apr 21, 2013 5:02am Apr 21, 2013 5:02am
Quoting nasir.khan
Stop hunting with keeping macroeconomics and market sentiment is a part of OFT, Stop hunting solely based on a price chart is just breakout trading or whatever you want to name it. Because if you dont know 1)whats the current market sentiment is in terms of RoRo and fundamentals 2)where/why the orderflow will be generated that will push market towards the stops, then it becomes a guessing game like most other trading methods. You still could make money no doubt especially if have looked at enough stop hunt plays in action but it still will be a...
Exactly, without sentiment it would be simple breakout trading and we know all that this method will do rather poor over a longer timeperiod.

I do not see the stops as the key factor for the method I apply, but rather as a way to determine high-probability targets. What's making the strategy profitable over the long run, is sentiment reading and the metagame approach to trading.

Sentiment - the main driver of markets. Are flows going into risk assets or safe havens? What are the key global macro topics traders are monitoring?

Metagaming - Identifying the weak side of the market through reading price action & targeting their stops. Intermarket analysis can help here (i.e. intermarket divergence).

IMHO, if you just gonna focus on technicals and not give a shit about sentiment/fundamentals/positioning, you will never do much better than breakeven or small profits in the long run.

There is a lot of cryptic stuff about OFT on this forum, but it is only as complicated as you make it for yourself.
  • #40
  • Apr 21, 2013 5:38am Apr 21, 2013 5:38am
hmm, looks like i do OFT

Swing trading. this is how 2 years equity curve of OFT swinging looks like

http://www.forexfactory.com/attachme...3&d=1352027849

Play it for 2 years. Now year 3 and 0.5 risk down so far. I also use stops.

I am trying hard to get my first 6 digit win.
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