What is order flow trading? | Forex Factory

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What is order flow trading?

  • #1
  • First Post: May 21, 2013 3:24am May 21, 2013 3:24am
Hello Friends

I am quite new to this concept ,If someone here please explain me what is this all about? What exactly is order flow trading and how it works?

Thanks and regards
Eagleprice
  • #2
  • May 21, 2013 3:32am May 21, 2013 3:32am
Sry dude but there is no spoon feeding in trading. There are some pretty nice threads about order flow in this forum. Everything you must do is using the search function.

I'll give you a little hint: Order flow is the theory about orders which are causing moves.
  • #3
  • Edited 5:02am May 21, 2013 3:37am | Edited 5:02am
Order flow trading involves using level2(DOM) information to trade around big orders and cluster points in the market. In my opinion, a useless strategy in forex as it's not a centralised market and the level2 information you're seeing via a forex broker is only your brokers order book which is 0.00001% of the entire market and won't indicate true orders/bias in the market.

Even in a centralised market like currency futures... using the order book to determine possible momentum is not reliable. There is nothing to stop artificial bid/offers being put on the book to entice price seeking and then once price reaches these points... the bids/offers magically disappear. It's thought market players purposely carry on these tactics to direct the herd specifically when they want to do the opposite of what the level2 information suggests is happening.

Regards,
  • #4
  • May 21, 2013 3:39am May 21, 2013 3:39am
"order flow trading" is a label used by someone to sell his brand of trading.
  • #5
  • May 21, 2013 4:03am May 21, 2013 4:03am
It does exist but it takes real talent or golden skill to read orderflow...took me about 4 months before I could get the concept...i recommend that you get yourself into a good advanced class because you cant expalain it using words
  • #6
  • May 21, 2013 4:08am May 21, 2013 4:08am
Quoting TranceTrader
Order flow trading involves using level2(DOM) information to trade around big orders and cluster points in the market. In my opinion, a useless strategy in forex as it's not a centralised market and the level2 information you're seeing via a forex broker is only your brokers order book which is 0.00001% of the entire market and won't indicate true volume. Even in a centralised market like currency futures... using the order book to determine possible momentum is not reliable. There is nothing to stop artificial bid/offers being put on the book...
Sorry, but that is nonsense.

Order flow trading is much more than DOM trading and can be applied in any market, whether FX Spot or Futures. You don't even need volume data to apply OFT concepts.

Check out some of the old threads about OFT here on FF and you'll see that there is much more behind it, please don't spread misinformation.
  • #7
  • May 21, 2013 4:09am May 21, 2013 4:09am
Quoting TranceTrader
Order flow trading involves using level2(DOM) information to trade around big orders and cluster points in the market. In my opinion, a useless strategy in forex as it's not a centralised market and the level2 information you're seeing via a forex broker is only your brokers order book which is 0.00001% of the entire market and won't indicate true volume. Even in a centralised market like currency futures... using the order book to determine possible momentum is not reliable. There is nothing to stop artificial bid/offers being put on the book...

A perfect explanation.
You can remain irrational longer than you can remain solvent.
  • #8
  • May 21, 2013 4:18am May 21, 2013 4:18am
Maybe you'd like to enlighten me with what I'm missing? I see lots of different explanations for order flow trading (some using charts only?) but from my research on the subject, the description above best describes the strategy.

If you can provide convincing contrary evidence then I will happily stand corrected.

Regards,

Quoting CaymanTrader
{quote} Sorry, but that is nonsense. Order flow trading is much more than DOM trading and can be applied in any market, whether FX Spot or Futures. You don't even need volume data to apply OFT concepts. Check out some of the old threads about OFT here on FF and you'll see that there is much more behind it, please don't spread misinformation.
  • #9
  • May 21, 2013 4:18am May 21, 2013 4:18am
Lot of confusion around this concept ,There is no clear information about this on the internet when I tried to go deep in to this I found out lot of them are selling some books,software etc I digged for 2 days and also found out that it reverts us back to the old concepts and time where people trade without charts using Tape reading,Market microstructure and also it gave some notes on stop hunting , technical pattern rationalization etc,Even some quoted that Order flow is a part of analysis just like Fundamentals and technicals,Can anyone give some ideas on where to find more about this?
  • #10
  • May 21, 2013 4:26am May 21, 2013 4:26am
Quoting TranceTrader
Maybe you'd like to enlighten me with what I'm missing? I see lots of different explanations for order flow trading (some using charts only?) but from my research on the subject, the description above best describes the strategy. If you can provide convincing contrary evidence then I will happily stand corrected. Regards, {quote}
I invite you to take a look at the following threads:

http://www.forexfactory.com/showthread.php?t=277925
http://www.forexfactory.com/showthread.php?t=274208

Reading a few pages should be enough for you to see that there is a lot more behind it than DOM trading.

There is no set definition for order flow trading, but I call my strategies order flow strategies because I don't just trade certain patterns, but include my knowledge about microstructure (i.e. importance of liquidity in markets) and apply sentiment analysis. While I can't know what hedge funds are doing and by the time I find out, it will be irrelevant, but I take advantage of certain market inefficiencies that occur quite frequently. Stops are just one form of it.

Yes, it takes a lot of effort.
No, it does not require a DOM or volume data.
  • #11
  • May 21, 2013 4:27am May 21, 2013 4:27am
My understanding of OF is this: Its the art or science of identifying regions where stops and entries of sizable quantity are.
It is perhaps related to supply/demand/ sup/res but is not quite the same. A field full of subjective reasoning. Perhaps its a cat and mouse game of one entity trying to hunt another's stops or forcing someone to follow them in order to gain influence for their market decisions.
Politics of Trading


Quoting Eagleprice
Hello Friends I am quite new to this concept ,If someone here please explain me what is this all about? What exactly is order flow trading and how it works? Thanks and regards Eagleprice
  • #12
  • May 21, 2013 4:32am May 21, 2013 4:32am
Quoting shiva
My understanding of OF is this: Its the art or science of identifying regions where stops and entries of sizable quantity are. It is perhaps related to supply/demand/ sup/res but is not quite the same. A field full of subjective reasoning. Perhaps its a cat and mouse game of one entity trying to hunt another's stops or forcing someone to follow them in order to gain influence for their market decisions. Politics of Trading {quote}
Good post. The part which I marked in bold font describes it much better.
  • #13
  • May 21, 2013 4:41am May 21, 2013 4:41am
Can you explain in a nutshell what I'm missing? I'm happy to be proven wrong but until you list convincing contrary points to my post and don't just send me off to a couple of threads to get lost in... I'll stick with with my current opinion of order flow trading.

Market microstructure is a specific subject not attached to "order flow trading" in my opinion, but could possibly be used alongside it for confirmation. You also mention that there is no set definition for order flow but yet you are quick to point out that my explanation is nonsense. If you have some hybrid strategy which you call order flow trading by your own definition then I don't think this is a fair argument.


Quoting CaymanTrader
{quote} I invite you to take a look at the following threads: http://www.forexfactory.com/showthread.php?t=277925 http://www.forexfactory.com/showthread.php?t=274208 Reading a few pages should be enough for you to see that there is a lot more behind it than DOM trading. There is no set definition for order flow trading, but I call my strategies order flow strategies because I don't just trade certain patterns, but include my knowledge about microstructure (i.e. importance of liquidity in markets) and apply sentiment analysis....
  • #14
  • May 21, 2013 4:45am May 21, 2013 4:45am
Quoting CaymanTrader
{quote} Good post. The part which I marked in bold font describes it much better.
Does it means like finding what big guys are doing in this game and guessing which level they are placing their orders? You mean to say that they hunt our stops in order to make us follow them ,Please don't be much complicated Explain in simple terms
  • #15
  • May 21, 2013 4:48am May 21, 2013 4:48am
"A field full of subjective reasoning. Perhaps its a cat and mouse game of one entity trying to hunt another's stops or forcing someone to follow them in order to gain influence for their market decisions. Politics of Trading"

Sorry but this is exactly what I describe in my original post, do you just dislike the fact that I feel it's not a useful strategy?

Quoting CaymanTrader
{quote} Good post. The part which I marked in bold font describes it much better.
  • #16
  • May 21, 2013 4:50am May 21, 2013 4:50am
Quoting TranceTrader
Can you explain in a nutshell what I'm missing? I'm happy to be proven wrong but until you list convincing contrary points to my post and don't just send me off to a couple of threads to get lost in... I'll stick with with my current opinion of order flow trading. Market microstructure is a specific subject not attached to "order flow trading" in my opinion, but could possible be used a long side it for confirmation. You also mention that there is no set definition for order flow but yet you are quick to point out that my explanation is nonsense....
You need to think out of the box! It is more of a trader's mindset than a specific trading method, which is why there is no clear definition. It seems more complicated as it really is, because it requires a deeper understanding about other market participants and their psychology.

I see market microstructure and understanding of market sentiment/psychology as key components of it.

What I didn't like in your post specifically, is that you claimed it is useless without Level 2 data - like if it is a specific method and can't applied in many different ways.

You may have your definition of OFT, I have mine and that's okay. I just wanted to make it clear for people new to this that it is not bound to Level 2 data or Volume data. There is much more than that to explore.
  • #17
  • May 21, 2013 4:55am May 21, 2013 4:55am
Fair enough, but order flow trading in the general sense (when traded through centralised markets) is very similar to the process I describe. It does however become open to interpretation in spot forex as the main component for determining the order flow is not available (accurate level 2 / volume / time & sales).

I'm not saying order flow or a hybrid of conventional order flow trading can't be profitable, I just think the logic behind it is hard to validate... much like most strategies (even my own).

Quoting CaymanTrader
{quote} You need to think out of the box! It is more of a trader's mindset than a specific trading method, which is why there is no clear definition. It seems more complicated as it really is, because it requires a deeper understanding about other market participants and their psychology. I see market microstructure and understanding of market sentiment/psychology as key components of it. What I didn't like in your post specifically, is that you claimed it is useless without Level 2 data - like if it is a specific method and can't applied in many...
  • #18
  • May 21, 2013 5:29am May 21, 2013 5:29am
Quoting TranceTrader
I just think the logic behind it is hard to validate... much like most strategies (even my own). {quote}
Good point. It takes many, many hours observing markets and taking notes to get there, but it pays off once you have your own method which you can trust. This is in general the key reason why many traders fail to copy other people's strategy - it's just not the same if someone explains it to you quickly and you go in the market applying it or if you start from the scratch and build something on your own.

Good luck to you
  • #19
  • May 21, 2013 5:36am May 21, 2013 5:36am
I couldn't agree more

Quoting CaymanTrader
{quote} Good point. It takes many, many hours observing markets and taking notes to get there, but it pays off once you have your own method which you can trust. This is in general the key reason why many traders fail to copy other people's strategy - it's just not the same if someone explains it to you quickly and you go in the market applying it or if you start from the scratch and build something on your own. Good luck to you
I wrote about it here http://www.forexfactory.com/showthread.php?t=426829 after doing some analysis on my own performance.

"If someone else can make money with a specific strategy but another person can't... does it mean the strategy isn't profitable? (I've gone through this process many times ruling out supposedly profitable systems) or does it simply just highlight a gap between where you are now and where you need to be PERSONALLY to be profitable."
  • #20
  • May 21, 2013 5:42am May 21, 2013 5:42am
Quoting TranceTrader
I couldn't agree more {quote} I wrote about it here http://www.forexfactory.com/showthread.php?t=426829 after doing some analysis on my own performance. "If someone else can make money with a specific strategy but another person can't... does it mean the strategy isn't profitable? (I've gone through this process many times ruling out supposedly profitable systems) or does it simply just highlight a gap between where you are now and where you need to be PERSONALLY to be profitable."
Nice thread, I'll post some of my own experiences in there later.
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