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  • #2,701
  • Jun 17, 2013 2:38pm Jun 17, 2013 2:38pm
Man watch these presentations of Peter Davies from "jigsawtrading" :
Inserted Video


Hope it would make some sence to U. Overall all orderflow trading is applied in futures and stock markets by whatching the Orderbook (DOM) or level2 screen together with time and sales, it does not apply in Forex as there is no volume there which is available for simple human beyngs..

Allso reading the tape is not an easy craft to master it takes a lot of screen time spent crunching the numbers and understanding the game being played by bigger boys moving SIZE.
  • #2,702
  • Jun 17, 2013 2:51pm Jun 17, 2013 2:51pm
Quoting dappa
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...
The market is an "auction". There are people interested in selling the security, and there are people interested in buying the security. Naturally, as you can imagine in an auction, if lots of people want to buy something which is low in supply then they have to pay up for it - keep chasing the price higher. And why's it going higher? Because people aren't interested in selling to them at lower prices, and all the sellers who may have been selling at the lower prices have been filled and there is still interest in buying, so the "auction" process continues to try to match these eager buyers with sellers at the next best prices - at higher prices. Buyers want to buy low, sellers want to sell high. Sometimes people just want to enter/exit the market at whatever price. All this buying and selling, all these orders slamming into the market, create "pressure" one way or another (again think "auction" - if lots of people are eager to buy some item off ebay, and bid against each other, the price will continue rising - it's not a perfect example but you get the point) and so move the "market" (the current prices at which trade can take place).

If that makes sense, then you can see that if the market is ranging, it's because there is more interest in buying than selling at the lows and more selling than buying at the highs. That's obvious I guess but that's really all there is to it. Of course you could get into the motives of the market participants and try to deduce what is going on, but from a supply/demand perspective that's about it.


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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?
I assume you mean a breakout. So yes at that point the "demand" overwhelms "supply". Let's take gold, so if gold is in a range and there are people interested in selling the top of the range looking for it to go down again (let's say there's 100 contracts to sell at the top), then near the top someone buys 100 contracts (which matches/gets filled by our sellers at the top) and then throws another buy order for 100 contracts, there isn't any "supply" left to fill this buyer's demand so the auction process must go higher to match this buying with more selling interest above. And as long as the buy orders coming in and outweigh the selling orders, the market will have to keep going higher to match the "demand" for gold with "supply" (people will to sell) further up.


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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?
The move out of a range will generally be market orders because you have stop orders building up outside the range, from range traders getting stopped out and from breakout traders getting in - stop orders are market orders, just "stopped" from hitting the market until triggered by price.

So why would one want to buy the range highs after a breakout via a limit order? Remember that the purpose of an order is to get a position in the market. You don't want to pay up and you don't want to move price against yourself. If you're filled on a limit order then you're buying the bid (so not paying spread, which means you buy a lower price than a market order at the same point in time) and you're not moving the market against you (and not getting slipped). So naturally if you're interested in buying below market, a limit buy order is the best option.

Remember that demand is basically buying interest. That can come in the form of market or limit orders. So it would be incorrect to think that you won't get a bounce if there are lots of limit orders rather than market orders at some level. In fact that is precisely what will turn the market, a nice chunk of limits. Obviously it's not only one or the other, there are people slamming in all sorts of orders for all sorts of reasons. Also market can move simply by limits being moved up/down as people try to get a fill or get out for as small a loss as possible. etc etc

Don't worry too much about what types of orders are used. Just worry about whether there is demand at a level, and more importantly *why*. Whether it comes in the form of limits or markets, if you're buying a retest then all you need is for demand to outweigh supply.


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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...
I couldn't say for sure but I believe congestion = low volume, i.e. not much being transacted in that area and whatever is being transacted on each side is sufficiently equal as to not push price really one way or another much. Mind you I don't consider congestion to be ranging, though you appear to equate the two above.

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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?
Market order that drives price out of a range or congestion = surplus of demand. Otherwise it wouldn't have had that effect on the market.


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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...
Don't make it too complicated for yourself. If you want you can read up on market microstructure to understand exactly how orders work and what effect they have etc, you don't need to become an expert in this field just a decent understanding of the basics will do, but it's unlikely to be revelatory. In fact I'll attach a file here that I wrote some years ago describing order types and their effect on the market, might be a few errors and it's not exhaustive by any means but I think if you understand that then that's all the microstructure you need.
Attached File(s)
File Type: pdf orders.pdf   117 KB | 1,285 downloads
  • #2,703
  • Jun 17, 2013 3:29pm Jun 17, 2013 3:29pm
Hi there, thank you so much for your response, it helped! Will look at the PDf.

Now from the statement you made about market orders , I am guessing that where market orders came in signifies an interest, that's it, an interest to buy at that level or sell at that level, therefore the possibility of traders coming in again when price retraces back to that level , wether it be market orders or standing orders. There is a high probability that interest to sell or buy will remain in the form of limit or market order, am I correct in my enterpretation?

So with forex, being we have no DOM we just have pass price levels to look at, that's all we can deduce from charts, the probability?

Now is there any other way to gain an edge to pick with some decent level of accuracy where the demand and supply may come back in and I mean not soley by looking at where price left, but anything else besides a chart or even just something that might be subtle and isn't in front of your face but someone more seasoned in trading see's it and knows what it is. lol.. Just grasping at straws here, but I get what you have conveyed over in your post.
  • #2,704
  • Jun 17, 2013 3:42pm Jun 17, 2013 3:42pm
You know to be honest, I get the whole supply and demand concept, my thing is pick the zones where that equilibrium is tip to one side and getting in to riide it.

Second , sorry for all the questions, but a pull back to a zone, what causes a pull back, is it the same concept( supply and demand) is it that when the price left the zone, the orders got filled on itas way away from the zone and on the way back to the zone which would be a market order looking to get filled , correct me if I'm wrong, more orders come back in to sell or buy at that level (initial level) Would this bean example of how orders are stacked at a level?

Now I guess you would never know if its stacked orders or market orders that cause a move away and does it really matter? Thanks Eurotrash for your responses and also Putamadre ,I will take a look at the video.
  • #2,705
  • Jun 17, 2013 3:45pm Jun 17, 2013 3:45pm
Man the point is that you shuold whatch the DOM and understand the game is beyng played by bigger players if you want to pint point your entries, because you wuold not be abble to see them on your mickey mouse charts , in most cases bigger players know were your levels are, so they would acumulate posittions somewhere bellow or above them then run the level creating the panick and close in to it...Thats how they make money, and most of them are wery short term they aim 5 - 4 ticks on very hudge volume 1000 of contracts, read about Paul Rotter the man is bigger individual player in Eurex..

Ps. you will find some info about pullback on Peter Davies videos, they usually are created by vacume in liquidity, because market makers or other players where not quick enough to fill in theyr limit orders especially after a sustained push.
  • #2,706
  • Jun 17, 2013 3:56pm Jun 17, 2013 3:56pm
Quoting PutaMadre
Man the point is that you shuold whatch the DOM and understand the game is beyng played by bigger players if you want to pint point your entries, because you wuold not be abble to see them on your mickey mouse charts , in most cases bigger players know were your levels are, so they would acumulate posittions somewhere bellow or above them then run the level creating the panick and close in to it...Thats how they make money, and most of them are wery short term they aim 5 - 4 ticks on very hudge volume 1000 of contracts, read about Paul Rotter the...

Thanks bro! Well in forex there is no DOM, so I'm guessing you would be referring to futures? Now if so , would that correlate to spot fx?
  • #2,707
  • Jun 17, 2013 4:03pm Jun 17, 2013 4:03pm
FX futures moves indetically to spot, but still most of the volume is made in OTC markets ...
  • #2,708
  • Jun 17, 2013 4:20pm Jun 17, 2013 4:20pm
Quoting dappa
Hi there, thank you so much for your response, it helped! Will look at the PDf. Now from the statement you made about market orders , I am guessing that where market orders came in signifies an interest, that's it, an interest to buy at that level or sell at that level, therefore the possibility of traders coming in again when price retraces back to that level , wether it be market orders or standing orders. There is a high probability that interest to sell or buy will remain in the form of limit or market order, am I correct in my enterpretation?...
I don't believe it's necessarily so. Just because there *was* interest to buy/sell somewhere doesn't mean there will be again next time round. It might be more likely in the case where price makes a low, and then later on we come down to it again and the previous low is obvious to all - in that case there will undoubtedly be people looking to buy the previous lows, though they may well be the "weak hands" and get shaken out.

This is how I view range breakouts. In fact this is how I view much of the market. In a range people will be selling the highs and buying the lows. When the market breaks out (let's say to the upside), you have those who sold the highs in a world of pain. Sure some will have puked but lots will still be holding. And especially after some times passes, the pain intensifies. If it comes right back down then they'll just be relieved, maybe some will have been away from their computers and missed the whole move against them. But if it stays to the upside long enough, going further against them etc, it start to hurt more and more. When (if) the market comes back to the area they're on their knees praying that they can get out as close to breakeven as possible. As soon as the market comes down to where they fear it might bounce against them, they buy back their shorts in relief. These buying orders are demand. Some hold, hoping that it will now go down and they'll make a profit on the trade after all. When it starts bouncing, they buy at market to get out. (You can create a hundred other scenarios for where they might puke but the idea's the same.) Also you get those who wanted to buy the breakout and missed out, or those who know it often bounces on the retest, bidding on the level as well - and they'll be vying for liquidity with the shorts who want to puke for as small a loss as possible, and some in the two groups will have to pay up to get a fill either cause they didn't get a fill at their price or wanted confirmation or whatever, and up we go. (Plus the idiots who sold into the retest now puking their shorts as well on the way up, as well as top pickers, etc etc.)


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So with forex, being we have no DOM we just have pass price levels to look at, that's all we can deduce from charts, the probability? Now is there any other way to gain an edge to pick with some decent level of accuracy where the demand and supply may come back in and I mean not soley by looking at where price left, but anything else besides a chart or even just something that might be subtle and isn't in front of your face but someone more seasoned in trading see's it and knows what it is. lol.. Just grasping at straws here, but I get what you...
See above. I'm talking support/resistance but if you understand what's going on then you're not just trading random lines on your screen, you're trading people. Whose actions, granted, show up as lines on the screen. Also you have to bear in mind the market context, what is going on, what do people care about, when bullish or squeezy the slightest previous resistance may act as solid support but when bearish you might need some proper solid level to stop price... stuff you learn with experience I guess.
  • #2,709
  • Jun 18, 2013 12:17pm Jun 18, 2013 12:17pm
Small range is made by market makers or big guys who take control the market at that time. They may be waiting for order or cleaning their order.
Big range is making out for both sides to build their long/short, and show their force to find the way to move the market.

Only big guys can hear or see or test the market to know where is the clusters of orders in their dealing systems. It is not reliable to use price or price action or news to assess where is order flow for small traders, total waste of time, and miss understanding.

Another mis-understanding is big orders would move price. It is not the case. Sometime, didn't hear order flow noise, price is also moving. Sometime, huge noise (huge orders gone through), price move only 10 pips. Small orders, consistent buying, the price can strongly move higher. Small order can move price when price is at or near a key level.

Watching a moving average line along with price to gauge order flow may be better way in live trading for most of retail traders. Theory (or logic) is only there is buying orders go through, then, ma line would go higher, and price would go higher sustainable, then, you can expect price to move up 200 pips.
  • #2,710
  • Jun 18, 2013 1:02pm Jun 18, 2013 1:02pm
Quoting Jack168
Small range is made by market makers or big guys who take control the market at that time. They may be waiting for order or cleaning their order. Big range is making out for both sides to build their long/short, and show their force to find the way to move the market. Only big guys can hear or see or test the market to know where is the clusters of orders in their dealing systems. It is not reliable to use price or price action or news to assess where is order flow for small traders, total waste of time, and miss understanding. Another mis-understanding...

So how do you look at order flow then? just curious
  • #2,711
  • Jun 18, 2013 5:57pm Jun 18, 2013 5:57pm
Quoting Jack168
Small range is made by market makers or big guys who take control the market at that time. They may be waiting for order or cleaning their order. Big range is making out for both sides to build their long/short, and show their force to find the way to move the market. Only big guys can hear or see or test the market to know where is the clusters of orders in their dealing systems. It is not reliable to use price or price action or news to assess where is order flow for small traders, total waste of time, and miss understanding. Another mis-understanding...

I disagree with this post. Marker makers make up for a lot of activity, sure. But they aren't the 'cause' of why price comes to a balanced range. There's a few books out there that have market makers explain they are dynamic with the market, and adjust inventory accordingly.
  • #2,712
  • Jun 19, 2013 8:42am Jun 19, 2013 8:42am
Quoting Benevolent
{quote} I disagree with this post. Marker makers make up for a lot of activity, sure. But they aren't the 'cause' of why price comes to a balanced range. There's a few books out there that have market makers explain they are dynamic with the market, and adjust inventory accordingly.



This is one of the things that I can’t understand, you see how everyone has a different interpretation of how the markets work, and that is confusing to anyone trying to learn. On person says something contrary to another. So who is right?
  • #2,713
  • Jun 19, 2013 9:55am Jun 19, 2013 9:55am
Quoting dappa
{quote} This is one of the things that I can’t understand, you see how everyone has a different interpretation of how the markets work, and that is confusing to anyone trying to learn. On person says something contrary to another. So who is right?

I look at it this way Darpa. You can have a room full of economists, and each individual will have their own theory for how the economy operates as a whole (Keneysian vs Austrian economists for instance). It's no different in the orderflow world.
  • #2,714
  • Jun 21, 2013 12:25pm Jun 21, 2013 12:25pm
Quoting eurotrash
{quote} I don't believe it's necessarily so. Just because there *was* interest to buy/sell somewhere doesn't mean there will be again next time round. It might be more likely in the case where price makes a low, and then later on we come down to it again and the previous low is obvious to all - in that case there will undoubtedly be people looking to buy the previous lows, though they may well be the "weak hands" and get shaken out. This is how I view range breakouts. In fact this is how I view much of the market. In a range people will be selling...
Hey can you Pm me?
  • #2,715
  • Jun 22, 2013 4:56pm Jun 22, 2013 4:56pm
I have another question about order flow,now if market orders move price, when you have a stack of sell orders at a certain price, the only way that price can advance is if those market orders consume all standing orders?

So market orders always move price?

So , now how could a stack of limit orders at a certain price cause a shift in supply and demand at a certain level if market orders move price, wouldnt a surplus of standing orders remain where it is if the surplus of demand/supply of market orders were not sufficient to eat through the stack of limit orders?

Meaning that the market orders will chip away at the standing limit orders and if that demand/ supply is enough then the quotes will move to the next stack of liquidity, hence the quote moves?
  • #2,716
  • Jun 22, 2013 4:58pm Jun 22, 2013 4:58pm
So one should be more concerned with market flow in the sense of market orders and not standing limit orders at a level of high and low, because the only orders that would have moved the price would be market orders?
  • #2,717
  • Jun 23, 2013 12:57am Jun 23, 2013 12:57am
Market orders consume liquidity whilst limit orders supply liquidity.

Market buys will move price up, depending on the liquidity available. If you put a huge buy order in during a bank holiday, price will move. If that same buy order went in during a US/London session after holiday then liquidity will be greater and price won't move as much.

A decentralized market like Forex is hard in tracking order flow bc it is 'OTC'. I'd suggest using order flow on markets with regulated exchanges where you have access to the market and see real volume. ie; euro futures as opposed to Eur/Usd spot.
  • #2,718
  • Jun 23, 2013 1:15am Jun 23, 2013 1:15am
Quoting EmeraldEyes
Market orders consume liquidity whilst limit orders supply liquidity. Market buys will move price up, depending on the liquidity available. If you put a huge buy order in during a bank holiday, price will move. If that same buy order went in during a US/London session after holiday then liquidity will be greater and price won't move as much. A decentralized market like Forex is hard in tracking order flow bc it is 'OTC'. I'd suggest using order flow on markets with regulated exchanges where you have access to the market and see real volume. ie;...


Thanks for the reply! Appreciate the help!

Market orders move price, plain and simple? When you see price move away from a demand zone, its market orders that caused that , not limit orders stacked at that level?

Cause standing order only provide liquidity for market orders which will create pressure(market Orders) one way or the other at these levels?
  • #2,719
  • Jun 23, 2013 1:17am Jun 23, 2013 1:17am
Quoting dappa
{quote} Thanks for the reply! Appreciate the help! So when market orders move price, plain and simple? When you see price move away from a demand zone, its market orders that caused that , not limit orders stacked at that level? Cause standing order only provide liquidity for market orders which will create pressure in one way or the other at these levels?
Stop Orders (also) = Market Orders
Time hides Nothing
  • #2,720
  • Jun 23, 2013 5:09am Jun 23, 2013 5:09am
Quoting LiquidityGAP
{quote} Volume is relatively easy to see in Forex, its simply the size of the candle sticks. The strongest volume will always create the largest candles, e.
Not at all true... You may have thin markets causing extended moves, simply because there is only one directional flow. Or on the other hand you may have 2 directional flow limiting any extended move in either direction, despite high "volume".
Time hides Nothing
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