(binned per thread starter's request) Behind Price-Orderflow

I'll post my understanding so far...


That might be true during the London session...but also might not during some other times.
Point being, there are circumstances when you could (theoretically) move the market using $1 to run it into the stops that will buy millions (and provide you the chance for selling millions, of course).

$1 : $1,000,000 is a nice ratio

PS.

at the end of the day, does it really matter if it's intentional or not? i mean, from our point of view, assuming we're FF members and not banks, dealers or whoever we point our finger to as being a 'big, smart money'

stops are or aren't hunted by the market. as long as their position is predictable, does it really matter what reasons market had to trigger them?

I suppose for me this is the biggest area of contention, because I have no problem with the concept of stop-orders being hit and causing a little run, I just find it illogical for someone to do it on purpose.

I think people give too much credit to the smart money, and think everything is a scheme to screw over retailers. Look at hedge fund performance last year, the average return was a loss IIRC. I'm not very intimidated by that .

I do try and figure out where stops/limits are likely to be when I'm putting on an order, but it's the idea of intentional hunting that doesn't make sense to me.

Stops are definitely intentionally hit and used to take positions and liquidate in this market. Why? been discussed a million times and in darkstars book.

I think you have it a little misconstrued Halifax... who says they are trying to screw over Retail????

However its a little more complicated then just knowing where the big stops are. Nobody thinks its that easy do they?

And agreed, big money does not always mean smart money lol.


jesus, nobody can let this thread RIP....

Fast summary of why - this will lack many details, but it'll give you the general idea:

Your holding a long positionof $50 million eur/usd from 1.2510. Price is right now at 1.2535. For whatever reasonm, you know there are over $100 million in stops between 1.2542 and and 1.2550.

you see the market is being sold off... but if you go to cover your 20 million right now by selling 20 million... you might push price back down to your entry point. heck, because there is lots of selling at 2530-2540, you might help them push it all the way back UNDER your entry point...so you obviously lose a lot of your profit this way.

You realize the guys selling at 2530-40 have their stops around 2542-2550.

So, you start buying into them... because you need to get to their stops in order to dump your order.

you start buying...and quickly acquire 90 million more of a long position...which brings your total holdings to Long $110 million in eur/usd.

But now, you've consumed all the sellers, and you hit their buy stops.

As soon as you do, you start dumping, dumping the entire $110 million.

the stops absorb about $100 million worth..and you then have a quick drop down with the last $10 milllion sold.

by pushing into stops, you were able to basically get out at a higher price, for a larger dollar amount, making more profit, and being able to get another $10 million short which is profitable almost instantly (since there were no more buy orders to match your sell orders)

For all these reasons, they push into stops. The bottom line is big sellers and buyers can't get out where they want, they can only get out where the market will let them.

It just so happens by using the stops of other traders, you can force them to lose their position at a loss, while you are able to profit by getting out both where you want to, and where you need to.

X

commercials provide liquidity coz they use limit orders....the market maker has to find liquidity to fill large orders hence looks for stops.he usually frontruns a big customer order with positive expectation.

big speculative customers also seeks to get out of his position at places where stops are deemed to be to avoid prices returning from where he bought.

also the market maker has to always hedge hence he shorts during rallies and vice versa so he is interested in squeezing the longs or short when in extremes for extra profit.

all this factors play in the charts and most of it can be taken advantage of.

Oh jeez, another hindsight thread. Go figure. Instead, this time we know what was going through each traders mind.

Donkey's all around me.

who do you have on mind when you say commercials?

I was always wondering why would fib levels work. Even regardless the fact of their accuracy I never even saw an explanation other than 'a lot of people look at them'. But, why have hey started looking at them in the first place? Is there anything measurable behind the concept? Never seen any thoughts about it (probably because of reading wrong things).

After this topic i come to the conclusion that there might be some math/psychology behind it. It now seems to me that they are functions of time that it took for price to make some move. Having on mind what actually a retracement level is, or in other words, what makes price to stop at some level - then we surely see relation between impulsive and corrective moves.

PS.
My apologies to all for constantly bringing this topic out of dead but it completely changed the way i look at the market. The best thing is - it made me think about each single moment when i look at the market. And that's something. Thanks again to everyone.

OMG! LOL!! Basically sums up consumer 'driven' society. How sad and ridiculous and a waste of money that could be better spent where people really need it.

Technical players use tech levels to place their orders. Fundamental players use fundamental analysis but may still use tech levels to enter and exit their position. Other players may pay attention to tech levels because they know that tech players use them. So this all makes major tech levels attract orders and creates areas of concentrated liquidity which make the price bounce off of that level (depends on market conditions and strength of order flow). After the bounce the price may go further away from the level or break it - this depends on other things and has nothing to do with the level itself. Using this information alone you can create a profitable trading strategy.

Exactly, I'd suggest to read some of Carol Osler papers and it will open your eyes regarding this matter
Technical analysis - a self-fulfilling propecy.

Just my 2 cents..

Well said! Thanks for your insight Forextraderx

VB

I would just like to take the opurtunity to thank you. Your charts and your explanations have been with me for many years. I have looked at them often and at times felt i was close to understanding them. Now i am even closer. Like you i try to spread knowledge, and i often think of you and your charts when i do. Maybe i would not be doing what im doing if it wasnt for you. So again: Thank you.

My point being, you now have to close say 300 mio on top of the original amount you wanted to fill.

This 1)seems illogical, why make your starting position worse in order to get the stops of some insignificant retailers? 2) You will be fighting the market, because you are trading at price extremes against the majority.
-----------------------------------------


1)No, you're wrong. It's not just about retail stops but Institutionnals or Smart Money stop loss order too.

2) That's why there isn't always stop hunting.

i add something here to.. might be interresting to some...


how, informed/stronghands/smartmoney.. / mumbojumbo.. /etc..

use market mechanics + understanding of orderflow + market psychology+ deep pockets to make some quick bucks
one of manny ways thou how such a campaign may be conducted..





cheers

nice interview of a guy how knew the game and how to play it .. just awesome.. Paul Rotter aka "the Flipper"

http://www.traderdaily.com/08/insight-from-the-flipper-catching-up-with-paul-rotter/

http://www.trading-naked.com/library/paul-rotter-trader-monthly.pdf



The Flipper is called the Flipper because he flips. What is flipping? Let’s say the Bund is trading near a “support level”. The Flipper might have bids in all three markets. He might be bid 400 contracts in the Bund, 800 in the Bobl and 2,000 in the Schatz. His bids make the market look strong but in reality, he has been getting short. When he feels the time is right, he pulls his bids and then offers several thousand across all three markets. He reverses or “flips” his size. His flipping causes a chain reaction. Hyper day traders sell to get short because they are hoping for a sharp break. Weak longs sell to get out because they’re already down 4 ticks and don’t want to lose 8 ticks. While everyone else is selling, the Flipper is buying back his shorts and profiting substantially on a move that he helped create. He helped create it because he trades Size.

another interresting read , from an Ex Prop Trader

One from my own personal experience.

I briefly worked for a firm which was applying statistical arbitrage models to related stocks. I won’t bore you with the details but basically we would pick two stocks in the same industry, health care for example, and buy one and sell the other one. One day, one of the stocks I’m long, ICOS, is halted from trading (ICOS is no longer publicly traded). This is usually very, very bad. So as we await the news, I’m contemplating exit strategies. As luck would have it, the company released a statement saying it had developed a new product which had officially been approved by the FDA. The stock re-opened over $2.00 higher. I had 1,000 shares. Nice lottery win. So what happens next? It goes up, of course. It goes up about another $1.00 and then something very interesting takes place. At something like $32.50 per share ( I don’t recall the exact price), it stops. It doesn’t stop because there aren’t any more buyers. There are plenty of buyers. It stops because someone with a lot of money (or a lot of shares to dump) has decided that $32.50 is the perfect place to sell.

I start watching the time and sales. For those of you who don’t know what that is, it’s the screen which shows the actual trades taking place. So you can see that 100 shares traded at $32.50, 500 traded at $32.50, 2,000 traded at $32.50, etc.

So…to continue…over 500,000 shares of ICOS trade at $32.50 in a matter of minutes and when all of the buyers were done buying, a magical thing happened. The stock began going down. $32.40 offer/$32.30 bid. I hit the 30s. I wasn’t filled. ICOS was traded on the NYSE which, at the time, was run by specialists. The specialists could see the book. The specialists knew where the orders were. The specialists had a license to steal but that’s another story altogether. After I placed my order electronically, the specialist still had to fill it. My order hit with, I’m sure, several thousand more shares from other people around the world and the specialist dropped the bid. $32.20 offer/$32.10 bid. I offered at .05. I was filled. Over the course of the next few hours, the stock continued to sell off and ended the day below the price at which it was halted.

How did that happen?

I’ll tell you how. More money was interested in selling than in buying. That’s how. Did one person sell 500,000 shares? I don’t know but I can tell you that no day traders were selling there. No day trader can swing 500,000 shares. But a bank can. Or a hedge fund. Or a board member of ICOS who sees this as a perfect opportunity to dump his stock. Think about it. How many chances do you get to sell 500,000 shares of a stock and not move the market a penny against yourself?

And no, $32.50 was not a technical analysis spot of any kind. It wasn’t a resistance number or a fibonacci number or part of a trendline. There was no technical reason to sell the stock at that price.
Manipulation isn’t really the right term to describe what’s taking place in a situation like that. Manipulation implies doing something illegal based on inside information. That’s not what happens. What happens is…someone with a lot of money buys a lot of contracts or shares and moves the price up. He does so in hopes of starting a move. When others start buying, that someone sells and covers for a profit. Could someone else sell more contracts or shares and drive the price down? Absolutely. But we are still talking about just a few people dictating the direction. In the ICOS case, it’s the guy (or guys) selling. The everyday average day trader who is just trying to scalp some ticks here and there isn’t capable of moving the market. He cannot initiate moves like that. He can, however, ride a move like that. So as soon as the day trader sees that the buyer has lost the battle, he sells. As do others. The market moves down. People who are long begin to panic and cover their positions. This, in turn, drives the market down even further.

Do you see? Nothing is happening. The market isn’t moving. Someone decides to buy 5,000 contracts. Someone else says, “I’ll sell you 5,000 and offer 5,000 more.” The seller has more money to play with at that moment in time and his selling sets off a chain reaction. The reaction might lead to a three point move or a fifteen point move. It depends upon how many people around the world are watching their screens and who feels like playing.
And there it is. Professionals know where your stops are. They know there is support at 05. They can afford to sell 2,000 contracts at 05 and then offer another 2,000 at 04 and while you and 100 other small traders are busy covering your long positions at 03 and 02, they are covering their short positions. Buying back those 05′s. From you. And taking your money. Everyone has a pain threshold and if you can push the market just past that threshold, he will puke out. That’s what we called it at my prop firm when we knew people were bailing out of a trade for a loss. Puking out.

The idea, obviously, is to try and anticipate which way the most money is going to go next. In order to anticipate this, you have to think like the traders who are trading huge size because they are the ones who are going to move the market.

How do I know this is the way the game is played? Because I’ve seen the business from the inside. I worked for a proprietary trading firm in Chicago. I’ve been one of fifteen guys in a room who were all hitting the bids at once and helping to drive the market down. I’ve seen guys throw up huge size on the bid in an effort to scare out weak shorts and push the market up a few ticks. A lot of people seem to think that this kind of stuff doesn’t work as well anymore because of computers. Computers and algorithms and high frequency trading machines may work well in tight ranges or choppy markets but they can get hammered just like a trader can get hammered. During big one-way moves, they usually get crushed. As a scalper, you are looking for sharp, fast moves which have a lot of momentum behind them. When the momentum stops, you get out. End of story.

What I’m trying to convey here is that there is way more information to be had from looking at the time and sales than there is to be had from looking at charts, moving averages, oscillators, bands, etc. Even if you refuse to give up the charts and indicators, you could improve your entries and exits by learning how to read the orderbook. If you’re in a six tick winning trade, there is no reason to give back three ticks just because your method calls for a trailing stop. Forget trailing stops. Try to figure out how to see the signs that a market is going to bounce or perhaps even reverse. If you can learn how to do this fairly consistently, you can save yourself two or three ticks (or more) on your winning trades and dramatically improve your bottom line.

for people who rather watch and hear .. then read.. here is a video


about orderflow scalping/trading just watching the DOM / Orderbook.. with john grady

https://www.youtube.com/watch?v=PK2hr4Evz68


enjoy

Hey Pryme, thanks for the vid link. Maybe its a bit of topic,but combining AMT (VP to be specific), and using Jigsaw Tools, a lot of time you actually see the orders being siphoned into the market at a support or resistance zone, and actually see when the market jumps a few ticks higher/lower, suddenly a massive amount of orders get pulled into the system. See the term Iceberg orders. Understanding how retail traders (herds) think, and knowing where they place their stops for both longs and short, institutional (Other Time Frame) traders effectively accumulate or distribute orders at bargain prices. Plotting Volume on the vertical axis (Vol Profile) allows you to see the vol traded per price level, but also plotting volume traded per candle (Time based charts) also allows you to see an increase in volume at the price (Bargain Shopping). Of course, I can elaborate more. I should mention that trading like this, from the outer fringes of ranges to the POC is how I trade. Trends kill my account!

For forex, the story is a bit different. Firstly, with no "real volume" and being a 24 hrs market, volatility shifts during different sessions, relative volume during each session seems more apt. However, I've started actually using the candle shape and wick/shadow change at range outside limits to trigger my entries. The candles start getting smaller, wicks start appearing and until dojis start to appear. A high volume doji means a lot of volume traded, but price went no where..... so who was buying and who was selling (absorbing all the orders?) Entry usually follows a strong close (meaning little or no wick/shadow) or a momentum candle, back into the centre of the range, (My assumed POC!)

Keep up the good work explaining Pryme. Lets inject some life back into this thread!!