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Order Flow - Finding cluster of stops on chart
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Jan 8, 2011 7:18pm
| | threads like these always fade in nothingness...
come on guys, we learnt that to be consistent we need to exploit market inefficiencies, and orderflow gives you a chance in that, but how with only a chart?
Let's get some new ideas here. | 
Jan 10, 2011 2:41am
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Originally Posted by Carnegie Very good initative there, Scott. Thank you.
I have also noted that the order flow threads always end abruptly. But in this case I have written in the first page why I stopped writing. You cannot see order flow blindly. | So you mean that you cannot see it on a simple candlesticks chart? That's what I'm trying to do.
I know, market structure understanding is needed, otherwise it's like playinga tetris game without knowing what you have to do... | 
Jan 16, 2011 6:35am
| | And i thought that this thread was gonna vanish in nothingness... I was absent for 2 days and i found 5 FF emails telling me this thread got updated and... wow, I'm speachless of how many steps have been taken ahead here.
Let me sum up a little what I think is the juice of the last 2 or 3 pages:
Quote by DarkStar Quote:
Knowing how it ends I know exactly what piece your missing, so I'll give you a hint:
Think about how price change and the distribution of liquidity interact....
| Alright, i suggest concentrating on the first part, "Think about how price change and the distribution of liquidity interact. Your looking for a disequilibrium in that distribution which should give you a highly predictable outcome.", to me that's a big piece of the puzzle DS gave us, and i can see that Carnegie and relyt are very well thinking about it:
relyt: Quote:
The disequilibrium in distribution of liquidity means that there are traders out there who demand liquidity and traders who are willing to supply liquidity, but they haven't found each other, yet. The "highly predictable outcome" is a price movement to an area of high liquidity (the people who are demanding liquidity push price to an area where liquidity is being supplied).
This is where I'm stuck. How do we identify the disequilibrium before the "highly predictable outcome" occurs?
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UnnamedPlayr gave us some other pills o think about : Quote:
Think about global money/liquidity shifting.
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If you can crack that code you will be able - with some practice - to "read" the intentions of the big players before price will move in that direction.
Triggering some stops is then just a byproduct.
Identifying the imbalance before the outcome occurs puts you in the first best seat.
It's also a kind of front running.
| And last, but not least, something from Carnegie Quote:
watch darkstar analize the market @ brazzers.com btw | That seems stupid, but some laughts are always welcomed =P
I'll retire to think about everything we have here.
A question to DarkStar: when do you think you'll be able to release the book? hehehehe give us some hope please!! | 
Jan 16, 2011 8:04am
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Originally Posted by CindyXXXX So a dealer can move a market without affecting volume>? | Can you actually see the volume? | 
Jan 16, 2011 8:26am
| | Hahaha yes yes, i know lol
What I meant was, are you sure that everything they trade and anything they do is visible to us?
I mean, obviusly if they turn the market with low liquidity, they must act on a psychological level.
I noticed too that the majority of liquidity is pretty much concentrated "during the move", and not when it starts or ends, and I think that has something to do with fear.
Anyway, I don't know. | 
Jan 16, 2011 5:26pm
| | I'll just drop it here.
I know it's a jump ahead we should take later on, after figuring out stop hunting, but i just wanted to share.
This is about "Episodic Volatility", just to have a grab on what it is.
Picture is attached. | 
Jan 17, 2011 12:44pm
| | Back to stop loss hunting topic, here's a quote i think it's pretty much important: Quote:
Originally Posted by UnnamedPlayr It happens like you've said under or above consolidation pattern and even in that range.
But without statistical edge in knowing how big that pool is, it's an dangerous undertaking.
You're playing the breakout and suddenly you will become the prey.
A lot of traders call it false or "fake" breakouts.
So it's essential to know the size of that pool and how it could be hunted depending on the market condition.
Furthermore you have to identify which market participant is trapped and who is in control. | A picture is attached:
how can we know how big the "pool" (in purple) is?
how can we identify stop losses in that chart?
is other information needed? an orderbook?
I'd like to know your thoughts people. | 
Jan 17, 2011 1:10pm
| | Quote:
Originally Posted by dr_who What surprise me is that no one provides a service which collates all the data from the major brokerages into one data stream. Order flow analysis would surely be much easier with that sort of data.
Or does anyone know of such a service ? |  | 
Jan 19, 2011 5:53am
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Originally Posted by Magic Trader I agree. What DS has shared already should be enough to get everyone started in the direction that will help their trading. If it hasn't, maybe they weren't meant to have this information?
Darkstar, if you continue refining your book to the point that anyone can pick it up and make profit from it, do you worry you've let the cat out of the bag? I'm sure your own personal trading is way beyond that, at this point, though. I would be thrilled to read your book as it is. Part of what makes order flow so awesome is the self-discovery process that takes... | He stated in past that not many of those books will be printed, and of those who will be lucky possessors of it, not many will be able to exploit the essence of the book itself.
So don't worry.
What I'm worrying about now is this thread xD
I now get why threads like these always disappear, I'm starting to feel the urge to hide it underground, and this urge is fighting hard with the need to dig deeper and deeper in the subject. Quote:
Originally Posted by xXTrizzleXx Oh. My. Goodness.
I was actually about to fall asleep when I envisioned how this could be applied. This assumes there are no significant fundamental changes in the associated currencies of the pair though?
The way I'm putting this together, is that DarkStar' s illustrations have given a model for taking advantage of the extremes of ranging markets. Let's assume that Market Mover A wants to buy below the perceived value of USD/CHF. Upon reaching the lower extreme of the range, we can assume that we will have participants who will be positioning themselves long, and would set their sell-stops below the range. Market Mover A has his buy-limit orders positioned slightly below this range, and to enable his order to be filled, quickly executes an sell market order of sufficient size to push price to these sell-stops, which when hit, will liquidate into his buy-limits. This will be further facilitated by uninformed traders, who think this is a genuine break-out to the downside. The speed of execution will be such that it is fast enough to avoid a significant amount of latent liquidity turning into pending orders, (which would make things harder for Market Mover A by essentially building a liquidity wall to his buy-limits). Market Makers would then need to adjust their bid/ask to take into account this changed liquidity situation, resulting in the production of the illustrated liquidity vacuum. When his order is filled, the sell market order previously open, is then closed by means of a buy market order equal or larger to the former, which gets price moving into Market Mover A's intended direction back to the perceived fundamental value of the currency. As price heads back upwards, the Market Makers would have to deal with the liquidity vacuum, by shifting their bid/ask quotes to account for it, to protect their inventories.
( note: Orders will be placed within the vaccuum, but I am making the assumption that the liquidity provided by them will be sufficiently small so that they can be considered insignificant, due to the small time interval over which this occurs)
On a chart this should look like a strong move upwards once more, even though the volume (size of the order) which caused it, may not seem proportionally large. Additionally, uninformed participants who were tricked by Market Mover A's pseudo-break out, would be squeezed. Their buy-stops, which they placed for protection, would, when executed - further empower the up-move, along with informed participants, riding the move back to the perceived fundamental value. They are in essence going to profit from the mispricing.
I may be viewing things from an angle that is..."too close to the situation"; too infinitessimal, but I'm hoping the logics of this are sound, and would like to hear others' interpretations so far. grkfx, has essentially provided an excellent model for understanding the dynamics of trends - I would expound on my interpretation of it, but must finish my homework.
With the dynamics of ranges and trends covered, and understanding where the high-probability points of entries are, we should be able to anticipate a move to break-even quickly, such that our exposure time is reduced. Everybody loves a free trade.  | You pretty much got it, to me that's A way for this to be done.
But that's only 1 of the opportunities i think.
Everything turns aroung this "vacuum" that gets created, a disequilibrium that can be exploited.
To exploit these "inefficiencies", these repeating patterns, we actually need to know what to search for, but some of the things have been listed from Darkstar. Quote:
Originally Posted by Darkstar And thats just one factor that can be analyzed with this model. Think about how a large order hitting the book would alter the profile... or what happens pre/post news events.. or how a fast price change would interact with the slow conversion of latent interest to pending orders... or what happens when a central bank steps in to defend a price.. or how market makers act to maintain a balanced book... or or or... the list is endless. | As seen, a vacuum, a disequilibrium, can be created in 2 ways:
-Liquidity drying up for fear/waiting, and i think this liquidity becomes "latent"
-Liquidity getting eaten out from big orders
Large orders hitting the book, pre/post news or any other fast change in price, just as Darkstar states.
One thing, are latent orders what people use to call "Icebergs" in orderbook? | 
Jan 19, 2011 10:43am
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Originally Posted by Darkstar Well, in or out of context, it's going to be hard to compete with the one I have.  | Holy sh*t! | 
Jan 19, 2011 7:22pm
| | The stop-hunt is the one in the white rectangle or the one in the red rectangle?
Just to get on what it looks like on a chart... | 
Jan 19, 2011 8:48pm
| | I feel like we are close, expecially you, Carnegie.
I can almost hear the 'gears' in your head working hard while I imagine all the thinking process you go through.
I spent the last 2 days reading through all Darkstar's 1000+ post and I can feel that with his gold nuggets, this and other 1 or 2 threads I made thousands of steps ahead.
I feel like I passed the stage where you think indicators and such stuff is useless... but sometimes you still feel like trying them out, going in the "Strategy" forum etc.
I wanted to thank everyone, not only people like Darkstar or UnnamedPlayr that are trying to help us guiding our path, but I wanted to thank people like Carnegie, Scotty_B, smjones and many others who contributed in this and other threads.
The biggest thanks, anyway, goes to a friend of mine who opened my eyes telling me about "orderflow", a word that I had never heard before he told me.
I wanted to thank you, because you are ruining my University studies for this xD
I SHOULD BE STUDYING NOW and I'm here going through 100s of mental processes, trying to crack it, because I fell that if I can't do it now, I won't be doing it for a long time.
I'll stop thinking for today, I need to switch my brain off and take a nice sleep. As always I promise to myself that tomorrow I'll study for my University exams, but I know the first thing I'll do is turning my laptop on to check this thread.
Bye for now, and thank you all. | 
Jan 20, 2011 6:27am
| | It feels like ideas are drying up in this thread. =/ | 
Jan 20, 2011 9:39am
| | Quote:
Originally Posted by CindyXXXX This from the guy who wanted this thread to die
No offense guys but you re just not gonna learn this in a week. There is so much info on this thread already that if you can't see it yet then maybe you re just not ready but that's ok some of us have just had much longer to ponder over the same questions
Personally I think it went down hill when people started posting price charts but each to their own. Now get out of this rat hole and go study | That's what I also was thinking about.
So I started to read the thread from the beginning, here's a little summary, hope you apprecciate.
Let's go back IN TOPIC.
Balance of DOM --> Big order --> Disequilibrium --> Vacuum effect.
How would that look on a chart?
And another thing clicked in my head, what about spread? I mean, that's another thing we see on the chard, with a big order coming in the spread would widen, but only on one side. If the order is a BUY order, only the ASK price would move and widen the spread.
Am i totally wrong and deviating from the path of right thinking? | 
Jan 20, 2011 10:52am
| | Am I the only one that looks at it this way? | 
Jan 20, 2011 12:17pm
| | Quote:
Originally Posted by Darkstar It may help to think of it in terms of immediacy instead of the general desire to trade. Market and stop orders demand immediacy of execution while limit orders provide the option to do so. Its the option to trade that constitutes liquidity so when someone exercises that option, the liquidity is consumed. | So, a stoploss it's different from a limit order? a stoploss becomes a market order as soon as the stop price is reached?
As I'm seeing it, a stoploss NEEDS to be a market order, so that it can be filled even at worse prices, but still be filled, rather than not being filled because of a fast changing in price.
And I think that's why stoplosses are not viewed as limit orders on an orderbook.
Geez, I fell like I really need that T&E book, gonna order that soon. I feel like I really started to think about things now, even doing some researches. It feels nice.
So let's become practical here:
Price is now at 1.2275, Bank A wants to short, and to do that it needs liquidity.
Right behing 1.2300 there's a bounch of limit orders and stop losses.
Bank A buys a relatively small amount, but enough big to move the price in the 2300/2320 are, where the liquidity is (liquidity is provided to the bank by buy limit orders from breakout traders, but the bank is actually providing liquidity for stop losses; in both ways, the bank is entering its big short order).
Price immediatly drops down, and a cascade of other orders are triggered, helping the price to drop further.
Now here's what is happening. What would be the best strategy to profit from this event? | 
Jan 20, 2011 12:19pm
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Originally Posted by CindyXXXX Is there an EA for this? | Lol, you crack me up xD | 
Jan 20, 2011 1:32pm
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Originally Posted by Carnegie T&E: Stop orders accelerate price changes. Price often changes because traders on one side of the market demand more liquidity than is available. When these price changes activate stop orders, the stop orders unfortunately contribute to the one-sided demand for liquidity. Stop orders accelerate price changes by adding buying pressure when prices are rising and selling pressure when prices are falling. They demand liquidity when it is least available. | During the stophunt the stops are backed by the bigger order the Market Maker drops in the market itself, while, on the other side, stops triggering during the move AFTER the stophunt are adding to the strenght of the move itself; these stops are of the limit orders triggered with the stops hunted.
I think that's what we called "a cascade of stop losses" and we agree here.
But i repeat my question, what is the best way to monetize this event? What do we HAVE to do? | 
Jan 20, 2011 1:39pm
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Originally Posted by UnnamedPlayr If you're making a transaction size becomes known and MM are keeping records.
If you're building inventory within a (new) value zone, how would you do it? | I feel stupid to ask this, but can you explain me the difference between "making a transaction" and "building inventory"?
I apologize for this  | 
Jan 20, 2011 2:34pm
| | Quote:
Originally Posted by Louie He is talking about the big block orders at that level. Building there inventory. How do you do this. Say you want to buy. Create a false short senerio in market, false breakout. unimformed jump in. Inventory builder buys and pushes up through the vacuum when the inventory is built and thanks to the short stop loss orders. game over. | Thanks for the explanation =)
Now, again, what's the best way to trade it?
Let me quote myself: Quote:
Originally Posted by scott89 So let's become practical here:
Price is now at 1.2275, Bank A wants to short, and to do that it needs liquidity.
Right behing 1.2300 there's a bounch of limit orders and stop losses.
Bank A buys a relatively small amount, but enough big to move the price in the 2300/2320 are, where the liquidity is (liquidity is provided to the bank by buy limit orders from breakout traders, but the bank is actually providing liquidity for stop losses; in both ways, the bank is entering its big short order).
Price immediatly drops down, and a cascade of other orders are triggered, helping the price to drop further.
Now here's what is happening. What would be the best strategy to profit from this event? | | 
Jan 20, 2011 3:01pm
| | Quote:
Originally Posted by sumi I am by no means an expert here, but since nobody is throwing the towel, here's my take on a possible play in your scenario:
- set 1 sell limit on 1.2305-1.2310
- set 1 sell limit on 1.2320
once filled:
- cover 1 at 1.2280
- trail the other one
depending on the size of the stop losses, one or both orders will be filled.
As I understand it, this process is called fading.
Any other suggestions?
Great thread, btw. | Alright, that's what I thought and what I'm actually trying to do.
I'll add a little rule:
-cancel the trade if prices get close (like 5-10 pips) and then reverses without triggering your orders.
Of course everyone has to adjust his risk and MM, for example I would take something like 1.5:1 or 2:1 reward:risk, but that would be a calculation made AFTER you already have the edge proven to be succesful x% of the time.
Do we all agree on this way of trading it?
Any suggestion? | 
Jan 20, 2011 3:32pm
| | Quote:
Originally Posted by sumi We might just start working on that 10k chart hours... | Here we get to the part before that, how to find clusters of stops in a chart, and that's exactly the point of this thread.
What I think is:
-We need to find out, discover, perceive or in any other way KNOW what the real value of the pair is to the latent interest players (ie:bank).
-Aftwer knowing what the foundamental value of the pair is to them, we have to find the best place where the latent interest players are willing to enter the market to correct the price.
The second part could be easily accomplished by a fast look at the chart, but only with the premise at the first point you can make an EDUCATED GUESS of where the stops are placed and that's where the latent interest becomes actual market decisions.
Otherwise, without knowing where the big players are headed to, we can look at the chart all day long and wait for that famous "vacuum" we talked about earlier. That "vacuum" would be anyway a confirmation in the case we know what the big players are willing to do.
Last edited Jan 20, 2011 3:47pm
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Jan 20, 2011 3:58pm
| | I'll just throw a little idea in:
We may not be able to know when and where banks want to enter the market, what we know is that they NEED to get out of the market, and to do that they need another pool of liquidity. | 
Jan 22, 2011 9:03pm
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Originally Posted by Darkstar That would definitly create inefficiency. The more important question is, why would you assume the gap would be filled with new limit orders? | To find a new equilibrium. An uninformed trader would see the wrong value as the new correct value and is willing to trade the various outcomes of that new value. Quote:
Originally Posted by Carnegie I recall I once read you said that stop-hunting doesn't have anything to do with real value. That in reality it 'distorts' real value. And in that case, that means that the stop hunt is usually in the "wrong" direction (because someone wants to unload and make a shift in his/her position). | A stop-hunt 'distorts' the real value. That's exactly what i thought and what I stated above. An informed player KNOWS that that's not the real value, and he/she knows that because he saw that vacuum.
So now, the informed player that wants to trade those situations needs just to make an educated guess of where a vacuum can happen, where is the next big order most likely gonna hit the market?
Am I wrong in my assumptions? Quote:
Originally Posted by Darkstar Your on the list.  | I also don't want to miss that bro'!  | 
Jan 23, 2011 8:23am
| | Quote:
Originally Posted by deanyakobs Core Principles Regarding How Changes in Order Flow Affect Changes in Price: [list=1][*]Price is always a function of Supply & Demand - Regardless of the market.[*]Changes in Supply and/or Demand effect changes in Price.[*]Changes in Order Flow precede changes in Price.[*]Program Trading is the Primary Cause of changes in Supply & Demand.[*]Buy order Usurp Supply - Thereby increasing price.[*]Sell order Increase Supply - Thereby decreasing price.[*]Increases in Price momentum will fade if they are not backed by substantive... | Nice article! Quote:
Increases in Price momentum will fade if they are not backed by substantive Program Trading
| This is EXACTLY what we're talking about. | 
Jan 23, 2011 12:22pm
| | Quote:
Originally Posted by TapeReader Hi Pips Cruiser,
Thanks for the mention regarding the, "Core Principles Regarding How Changes in Order Flow Affect Changes in Price".
I am Carl Weiss and wrote those original principles. | Engracing us with your presence.
Please to meet you Carl
Those 10 lines, to me, are the essence of orderflow trading. Of corse, they don't explain how the structures of markets work, but it took about 600 pages to Harris Lewis to resume all the market functioning structure. Quote:
Originally Posted by Carnegie The last piece of puzzle now sits on what the other phenomena is. | Carnegie, my friend, that's exactly how Darkstar is expecting us to think: concentrating on the key words of his posts to extract the essence of itself.
Old S/R you say? that might be: Quote:
Originally Posted by A-technical-analyst The best place to put your stop is right behind the last s/r | Quote:
Originally Posted by An-orderflow-analyst The best place to fade some stops is right behind the last s/r | Quote:
Originally Posted by Carnegie Does stop-hunting only occur at round numbers and over/below | I would include in that s/r, option barriers and ... dunno.
Let me quote Darkstar here: Quote:
Originally Posted by Darkstar Orderflow trading in a nutshell: 1)Find the stops and fade them. 2)Find the barrier options and push into them. 3)Find pockets with a lack of open interest and gap them. 4)Find a sequence of stops spaced 10-25 pips apart and prepare to put your kids through college. |
And we go back to the main topic of this thread, HOW exactly can one do that? | 
Jan 23, 2011 5:11pm
| | Guys, aren't we totally Off Topic? | 
Jan 23, 2011 5:54pm
| | Quote:
Originally Posted by Darkstar looking at an order book of any type is not how order flow is read. Its read by deconstructing the logic processes of participants within the context of the execution limitations imposed by market microstructure. | ' deconstructing the logic processes of participants within the context of the execution limitations imposed by market microstructure.'
I think the answer is in those simple words.
Anyway, I don't know about you guys, but I don't fell like making money without understanding would be enough to me anymore at this point. Actually, 'making money' passed in background for me. Couriosity leads me to research the truth, to try to understand WHY things happen and HOW they do. | 
Jan 24, 2011 5:42am
| | Quote:
Originally Posted by xXTrizzleXx I think the first part you have described, where you close your position just behind the stops, is in essence stop-hunting as I far as I can see it. Darkstar then suggested we look into episodic volatility, since they would make stop-hunting profits look pale in comparison.
I think the above reason for this is because in taking advantage of episodic volatility, we know that there is a high probability of the area behind the move being deficient in liquidity, enabling the retrace move to occur with greater ease... | What about speculation?
Speculation has an important role I think, as well as Interest Rates and Options. | 
Jan 24, 2011 2:41pm
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Originally Posted by relyt To me, it seems like DS is suggesting that it is possible to find the concentrations of liquidity without even looking at a chart. | He also said that it's not by looking at orderbooks that you analyse orderflow.
No chart, no orderbook. Maybe we got something wrong, because, as you stated, the only answer would be round numbers. | 
Jan 24, 2011 5:44pm
| | Quote:
Originally Posted by Darkstar Its read [orderflow] by deconstructing the logic processes of participants within the context of the execution limitations imposed by market microstructure. | Here's a little table I made up.
What would you edit/delete/add? | 
Jan 28, 2011 5:34am
| | Quote:
Originally Posted by CindyXXXX So what sort of truck should I buy?  | It's not about trucks, it's about Aircraft Carriers, the more you have and the more are the possibilities that one of those can get hit, but with a lot of them you can resist a lot, because they are 5 cells ships and so you can win the game. NO WAIT, that's sea-fight... sorry, I went OT. (lol) |  | |
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