My girlfriend occasionally glances at my computer screens while I trade/analyze the markets. Sometimes she asks me questions about it, and I try and explain things to her about what I do and how I do it. The other night, she looked at my screens and said: ?How in the world are you able to make money doing this, it just seems so incredibly complicated?. And I told her, that the reason I am able to make money is exactly because it is complicated. If it was easy and simple, everyone would be able to make money, and there would be no one to lose it to them. Essentially, no one would make money. I think this is the reason, why figuring out this ?Order Flow? thing is so complicated. In my opinion it is the best may to make money in trading, because it is the only type of trading where the trader knows with a high degree of probability, why something happens before the fact.
Now, I do not trade with ?Order Flow? information. I found a different way to be profitable, and for the time being I am happy with it. I have been consistently profitable for long enough to know that my method works. But I am aware of the fact that I am like a blind person. Even though I am profitable, more often than not I have no clue what happens behind the scene that makes the price do this or that. And the only thing that can answer that is knowledge about ?Order Flow?.
Like other people in this thread, I have spent a lot of time researching and thinking about this. And I arrived at the conclusion, that for me right now will be very difficult if not impossible to figure this thing out. The reason for that is MONEY. Order flow information cannot be found on a price chart. You may be able to find patterns on the chart that may give you a clue about the order flow, but only in hindsight. By the time you see this patterns, more often than not it will be too late to act on it. You need the information about order flow, before the pattern shows up on the chart, and actually be one of the contributors to its creation. And to have access to that kind of information, you need money. At the very least enough money to get a prime broker (currenex/EBS) account. You would also need a solid paid news service such as IFR, for information/rumors about option barriers and such. Knowing someone on the inside of a large bank or brokerage also will not hurt. This is all sources of information, and it is that information that is at the core of a trading strategy using order flow.
But even having the above is not enough. It is also necessary to have a deep understanding of how the market works, who are the big market participants, what their goals are and how they go about fulfilling them. The T & E book is a great source for learning that. Armed with that knowledge and having access to he information described above, the next step would be to watch how the price reacts around certain levels. These levels can be option barriers, stops that can be faded, pockets of open interest etc. Most of the time this will be just rumors, so you need to know what to look for, to determine if the rumors will materialize. There needs to be some sort of reaction at this levels that would suggest the information is valid and good to act on. After that one can start to formulate a strategy, around these observations.
This thread, like so many others on FF, is looking for an answer. An answer that can be put in a post. That?s why many of the threads looking at order flow have died out. How to trade with order flow, cannot be found in a theoretical debate, because it is not very scientific in its nature. It is more of an art, a way of thinking and viewing the market. And that can only come after having the proper mindset, knowledge, information and experience. I am willing to bet money, that if Darkstar, or anyone else who trades using order flow would come out and spill the whole thing out, would not make most people reading it, profitable. It will still require hard work studying, analyzing and putting that information into a usable strategy.
As for me, I am leveraging the crap out of my abilities at the moment, while patiently watching my account grow. Hopefully in a couple of years, I will have enough money to gain access to the information needed to trade with order flow. At that point it will have a more practical meaning for me. And in the mean time, I will enjoy studying the theory behind it, and trade my way towards it.
Sorry for the long ramble.
__________________ Stubbornly persistent |