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Behind Price-Orderflow
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Aug 28, 2009 6:15am
|  | Informed | | | | Hello Quote:
Originally Posted by skfx Hi Bleek,
Price action is half the equation the other half you cannot see. The trouble for most is that the half you cannot see is the half you wish you could. | Are you refering to the order book or simple volume data in the unseen half? I am currently studying orderflow quite heavily and looking at the market from new angles (new to me anyways). There is a member here at FF named Gaston who does not post very often but claims to be an orderflow trader. Infact he refers to himself as an "orderflow sniper," and in his profile says that he "profits from mispricing." Even though the guy has posted only a handful of times he leaves bits and pieces - clues if you will about how he trades. One thing he said that intreaged me was that he does not use charts. So I got to thinking about it and wondered what the guy is looking at to trade. So far in my studies I have come up with the two possibilites mentioned above.
I notice that you do use charts in referace to the orderflow, but like Gaston you mention this unseen piece of the puzzle. Gaston also mentions liquidity a couple of times in his posts which is, to me, a very important peice of the puzzle. As we all know, liquidity in the market is supplied by limit orders that sit in the good old order book. The limit orders supply finite amounts of liquidity at each price level. When the liquidity is taken out of the market by market orders, price will move to the next available price where liquidity is next available. When the market is frantic and lots of stops are being triggered (market orders) the liquidity drys up quick and things get volatile in a hurry.
The part I am grappling with in regards to reading the orderflow is this: I can only see the best 5 bids and offers in the orderbook and price seems to move so fast (and available liquidity changes) that it is hard to follow (at this point anyways) I know I am searching in the right place though.
Thanks for starting a sweet thread,
Scotty B
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Aug 28, 2009 6:44am
|  | Informed | | | | Quote:
Originally Posted by pipmutt Maybe try looking not just at your brokers orderbook but at the market and it's players, and the reasons why they trade where they trade, their motives, and their objectives, as well as in the context of the herds vulnerabilities.
That may sound cryptic but when you think about it it's actually very clear. | I don't watch my brokers book, but I do watch the CME Globex book. Thats the only one that really matters. I understand that the banks move the market. Speculators are just a tiny little portion.
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Aug 28, 2009 9:20am
|  | Informed | | | | Thanks...heres some more ?'s for ya "@Scotty
order book.
I had a member here PM me regarding OANDA'S order details but these will do you no good.
Ah yes,Gaston,now i remember.Yes,he has it,and he won't give much away.Darkstar has it also.You will find that Gaston,Darkstar and myself KNOW.There will be others.
If i divulged certain details i may annoy the two fellows i have listed and probably a few others also(like i said i have had PM's).I must ensure i do not go too far with this.
Look,don't worry if you don't GET IT.If you remain around long enough there may be a glimmer of hope,just a glimmer.
These guys will agree with me that the market is NOT random,it is inefficient.Most will never find these inefficiencies.That's the way it is though.I cannot help it.
If everyone knew where would we be?
Scotty,you don't need the charts believe me.
Guys,i hope that you don't get too crusty with me if i start sounding a little vague or dancing around the ball without picking it up.
My job here is to get you guys to think OUTSIDE the box.Believe me,out side the box is where it's all going on.Most retail traders find themselves INSIDE the box.....in darkness.
There are institutions making massive amounts of capital and you guys just need to read between the lines to cut some out.
I will catch you guys later.I have this funny feeling i am coming down with something.Headache yesterday,sore throat today and sneezing...just great 
I hope it's not swine lol.
Take it easy.
Cheers
sk"
Thank you sir..I appreciate the response. I think it would be a wise thing to not give too much away - especially in a place like this. Don't give away the bread that feeds your own.
Aside from the particulars, I am curious about your performance using the order flow data. Bringing up Gaston again...(I'm have an investigative mind - I'm not a FF stocker!) The last post he made was in a thread discussing whether or not the market is random. In that post he praises a member who goes by the name of 'Daytrading.' Not only does Gaston give praise, but he also vouched for him. This was his post:
"Anyone out there trying to figure out what are realistic approaches to trading would do well reading through this thread with a magnifying glass.
Daytrading, great contributions." - Gaston
Now, in that thread, Daytrading mentions his yearly returns were around 25% if I remember correctly.
25% is not bad by any stretch, especially if you are trading a huge pot. But when most readers come across a thread like this, they imagine returns in the thousands of percent range a year. And why not, if you always know where the market is going, by all means load up.
So if you don't mind sharing, knowing what you know, what is a reasonable yearly net return? I think your answer will help put this particular edge in the right perspective.
Thanks so much,
Scotty B
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Aug 28, 2009 11:03am
|  | Informed | | | | Quote:
Originally Posted by Bleek I think that's a fair assessment and reasonable to expect or at least ask for quantifiable evidence of the OP accuracy and success.
My week-on-week gains averaging 21% would seem rather large but then, I operate with a modest capital which I draw from every week.
I don't need to retain capital (my net gain) to further leverage my positions because as it stands my process is delivering more than acceptable returns.
Over time, I will steadily increase contract size and thus my capital, but for me there's no rush and without tempting fate as I'm... | Yeah for sure.. We are big boys here (at least some of us I hope). I don't think the question is out of bounds at all. To be completely honest, I would be disappointed and doubtful if the number was much above 100% gross yearly, or .05% weekly.
Also, I don't ask the question in an attempt to qualify the thread starter down. I believe he's profitable, and moreover, an informed trader. Who better to ask for such a number?
There are two former pro traders I respect deeply that made their fortune on the floor of the CBOT a couple of decades ago. They ended their run with over 200Million in profits, and started with only 200K. I about fell out of my chair the other day, my wife had HGTV on and one of these traders (they are brothers by the way) was on a show that was showcasing his old mansion on the california coast. What a small world it is. Anyways...I bring up those numbers to issustrate what is really possible and at the same time realistic in regards to trading returns when you know what your are doing.
Those guys accheived that return in a little over 10 years BTW. Do the math..The numbers I shared above support the example.
I personally go for 3-5% weekely. I look at my trading as specific work that I need to do and when I'm done I'm done; I hang out with my family. Sometimes I finish the week quickly and sometimes I'm not done till late thursday. But my portion I get. I only share that for the sake of revealing what I think is realistic.
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Aug 29, 2009 6:35am
|  | Informed | | | | Good work Quote:
Originally Posted by FOREXflash Im getting closer and closer  ......I like the writing style of sfkx....
it is like some puzzle.....you need to combine this thread with some other dark "bold" members.....
As with everything in life,it's what you DON'T see that makes the difference.It's not the graphics on your chart,it's the WHITE SPACE on your chart. You need to understand the WHITE SPACE and what's in it.
Understand this and it's game over. | Keep studying man..I'm doing the same thing. The one common link that connects these orderflow guys is a strong understanding for market microstructure. They know all the little intricacies that a lot of us dismiss as un-important. Obviously we have some learning to do. Gaston said once, that all the information we need is out there, we just need to dig for it a little. I ordered a book that both Gaston and Darkstar both mention, it's called "market microstructure for practitioners" by a guy named Larry Harris. It was a cool 50 bucks, but totally worth it. I am learning quite a lot from it, it was a good buy for sure. I'd highly reccomend it to anyone serious about truly gaining a good grasp on how the market works.
One other thing that unites these guys is the notion of taking out peoples stops. I don't know if Gaston mentions this, but both darkstar and skfx obviously do. Also, Darkstar revels a little bit about how he trades that leads me to beleive he only trades setups where he can take stops out. I say this because in one of his posts he mentions that he only trades 3-5 times per month while risking 12.5%. Also, in many of his essays on microstructure, he plays the stop hunting example a lot. I cannot say at this point with clarity what events he is watching, but I'll figure it out soon enough.
The main question I am running into right now is the source these guys are using for their infomation about existing open orderflow. Again to pull from darkstar, in one of his posts he mentions IFR Forex, a service that publishes this kind of information, he even quotes peices of the info a couple times. The info is obviously out there, these guys are getting it somewhere. We'll find it.
I stated above that darkstar trades a few times a month. I was glad to find that information because it answers my question that I was asking skfx about reasonable returns. With this style of trading, there is more certainty of outcome, which allows one to risk more, but you trade less often. This is important for us all to understand at this point. I'd be surprised if these guys could open a chart (or whatever) and tell you 100% of the time where price is going. Don't get me wrong, I am not bashing the system, just calling it what it is.
One more thing. If you look the charts skfx posted, and the direction price goes in the areas he points out, what does it make you think of? Simple S/R right? Go through his examples and you'll see it. If you go through and look, you would have been going the right way if you were trading the S/R correctly. I used to be a fib maniac, still am in ways, but I threw them all in the trash after i commited myself to learning simple S/R trading. I've been making a consistant 5% weekely for some time now doing this.
I am working on some of my own essays about order types and what they do lately. I'll post them when they are done. Some great insights to come guys. We can crack this thing.
Have a fantastic weekend everyone,
Scotty B
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Aug 29, 2009 7:45am
|  | Informed | | | | lol You guys are totally overestimating my enthusiasm in this... I never said it was a holy grail, although to some it might fit that catagory based on the certainty factor I mentioned in my post.
I am comfortable with my 5% weekely gains. I know the power of compounding. But I love learning as well. Since I've been shooting for that 5% number, my screen time in regard to trading has significantly decreased and I have more time on my hands to study. I find this topic extremely interesting and I do think a deep understanding of it is very important. There is something to this guys. It would be better to learn it than not. I'll leave it at that.
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Aug 29, 2009 9:46am
|  | Informed | | | | good stuff Quote:
Originally Posted by skfx There is a window.You need to get yourself into that window before most.The quicker you are,the more you make,the less risk you take(if any).
When you get in early,everyone is your best friend. | sk..you keep mentioning speed, getting in before everyone else. Those words bring the words 'front running,' to mind. Old larry talks a lot about this topic in his book, as does Mrs Osler in her paper on FX Microstructure. Another important peice of info that Osler passes along is that the forex is a quote driven market which uses standard price time priority in matching orders.
I'd like to quote from Larry Harris' book "Trading and Exchanges - Market Microstructure for practitioners" (oxford university press 2008) to highlight front-running:
"Front runners collect information about trades that other traders have decided to arrange... (larry calls these types of traders 'order anticipators' and more amusingly, 'parasitic traders')
Large traders are especially vulnerable to order anticipators. You must be familiar with parasitic traders to understand how large traders expose their orders (you cannot hide your orders in the FX market BTW, making this type of trading worthwhile)
Trading by order anticipators often makes prices more volatile and markets less efficient. If volatility and price efficiency interest you, you must consider how order anticipators affect the markets.
Uninformed traders sometimes affect prices significantly. Traders who can predict what uninformed traders will do therefore can somtimes profit from that knowledge. If you have these skills, how sentiment-oriented technical traders trade should interest you.
Front runners collect information about trades that other traders have decided to arrange. They then try to trade before those traders complete their trades. Front runners may obtain their information from public sources, from the traders they front run, or from brokers. Practitioners call then front runners because they hurry (run) to trade before (in front of) other traders.
Aggresive traders usually issue market orders. Their demands often push up when they buy and down when they sell. Front runners who trade in front of aggresive traders profit from the price impact of the aggresive traders trades. (this would be true of stops being hit)..."
Larry also speaks of 'manipulatioin of stop orders':
" Traders who use stop orders must be very careful about exposing their orders. Shrewd traders who know where the stop loss orders are set can employ a manipulative trading stratagey called gunning the market to profit from this information.
Market manipulators gun the market when they push prices up or down to activate stop orders. The stop orders then accelerate those price changes. The manipulators close their positions at a profit by trading with the stop orders. (Osler in her paper confirms this is common in FX)"
Scotty again...I post that just to confirm that all this is very real and far from new as the OP has stated. The question remains, where are these guys getting their information? Sk, has confirmed it is from the order book. But which one? We can forget about anything retail..I am thinking rueters or something of that nature. This would easily explain why you don't need charts. If you can see where these stops are in the order book you could in theory set a limit order right in front of them. This is why it is convenient to trade this way during the news (take advantage of the extreme volatility), because of you think about it, new events would be the prime spots to run stops.
This also makes me wonder about simply stradling the market during these times. Wouldn't that do the same thing as knowing where the stops were? Anyways...thanks for humoring me everybody.
Scotty
-I'll attach the Osler paper for anyone who is interested
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Aug 29, 2009 10:12am
|  | Informed | | | | IFR Forex Watch I just found some current open orderflow data. It is from IFR as darkstar mentioned. This is current by the way. I don't know if I'm hot or cold, but I am starting to wonder
According to this information in regard to EURUSD, stops exist up at 1.4471. Very interesting indeed.
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Aug 29, 2009 10:22am
|  | Informed | | | | a link Here is a link to several great papers by Osler: http://people.brandeis.edu/~cosler/
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Aug 29, 2009 10:02pm
|  | Informed | | | | Quote:
Originally Posted by LasVahGoose To be honest, I don't think I've ever really thought about what the market maker is doing. I'll have to do some homework.
P.S. I just placed an order for the Trading & Exchanges book by Harris. | Good work mate! You will really enjoy it. After I started reading it, I thought to myself, man I really should have known all this before I ever started trading. Especially the trading rules themselves. Osler in her papers is a huge help and a great supplement to the harris book about the specifics of the FX market.
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Aug 30, 2009 12:51am
|  | Informed | | | | Quote:
Originally Posted by capitalist88 | Scott,
Thanks for sharing man. Oh, I liked reading your profile..Sounds like you have been to hell and back in your pursuit of a trading career. Kudos to you for sticking with it!
To quote from your article:
"My guess is that this tactic is more prevalent in less liquid markets like stocks and futures as opposed to FOREX."
This may have been more true in the younger years of the market, but I think the practice is quite common now.
Here is a block quote from the Osler paper I attached to an earlier post in this thread: (bold for emphasis)
" Unlike trading in stock, bond, and derivatives markets, trading in currency markets is essentially unregulated. There is no government-backed authority to define acceptable trading practices, nor is there a self-regulating body. Local banking authorities are limited to regulating the structure of trading operations: they typically require, for example, that clearing and settlement are administratively separate from trading. Any attempt to regulate trading itself would encourage dealers to move elsewhere, an undesirable outcome since foreign exchange is an attractive industry – it pays high salaries and generates little pollution. In the absence of regulation, certain practices that are explicitly illegal in other markets, such as front-running, are not only legal but common in foreign exchange." With this being true, the players in this game can be abbrasive as they want. Also, to my knowledge at this point, the big players (banks) have the ability to see all substantial postions and open interest in the market. With this information at their disposal they can manipulate as much as they want. This is why this type of trading interests me so. If you have a good source for knowing where certain orders are on the price ladder, you certainly could end up "mixing shoulders with the big guys." If a solid source for existing order information exists and one could gain access to it, you would not have an edge at that point, but an ATM machiene. More to come, Scotty
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Aug 30, 2009 4:51am
|  | Informed | | | | Quote:
Originally Posted by pipmutt Hi Scotty
I think the best we can hope for is to hear rumours, I don't believe even banks share this kind of information between themselves, why would they?
Reuters, Bloomberg, and other financial news wires often report 'market whispers' ie a US bank reported buying xyz, rumoured SNB or BoJ intervention at so-and-so level, central bank rhetoric, selling interest above xyz etc etc etc
It's just another piece of the puzzle which collectively can give us a clearer picture but I don't believe there's any reliable source for this kind of... | Hey pip,
I think the guys who trade orderflow have more than rumors. If you are not trading with a chart you are trading with an orderbook as Sk has confirmed when I asked about volume data or orderbook data. If you don't have real information about real orders, than this whole orderflow thing can be boiled down to simple price action, S/R, and pattern trading. If there are no orders to view, then you are not trading orderflow.
It's kind of a funny thing anyways. If you are a profitable trader and have some edge then in a round about way you are profiting from the underlying orderflow, without ever really seeing it or realizing it. But I do not think that is where we're headed in this quest.
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Aug 30, 2009 6:00am
|  | Informed | | | | Here we go Quote:
Originally Posted by pipmutt Hi Scotty
I think the best we can hope for is to hear rumours, I don't believe even banks share this kind of information between themselves, why would they? | Sorry Pip, one more thing...For banks to trade with each other they absolutely have to share this information or there would be no trading in the first place. When banks quote bids and asks to each other when they are looking to deal, they are sharing the very information we are talking about. Bid and ask prices are standing limit orders or terms at which they are willing to trade. If you've ever seen an orderbook it's quite the sight. It moves quickly as prices are matched and the quantities (liquidity) at each price are always changing. One moment you might see hundreds of contracts at x.xxxx price waiting to trade and the next moment there is only 20(orders were canceled or changed). This is a whole other story, but keeping within the context of this thread, that being orderflow and stop orders, what do you think a large area of stops would look like in the orderbook? How would they behave as price approached them?
By the way, in all the order books I've ever seen, you can only see the best 5 bid and ask prices and quantities at each level.
Now with what I am about to say, I don't know for sure what I'm talking about, it just my working idea on how this type of trading might work, so don't take me too seriously.
To convey my probably skewed understanding of this I am going to use and example, heck I'm gonna use Pipmut in this silly example just cause I like his avatar.
Okay..Pipmut has his CME euro futures orderbook pulled up and he's watching prices tick up and down after a technically significant swing low was just broken at 1.0000, price ticked down to 0.9990. While price was initially approaching that 1.0000 level, Pip noticed that there were large orders in the book @ 0.9999 that did not dissapear as price approached them and they did infact trade. Lets assume those were limit sells that were activated, we now have lots of active shorts. So price ticks down to that 90 level but the guys who are trading don't take profits there because they are convinced price is going to .50000, they're all sweaty and excited, they can see the Ferraris dancing away in they're minds. But Pip doesn't get short, and not only that he hates Ferraris (he's more of a Honda fan, F1 of course). Low and behold and to the surprise of all the shorts, buyers come in and begin pushing price north. Pip just sits there and watches all calm cool and collected while watching the orderbook and doesn't see anything all that unusual as far as large pending orders are concerned. But then price reaches 1.0020 and he has a glimpse of 1.0025 and see's that there are a ton of orders sitting at that price. He sees the large volume there and takes special note of it because he knows that there are some shorts out there in a whole world of hurt. Price ranges for a couple minutes between the 15 and 22 mark, all the while the quantity at the 25 level got bigger. Price ticks up to 23, 24, the orders are still there at 25. Price bounces off of 24 three times and the quantity at 25 gets even bigger! At this point, pip decides that those are not just everyday limits at 25, they are beautifal wonderful stops. Why are they stops? Because they are staying put. Limit orders placed by people who don't yet have positions in the market will change, stops probably won't because people can only take so much pain. If the stop gets hit, it gets hit. Thats how we've all been conditioned to trade. Okay, so pip places a limit buy at .0026 and puts his stop down at 1.0000 and the very next moment, price takes out 25 and price is at 1.0080 20 seconds later and pips gets the heck out to wait for the next one.
I know, I know, I'm a moron..But I think in theory that is what this type of trading is all about. If you've read Mrs. Oslers paper, then you know that hiding orders in FX is not allowed. Everyone can see them. This is why front-running and orderflow 'sniping' is not only possible but prevelant. Because FX futures is nearly 100% corelated with retail, there is no reason we cannot use the futures REAL orderbook data to do this type of trading. I spoke with a buddy of mine if Chicago and quized him about who trades the FX Futures on Globex. He said banks are the biggest customers as well as hedge funds ect..So needless to say, I've been scratching my head the last few days. I am exited to spend some time watching the orderbook this coming week.
Heck, all of you can watch them for free if you are interested.. http://equivalentswdc.cme.com:443/index.html
I know that I am not 100% correct in my thinking, but I hope I'm at least getting close. C'mon guys help me out...Lets think through this and rip it to shreds
FYI my spell check quit working on firefox, so theres bound to be a few errors in there...sorry
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Last edited Aug 30, 2009 6:12am
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Aug 30, 2009 6:19am
|  | Informed | | | | Quote:
Originally Posted by pipmutt They only show what they want to be seen, they work orders strategically otherwise there would be no need for dealers, the whole process could be completely automated.
For institutions and players trading is a game of strategy not just wiggly lines on a chart, that's the thinking we're ideally trying to tap into and if I'm not mistaken the essence of this thread. | Sure they will split up large orders, thats quite common. Are you saying that I can trade in any avenue of FX and only show part of my order? Think about what you are saying.
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Aug 30, 2009 6:28am
|  | Informed | | | | Quote:
Originally Posted by pipmutt Define 'any avenue'. As far as I'm aware there's no obligation for anyone to show their hand especially in an OTC market, in fact it would be counterproductive to do so. | All I am saying is that if you want to trade, you must specify quanity. I don't see anyway around it or any way to hide it. Either you will see it in the book, or in the volume data, provided you have a good feed.
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Aug 30, 2009 6:37am
|  | Informed | | | | "LOL.Makes me laugh everytime.
This is a classic Scotty.Before i 'understood',i would put a trade on every now and then and she would be golden from the get go,never looked back.
When your trading blind you really think that it was your system/your edge that you had devised that cut it out for you.HA,what a big joke that is.Talk about no idea."
But still SK, how is this incorrect..Forget the 'edge,' or system...If you are profitable trading blind (just chart data), you did infact profit thanks to orderflow... It goes round and round...It's orderflow that moves price, not any system..If you can see the orderflow, and are 'quick as lightning' you are golden.
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Aug 30, 2009 6:48am
|  | Informed | | | | Quote:
Originally Posted by Limstylz Okay, so pip places a limit SELL at .0050 (human psychological affinity with whole numbers and their medians) and puts his stop up at 0.0160 (in case the buys go that far...) and the very next moment, price takes out 26, shoots up a little way and then resumes the original course South, leaving pip in the market at a great price.
Hows that? | I like the idea, but unless you can actually see the orders, you are just guessing ->TRADING BLIND
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Aug 30, 2009 6:53am
|  | Informed | | | | Quote:
Originally Posted by pipmutt But you don't get to see what I've got hidden out back, you only get to see what's on the shelf.
Retail psychology applies just as much to the markets as it does to the local grocery store or electrical goods outlet. | Agree 100%..But it is the orders we can see that we exploit
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Aug 30, 2009 7:56am
|  | Informed | | | | Quote:
Originally Posted by pipmutt We can't see any, we can only speculate as to where the herd have put them, and then speculate as to what players might do in order to exploit the herd, that's what we're trying to tap in to.
Simple example.....price is at a double top (or whatever) at 1.3980, with a market bias for price to fall. The herd sell at 1.3980 and have a stop at say 1.4015. Sounds like a reasonable bet? Sure.
The strategic players with the ability to move the market short term would also like to sell, but obviously at the best price they can get. They buy,... | I think this is where our understandings of this start to diverge..If you go to the CME link and take a look at the order book, you are looking at peoples real orders. When you say we cannot see any, what do you mean? Tell me where liquidity comes from.
@ SK..How does pip operate?...lol..I'm still working that one out..I am away from home at the moment, but will be getting back shortley..I have some thinking to do..I'll be back in a couple hours guys.
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Aug 30, 2009 9:22am
|  | Informed | | | | Alright I'm Back Quote:
Originally Posted by pipmutt I thought we're talking about spot? | In a round about way we are talking about spot. But where do you think our brokers get their quotes that they feed to us? Who do our brokers trade with? And on down the line it goes. All that matters is who is moving price. I am going off on a limb here, but I will verify this later, but I think the answer lies in the two tier market.
I will list some block quotes from the yesterdays homework that should clear things up so we can move on. This is from Osler agian BTW: (Bold for emphasis)
"A Two-Tiered Market
The foreign exchange market has two segments or ?tiers.? In the first tier, dealers trade exclusively with customers. In the second tier, dealers trade primarily with each other. The interdealer market forms the market?s core in the sense that customer prices are all based on the best available interdealer prices."
"The Interdealer Market: In the foreign exchange interbank market there are no designated liquidity providers. At every moment a dealing bank can choose whether to supply liquidity or demand it. A dealer needing liquidity can, of course, call another dealer and request a quote. Until the mid-1990s such ?direct dealing? accounted for roughly half of all interdealer trading (Cheung and Chinn 2001), while the other half of interdealer trading was handled by voice brokers ? essentially limit-order markets in which people match the orders. During this period the best indication of the market price was often indicative quotes posted on Reuters? ?FXFX? screen.
The structure of interdealer trading changed dramatically after the introduction of electronic brokerages in 1992. In the major currencies, electronic brokerages not only took over from the voice brokers but also gained market share relative to direct dealing. Electronic Broking Service (EBS) now dominates in euro and yen while Reuters, the other major electronic brokerage, dominates in sterling. As the electronic brokerages took over, their best posted bid and offer quotes became the benchmark for market prices. By the end of the 1990s, voice brokers were only important in the ?exotic? (relatively illiquid) currencies for which electronic brokers are unavailable. By now, ?direct dealing among major banks has all but disappeared? (Barker 2007, p. 5). The speed of this transition reflects the intensity of competition in this market.
EBS and Reuters share a common, uncomplicated structure. Standard price-time priority applies. Hidden orders are not permitted. Limit orders are not expandable. Orders must be for integer amounts. Trading is anonymous in the sense that a counterparty?s identity is only revealed when a trade is confirmed. Dealers pay commissions on limit orders as well as market orders, though the commission on limit orders is smaller.
These markets have low pre- and post-trade transparency relative to most other limit-order markets. With respect to pre-trade information, price information is limited to the best bid and offer quotes, and depth information is limited to total depth at the quotes unless it exceeds $20 million (which it usually does during active trading hours).
(Scotty here..The writing in bold is a huge clue)
The only post-trade information is a listing of transaction prices. The exchanges do not publish any trading volume figures.
Trading on the electronic brokerages was restricted to dealers until 2005. Now, certain hedge funds are permitted to trade on EBS. Automated (program) trading was permitted around the same time. These shifts are reported to be a major source of the surge in trading between dealers and their financial customers since 2004 (B.I.S. 2007)."
The next quote is very enlightening in regards to how the big guys manage risk..This is also another important clue. (bold for emphasis):
"Dealers are constrained by position and loss limits which are, in turn, management?s response to rogue trader risk, meaning the risk that traders will incur immense losses (Goodhart 1988, Cross 1998). A single rogue trader can bring down an entire institution: Nick Leeson brought down Barings Bank in the early 1990s by losing $1.4 billion; John Rusnack brought down Allfirst Bank by losing $700 million. Such catastrophes could not occur in the absence of an information asymmetry that plagues every trading floor: management cannot know each trader?s position at all times. Traders are technically required to record their profits and losses faithfully and in a timely manner, but as losses mount they sometimes resort to falsifying the trading record.( can you guys say inefficient? the big guys are not god's and will get in going the wrong way and have to cover sometimes) Position- and loss-limits are intended to minimize the risk that losses mushroom to that point. Intraday position limits begin at around $5 million for junior traders, progress to around $50 million for proprietary traders, and can be far higher for executive managers. Data presented in Oberlechner and Osler (2007) suggests that intraday limits average roughly $50 million. Overnight position limits are a fraction of intraday limits, and loss limits are a few percent of position limits."
There is much more to this paper that is helpful in this search. I may spend some time chopping it up and adding commentary as I think it is extremely helpful. But one thing that should be dealt with first is order types and an explaination of liquidity, where it comes from and where it goes. I'll work on that today and post it later. That way we are all on the same page.
Scotty B
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Aug 30, 2009 11:34am
|  | Informed | | | | Quote:
Originally Posted by Porkpie From my partial reading of the material in my previous post, if I understand it correctly (if not please tell me): Limit orders encourage liquidity. These can be seen. Market orders dry up liquidity. These cannot be seen. | Almost there...No, limit orders supply liquidity while market orders demand it. I think we need to take a step back and define liquidity here. I won't go too far into it though because it's actually a pretty heavy subject in and of itself. I will again borrow from Larry here:
"Liquidity is the ability to trade large size quickly, at low cost, when you want to trade. It is the most important characteristic of well functioning markets.
Everyone likes liquidity. Traders take liquidity because it allows them to implement their trading strategies cheaply. Exchanges like liquidity because it attracts traders to their markets. Regulators like liquidity because liquid markets because liquid markets are often less volatile than illiquid ones.
Everyone in the markets has some affect on liquidity. Impatient traders take liquidity. Dealers, limit order traders, and some speculators offer liquidity. Brokers and exchanges organize liquidity."
Larry actually takes up a whole chapter on liquidity, but the above should suffice in general. Quote:
Originally Posted by Porkpie [color=black][font=Verdana]Limit orders create the structure of the market. Its boundaries causing market orders to come in creating liquidity but also drying the liquidity up. Market order create a demand for liquidity whilst reducing its supply. Limit orders are a source of liquidity. Without limit orders the market has greater volatility as it is left to market orders to push price around until a limit order gives the market some sort of direction and structure. When there are no limit orders and the market is left to market orders reducing the... | Had a hard time following you on this one...Yes limit orders supply liquidity and market orders take it away. When you say that a market absent of limit orders is volatile you would be correct. In FX, we can see this at news times in the widening of the spread. Thats one of the reasons things get crazy after news is released, and one of the reasons price can jump so long and hard in just a moment. If the spread is widened (space in orderbook between best bid and ask i.e. most aggressive limit orders) then the post news trades will trade at those far off prices. Couple this with the stops being triggered and you've got yourself some extreme volatility. Quote:
Originally Posted by Porkpie When this happens specialists enter the market with limit orders to encourage liquidity -market orders come in to try and take advantage of the size and position of the limit orders. Therefore, the value of a limit order is dependent upon knowing the order exists and its size. Limit orders are on the whole visible (Level 2), but their size can be disguised. | Well....I don't think liquidity can ever really be guaranteed, unless you trade with some of the retail brokers where they are ready and willing to deal to you at all times. But I've heard horror stories of penny stock traders who enter into a position, are in profit, and then can't get out because nobody is there to take the other side of their trade -> offer them liquidity. Quote:
Originally Posted by Porkpie [color=black][font=Verdana]Informed traders can take advantage of limit orders by getting in before the limit order and taking advantage of the thrust that the limit order will produce. However, the momentum this causes creates the opportunity for those traders with equal size to trade in the opposite direction causing the price to reverse. ('front running'). This gives another dimension of how prices might shoot in one direction to then tank in the opposite direction and allows the informed traders to use limit orders to push price higher to sell... | I don't think limit orders produce any thrust. It would be the market orders eating up open interst that causes price to move. I am still looking into this, but I don't think stop orders are treated like limits. I'll get back to you all on this. Old Larry says: Limit orders execute quickly if they are on the wrong side of the market but they do not execute if they are on the right side of the market. Quote:
Originally Posted by Porkpie So informed traders will get in before the market reaches a limit order on the right side of the market. If the right side is bearish the more sellers there are the quicker the move will be exhausted as there will be less buyers to sell from. | Quote:
Originally Posted by Porkpie I think the bottom line is that well informed traders do not use limit orders (unless they are encouraging a bluff), but instead use Market Orders (which you cannot see). |
I think the opposite might hold true on this one. Quote:
Originally Posted by Porkpie Could it be therefore, that what we should be concentrating on is order types? How are informed traders who use market orders, using limit orders, highly visible in the market, to their advantage. What are the signs that we can use to our advantage. | Yes, this is probably the most important point. That is where I am going next. Later today I will post a detailed description of all order types, with unlce larrys help of course. Say hello to uncle larry everyone ---> 
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Aug 30, 2009 11:50am
|  | Informed | | | | Quote:
Originally Posted by Ferrari Yeh I think stops are market if touched type of orders, hence why stops aren't guaranteed by brokers generally and can be ineffective around news time; thin liquidity. When really important events are coming out, liquidity dries up; orders are resinded from the market causing high volitility. | Yes, ferrari...This is my current understanding. This makes me wonder about what stops would look like in the order book. My example I gave earlier is probably incorrect. Thats okay, I'm learning as I go.. Although I think a limit order for the same amount as your open position that is in the red, could work as a stop loss. Can someone verify this?
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Aug 30, 2009 12:11pm
|  | Informed | | | | One more post until later First off I just want to thank SK for starting this thread. It has forced me to start thinking a little different or a lot different maybe..I actually ordered the Harris book a few weeks back and I've been studying like a little school girl, so it's ironic that this thread popped up. My wife is not very fond of Larry at this point, for obvious reasons, need I say more? Yeah, she's the boss.
Anyways, something that has become very clear to me especially over the last 72 hours: TA and FA are a sham. Yes they can be profitable and I am profitable using simple S/R, but I am gambling..Here is something that has always bothered me: failed patterns.
Why do price action patterns fail? I am including my beloved fibs in this, S/R, MAs, EAs, you name it. Because the underlying orderflow does not support the trade we are taking based on chart information alone and is infact contrary to it! Patterns fail all the time making MM crucial. I can't beleive I am about to say this but..Chart trading alone really is just a game of probabilites. You win FX Petra. I surrender. I feel like an idiot for not coming to this reality sooner. Orderflow moves price, thats it. I've been looking in the wrong place for years. I feel as if I've been reborn as a trader. I encourage everyone to make understanding this topic their # 1 priority! Some of you who are newer will dismiss me on this, but I promise after you've been beat up enough you'll be back and saying the same thing I am now.
Thanks everybody,
Scotty B
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Aug 30, 2009 12:31pm
|  | Informed | | | | Quote:
Originally Posted by Porkpie The point I was making that Limit Orders are the origins of liquidity as it encourages market orders that both creat liquidity and demand it. So agree, if there were no Limit Orders there would be no liquidity. | Okay bud, we are square on this. Quote:
Originally Posted by Porkpie Surely, if you have a large or stack of limit order that get triggered thats as good as stack of market orders entering at the same time. Both may enable price to move. The difference is the limit order would have provided the incentive for market orders being placed in the first place. Informed traders will use Limit orders to their advantage by jumping in the same direction at the very same time as they are triggered thus taking advantage of the thrust due to the size of the limit order. The informed trader, knowing that this has now created a... | Alright not so square on this one... I don't think limit orders would move price at all because the market orders that took liquidity from the limits would cause equilibrium. The market and limit order for the same amount would cancel each other out at a given price. You would then have more open orders in the market though. When a limit order executes, the holder of that limit order is now locked into a position and exposed to the possibility of risk or profit. At some point those traders will exit those trades via market orders in the form of stops or take profits. The sizes of the standing limit orders has everything to do with liquidity. We will get into that deeper later though. But in theory, if there were a stack of limit orders that were not very big going up the price ladder and a huge buy @ market came through, price would eat up the open interest at each price level quickly and cause a spike in price. Quote:
Originally Posted by Porkpie You best tell Larry he's got it all wrong then LOL . | Be careful there man..Larry is under your bed. 
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Aug 30, 2009 12:46pm
|  | Informed | | | | Quote:
Originally Posted by Ferrari Funny I had this moment recently too! I agree its about probabilities. I would also say that mearsuring the probability has an objective methodology, based on supply and demand imbalances seen on a price chart. And I mean really recognising real oppurtunity. Man, I totally agree, I too have been looking in the wrong place. I missunderstood the game from the beginning. I can't believe how simple trading is. It can't be this simple, can it? I don't know where I got the misconceptions about trading from.
I don't believe we're gambling in the real... | I am saying that TA and FA are reduced to their probabilities. I cannot say yet what I believe about orderflow and it also being reduced to simple probabilites. I think these guys who know how to trade using orderflow trade with certainty, at least that's the way they make it sound. Meaning that, if you trade a break of support for example and go short, you don't know for sure if the orderflow is on your side, so all you can do is say "well, this trade might work out and it might not, so I better get my stop all ready." But if you are someone looking at orderflow at the same moment you'd say, "well, looks like we are going long again based on this here orderflow data and all those suckers are gonna give me their stops." This is my crude image of what I beleive this study will lead to and why I am so passionate about it.
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Aug 30, 2009 1:01pm
|  | Informed | | | | Quote:
Originally Posted by Porkpie Ok I think we got our wires crossed. My thinking is that if the market is creeping up long towards an area where there are a stack of limit orders to go short and informed traders are waiting for that stack to be triggered to get in along with them this will cause huge short momentum (as long as demand is being exhausted). The market moves down, bigger market orders then enter the market and turn price around. The result is informed traders taking advantage of a stack of limit orders that were on the wrong side of the market and whipping up the... | If a bunch of limit short orders were filled and then price fell, those folks would then be on the right side of the market because price would fall and they'd be in immediate floating profit. Especially if market orders jumped in short. Yes, heavy longs could take advantage of the falling market and be fully filled, (this is yet another aspect we will deal with later), but they'd better be darn sure they can cause enough buying pressure to turn price around. Maybe if they waited for the shorts that were triggered to TP, and buy in at the original shorts TP price...But this gets into big guys tactics and not nessisarily into looking at orderflow.Really, it doesn't matter what the big guys want to do. If we can see the orderflow we can trade right along with them. Let them come up with the game plan.
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Aug 30, 2009 1:11pm
|  | Informed | | | | Quote:
Originally Posted by Ferrari Yes, well I think we have to differentiate reading the tape from reading the charts. Look I don't believe in what your looking for, ie. certainty. Its really just the holy grail concept again. We cannot know what the market is going to do with any certainty -this its a fact. We aren't all knowing, we can never know what might come into the market at any moment. Its a search that will never yield any answers. | The orderflow predetermines where price can go. Why do you think SK uses terms like "a one way market." You say we "cannot know with certainty." but at the same time are certain that you cannot know and appeal to "fact." If we are not all knowing, then how do you know we can't ever know? If we can never yeild any answers then why are you putting answers fourth?
If we can see orderflow, then we can see the man behind the curtain pulling all the strings and get out of the mindless audience.
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Aug 30, 2009 1:46pm
|  | Informed | | | | Post by SKFX:
"@Goose
Goose,traders of all types have to do what they have to do...trade.They place orders.
For the big players,they NEED to place orders,they have no choice.You and I though,it's more of a want thing.We are not forced to do business unless we want too.This is an edge in itself,another one.Think about what this means.
Hint:we get too watch the big nutcases push capital around.But we need not get involved until we know the hand.
Ever thought you could trade without a stop loss?(not recommending this.i do use stops but just as a terrorist type thing if you catch my drift or internet crash).
Once you KNOW and UNDERSTAND,using a stop seems silly because price can only go ONE WAY."
To ferrari...Look at how SK describes this..He puts on a stop to protect from bin laden and internet crashes. If he is telling the truth, the only probabilities you'd need be concerned about are those things unrelated to trading.
If the roulette wheel is only black, then what is the probability you will hit black? SK is portraying this thing as certainty.
Back at SK... to clarify sir, are you trading with certainty or probabilities as far as the trading and analysis alone are concerned, leaving terrorists and internet problems out of the equation?
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Aug 31, 2009 7:34am
|  | Informed | | | | Quote:
Originally Posted by capitalist88 By the way, this goes right to the heart of the concept of liquidity.... | Capitalist..Thanks so much for the examples and for cleaning things up for us. My eyes are opening more and more. This seems like its boiling down to simply knowing the microstructure (the rules of the game) and the mechanics of how price works, not an end in itself - but the starting point.
From your 2nd to last post you stated that stops are not on the book, but held by brokers. So at this point I am baffled as to where you would find information on stop placements. Especially considering that it's not necessarily us small guys who are pushing price around, but 'the big guys.' It is their stops/orderflow in general that matter and I am not sure if 'the big players' even use brokers because they are operating on a whole other level. I say this because our charts, say on Oanda for example, are not nessisarily a picture of what is happening on Oanda's in-house orderbook. Oanda might as well be playing Forest Gump on their chart area on the platform along with all the other retail brokers. I say that because, if I entered a maximum postion with Oanda, or several for that matter, Oanda would take the other side of my trades and I don't think you would ever see those trades reflected on Oandas charts. Unless of course they 'hedged themselves with their liquidity provider.' Who would in turn pass my orders up the stream.
( I have to admit that at this point I have absolutely no idea what I'm talking about with anything that I continue to say, I am feeling my way around in the dark here).
I have the same question about the guys in chicago trading FX futures on globex. Are they also trading with data coming in through the wall? Should they be playing Mario Cart instead? I have a sneaking suspicion that they are playing much of the same game we are. (if they are, it would make the volume data I subscribe to through market delta meaningless  ) I know that the Forex is a decentralized market, so their is no central exchange on which it's traded, so who the hell is moving prices up and down? This was one of SKs questions for us to answer (he said it nicely though). Yes, my words are revealing how ignorant I really am, but we cannot (I cannot) move forward until they are answered. This is probably the most imporant question aswell in regard to the topic and this is the crux: If we don't know who is ACTUALLY making the price tick up and down, then we cannot take advantage of orderflow. All we can do is look at the charts (half of the picture), and keep guessing what will happen next.
Also, if this topic is reduced to guessing where certain orders will be, then we might as well put the indicators back on our charts. Knowing that the big guys have to use orders to trade is helpful in the logic of the charts, but we will still just be guessing.
One thought I had was, what kind of risk tolerance do 'the big players' have? How much pain can they take? Do they calculate their R:R like us morons? Is there possibily some average percentage that we could use to say, after such and such a consolodation (positions entering the market via limit orders), all the 'big players' who were wrong in the direction start executing stops thereby adding momentum to the 'right direction?' Yes, I am gettng ahead of myself here, but Its just a thougt. If something like this could be done, I think it would better explain why fibs work. Edit: to appease SK, I mean, maybe it would explain why fibs 'work.'
Okay I'll shut up for now...Capitalist, not all of this was aimed at you my friend..I just figured since I started rambling, I might as well keep going.
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Last edited Aug 31, 2009 7:38am
| Reason: Lack of brains, stupidity
| 
Aug 31, 2009 7:50am
|  | Informed | | | | The other type of Forest chart Due to the trendline I'm getting short. Also, notice a perfect head and shoulders at the last high.
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Aug 31, 2009 8:06am
|  | Informed | | | | Quote:
Originally Posted by LasVahGoose OMG. LOL. I never put 2 and 2 together. That is why they call it stop HUNTING. They don't know where the stops are (off book) so they hunt for them. | Wait, whos stop hunting? The funny thing is, there is bound to be stops on each side of the market, so really all you need to do is 'fire into the dark.' And in all seriousness, Osler in her paper also refers to orderflow as order imbalance, which makes you think that the majority will hit the minoritys stops each and every time furthering their cause. Kind of like racism but more like priceism.
We can't simply use price action for this either, it just tells us half the story. We'll find it...in time will find it, and until we do we'll continue to be the victims of priceism.
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Aug 31, 2009 8:29am
|  | Informed | | | | Quote:
Originally Posted by MartinFx I don't understand your logic on this. Why should we know that who's moving the price? It's totally unrelevant. | Would you like butter on your popcorn sir?
No no...In all seriousness, if we don't know who is moving price, then studying orderflow is a waste of time. I don't necessarily need to know names, SS#'s, DNA, but humor me here...
What if I knew that later today mr. X at X-Bank, was going to start selling Euros like there's no tomorrow. Mr. X has so many Euros to sell, he's actually been taking them home so he can wipe with them. Mr. X is going to start the sell-off at 3pm, london time..Sorry I don't feel like going to the effort of telling you the GMT. It's story for crying out loud.
So if you had knowledge of this, what could you do with the information at say... 2:58-2:59PM?
Now that story is completely far-fetched, but what if you had access to this type of data where you could see these trades that were about to execute. Even if you only had 5 seconds or less to act, would it be valuable to you?
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Aug 31, 2009 8:37am
|  | Informed | | | | Quote:
Originally Posted by LasVahGoose
Well, wouldn't price action show the end result of the order flow? For example if price spiked long taking out all sellers stops and selling to buyers ( buying into resistance), maybe pinbar shape? Then once all the buy orders are gone, price falls until the next level of buyers can found.
Hmmmm....  | "@Scotty
Quote:
It's kind of a funny thing anyways. If you are a profitable trader and have some edge then in a round about way you are profiting from the underlying orderflow, without ever really seeing it or realizing it.
"LOL.Makes me laugh everytime.
This is a classic Scotty.Before i 'understood',i would put a trade on every now and then and she would be golden from the get go,never looked back.
When your trading blind you really think that it was your system/your edge that you had devised that cut it out for you.HA,what a big joke that is.Talk about no idea."
I tried this logic yesterday and SK scolded me for it. This tells me there IS someway of knowing maybe not necessary who, but when and how much- if that makes sense..The data is out there somewhere, maybe it's right under our noses, but it's there. These guys are not playing a guessing game. They are dead on the money; pardon the pun.
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Aug 31, 2009 10:03am
|  | Informed | | | | Benefits of Trading CME FX Futures and Options: - Open, fair and anonymous trading
- Equal access to the same FX markets and prices for all traders
- All exchange fees are public and spreads are consistently tight
- Global access to CME electronic markets virtually 24 hours a day
- Access to in excess of $48 billion in liquidity each day
- Guarantee of counterparty credit and central clearing by CME Clearing
I got this of of the CME website and I think the bullet in bold above answers my question about the value of the futures orderbook data. 48 Billion, is a far cry from the 2+trillion that changes hands on the interbank. I don't think it's going to be very helpful. I'm not crossing if off my list yet, but I'm still searcing.
Now I am going to post some more block quotes that I copied off of some trashy add-laden website that I thogut did a good Job of explaining the Interbank market. I think this is the direction we need to be going with this. IMHO, It is the guys on the interbank that we need to follow. If we are concerned about orderflow, lets focus on them.
I will bold the info I think Is relevant to this discussion in the text below.
" The interbank forex market is a financial system of currency trading among the world?s largest banks and financial institutions. This currency exchange takes place directly among banks or via electronic brokering platforms, such as Electronic Brokering Services (EBS) and Reuters Dealing 3000 Matching. Both these platforms offer trading in the major currency pairs. Trading in cross currency pairs is typically not supported by these platforms. The major currency pairs primarily traded on these systems are:
EBS - EUR/USD
- USD/JPY
- EUR/JPY
- EUR/CHF
- USD/CHF
Reuters - GBP/USD
- EUR/GBP
- USD/CAD
- AUD/USD
- NZD/USD
The interbank forex market is decentralized and unregulated. It does not have a specific location where the transactions are recorded. The interbank foreign exchange market is an important component of the larger forex market. It is a wholesale market having three major segments, which are: - the spot market ? In the spot interbank forex market currencies are traded and delivered immediately.
- the forward market ? This market deals in contracts for future delivery.
- SWIFT ? The Society for Worldwide Interbank Financial Telecommunications is a worldwide network for exchanging messages between banks and other financial institutions.
Most interbank trading is conducted from the banks' own accounts, while some interbank trading activity is undertaken by banks on behalf of their largest customers. Who Determines the Interbank Forex Rates?
Each bank sets its own forex prices. However, given stiff competition and a large number of players in the market, the prices determined by different banks do not vary significantly. The factors considered by banks to determine forex prices include: - volume available at the current price level
- current economic and political environment
- their opinion on the prospects of various currency pairs
- their inventory levels
Central banks play a key role in determining the interbank exchange rates. This is because the central banks have the power to alter interest rates. High interest rates prompt traders to buy currency from banks, exerting upward pressure on the value of the currency. Central banks can also buy and sell currencies to alter supply, thus impacting prices."
All of this info is baby stuff, I understand that, but I think it gives us a good map of where to start digging. One of my strong questions is, can we in some way gain access to EBS or Reuters data? If this is where 'the big players' orders are 'flowing,' then this is a common sense place to look.
Again, thanks for humoring me,
Scotty B
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Aug 31, 2009 11:23am
|  | Informed | | | | Getting Somewhere Okay guys..I feel like I am talking to myself here..I found a temporary free data feed to true Interbank orderbook data.
Dukascopy if I understand correctly, trades on the actual interbank network.
Here is a FAQ dealing with this that I borrowed from their website:
Do all the accounts have access to interbank Forex trading market?
Yes, all the accounts have direct access to the interbank Forex trading market via SWFX - Swiss FX Marketplace.
They allow individual traders to open an account with them for 10K minimum. Also in their platform, you can see the orderbook. I am assuming (I could be wrong) that this is the broad interbank orderbook. This is probably a good place to start focusing. Also, if I am right, this orderbook data is the 'headwaters' that trickle down to our retail stuff. This is where the quotes are coming from.
Anyone who is interested in following this with me can download a 14day demo: http://www.dukascopy.com/swiss/engli...mo_fx_account/
Now the question is, is this the 'right stuff,' and how do I interperet it.
Scotty B
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Aug 31, 2009 11:27am
|  | Informed | | | | Screen Shot Here is a quick screenshot highlighting the depth of market.
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Aug 31, 2009 11:39am
|  | Informed | | | | [quote=Teiresias;3008508] Quote:
Originally Posted by Scotty B Okay guys..I feel like I am talking to myself here..
Thank you for sharing your research and thinking out loud. It is appreciated. | I am enjoying it. It's been an enlightening last few days for old Scotty. No word from SK for a while. I hope he's feeling alright. Anybody out there with ideas on this, please by all means, chime in. I don't think it's rocket science type stuff, but like SK has said, UNDERSTANDING is one of the keys. Hard work and and a little brain power pays off.
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Aug 31, 2009 12:14pm
|  | Informed | | | | Could be Quote:
Originally Posted by MartinFx I think every ECN uses its own internal order book. It only represents the orders made through Dukascopy. | That could be so...but the one advantage we have in this small resource is that these guys do trade on the Interbank. Meaning, orders flowing through this orderbook have the ability to move the prices on the interbank itself. I think it will be a great tool none the less. What we really need is access to the EBS and Reuters orderbooks. I am finding that is not going to be easy though. With the Dukascopy orderbook we have a small stream that flows into the broader interbank 'river.' We need to get to the place where all these streams converge.
Leon..Thanks for chiming in my friend..I know from my lurking that you are in the same search I am. If I am correct you have the Harris book as well. Isn't it funny how much we really don't know? I am really enjoying wading through all this stuff. Join the search man. Many hands make light work, and many brains make quick research. That goes for everyone else who is following along!
Scotty
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Aug 31, 2009 12:47pm
|  | Informed | | | | [quote=Porkpie;3008737] Quote:
Originally Posted by Scotty B
The usefulness of level 2 data remains inconclusive it seems after a quick web scan.
I'd say you don't really need it.
Other Forum discussion | Hey,
Thank you for the referral. The fact of the matter is that guys like the OP, Gaston, DS ect. are using this stuff profitably. If we want to do the same it's gonna be an up-hill battle.
Here is a paper I got from another website dealing with the very issue at hand where the opposite is true (attached).
One thing I want to mention along with this is that academics are not traders. We probably won't find what we are looking for in them, but we can get plenty of ideas to work from.
Here are some quick quotes from the paper that already have me thinking:
"differences in quoted depth between the bid and ask side do predict future price changes, especially for price changes over short intervals"
"the relation between order imbalance and future price movements. The ?order imbalance? in these studies refers to the difference between quantity bought and sold."
Order Imbalance is what orderflow/net liquidity demand trading is all about.
Ahhhh, more homework.
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Sep 1, 2009 12:22pm
|  | Informed | | | | Ahhh golf After laboring over this stuff for nearly three weeks straight, I had to pull myself away from it yesterday and I had a great day of golfing with some buddies. I think in any avenue of life, studying (accumulation/absorption of data), is not fruitful until a person can break away for a time of reflection.
It hit me yesterday while golfing, that the limit order book is only 1/4 of the other half of the equation. I would say that price action could reasonably be 50% of it, 1/4 goes to limit orders, but what about open orders? Current open orders in the market are where fear and greed reside. Limit orders are just possible future orders that may or may not execute. It is how people deal with profit and loss that we need to be focusing on as this is the epitome of orderflow analysis.
If I am in a profitable trade and I am 100 pips in profit and decide to close that trade, what happens? I have left the market and transferred the risk of an open position to someone who was willing to take on that risk be it I trade with a standing limit order at the next bid/ask or with someone who just placed an opposite market order (don't quote me on the latter). So, IMHO orderflow is about understanding who will demand liquidity and when they will do so.
If the market is trending up, and has been doing so for a while, why would it in theory be stupid to buy? Because you can bet your butt that there are open market orders in profit that are at some point going to liquidate (take profit). So it would make more sense to sell while the profitable longs are taking profits it you can identify that this is whats happening. Keeping this in mind, take profits should be almost as powerful as stop orders. Stop orders in my mind would naturally always be more powerful in terms of creating volatility, especially in obvious places like the OP showed us because people are only willing to loose so much and will start exiting in unison. In terms of profit taking though, some traders exit sooner than others. They will exit their profitable positions in different places. Also, think of the volatility that is caused when both stops and TPs start demanding liquidity at once along with all the market orders that start piling on in response to that volatility
So, if we can have some idea of existing open orders (not limits), then we can begin our investigation on the places those open orders will TP or hit stops. All limits do is provide liquidity, and I am relaxing in my quest to fully understand them. This is probably why only the depth of market is shown for the next 5 prices on each side of the market.
I am not saying the orderbook is un-important, just that its 1/4 of the equation. Lets now assume that I am a 'big player,' carrying a very large long positon in profit, and I see that huge limit buys are just coming to the market in the limit order book (idiots, or utiliatarion trades). Not only are they large, they will provide plenty of liquidity for me to completly unload my profitable position at a high price point. It makes perfect sense to unload in this place. Why? Well lets assume that liquidity is lacking in the buy side of the book. Why would it under normal market conditions be stupid for me to sell off my position at that point? Because I would work against myself when I sold and get a lower net profit on my long. There are many possibilites and exit stratagies I could use, but no matter what, given normal market conditions, it would be my goal to exit when I found a large liquidity pool on the buy side of the book.
This brings us to the chart. What do deep pools of liquidity look like there? What do shallow pools look like? Think like a big player and you can indeed find yourself in their company
Go get some fresh air now people and think about what I've said. Heck, maybe I've got it all backwards still, but I feel closer and closer as the days are passing by.
Thank you all for sharing your ideas! Give it a few more weeks and more research and we might have some folks sweating a little bit. I have not looked yet, but I already have strong ideas of where to find the real info I need. This is probably the most I have ever dealt with trading in a solid objective manner and it feels good.
Regards,
Scotty B
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Sep 1, 2009 2:04pm
|  | Informed | | | | Quote:
Originally Posted by slimcat
Just wondering what the image of the woodworker was for..is that a clue? | Thanks for the encouragement mate. The picture was just a tease at those who KNOW. Don't read anything into it.
Scotty
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Sep 1, 2009 2:29pm
|  | Informed | | | | Quote:
Originally Posted by Leonlorenzo Oh to be one of the ones that know. Problem is, some of us wont be capable of ever finding out. Wether capability lies on the sholders of drive or intelect is the question. | I vote for the drive part of the equation. Check your PMs mate.
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Sep 2, 2009 4:15am
|  | Informed | | | | Quote:
Originally Posted by skfx Hi Boys/Girls,
Sorry about the little attention i have been giving this thread.
I have a lot going on in my personal life right now and cannot offer to much more here,in fact,Shamus's picture thread will have to wait also.
I look back and i see a forex round table with intelligent debate and good research.You guys have done well and you will be better off for it.
I will say one last thing:Do your due diligence!!!
If anyone thought that trading was as easy as pulling up a chart and placing some squiggly lines on it with a few bells and... | God bless sir! Thanks for taking the lid off the box. I appriciate it!
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Sep 2, 2009 4:29am
|  | Informed | | | | Thanks! Quote:
Originally Posted by kareem using the currency EFT,reading on the level 2 can help to see big players and vol.,IF U LOOK AT THE CURRENCY EFT THE ARE ALL PRICE THE SAME (only for major fx pairs eur/usd,usd/jpy,etc...... | Thanks for the resource. Would you go to the trouble of finding sources and posting links? I'm not saying it will be hard for me to get to the particular data, but it would be sweet if we could simply click to it from here, or if not directly to it, at least a link where we can access this stuff.
The beutifal thing about the data you are mentioning is that certain information is recorded there that could prove very valuable..More on that tomorrow (I'm away from home for the night).
I had a few significant breakthroughs today as far as data sources go to back this stuff up. There were several really, and I will post an extensive list tomorrow with links and explainations why the particular sources are important for interpereting orderflow. You all should get a kick out of it.
In ceratain FX related markets, some players are required by law to report their open positons. One being banks, and commercial users of the commodity being traded  .
I sifted through the data for about 7 hours straight today toggeling back from orderflow data to my charts in the majors and was pleasantly surprised at what I was finding. This is about to get interesting guys. Hold on to your socks.
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Sep 2, 2009 7:23am
|  | Informed | | | | Quote:
Originally Posted by mikkom No big player uses currency ETF's (except maybe for arbitrage and the book is worthless there) - it's much better to look at fx futures. | Yes sir...Just keeping the options open-pardon the pun. There is one peice of data that the EFT's record that could be helpful..I just need to get a chance to look at it. But you are right, the futures are going to be a great resource.
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Sep 2, 2009 10:23am
|  | Informed | | | | Quote:
Originally Posted by Porky Hey ScottyB, Thank you for your diligence.
How did you get this IFR data? Did you subscribe to a service? | If you have a live Oanda account, the IFR feed is provided in their FX News. It will be interesting to see what ZKF gets in comparison. We'll have to compare over the next week to see. IFR is just one peice..Now the question becomes, how do we use that data? No worries though, we'll get there.
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Sep 3, 2009 1:44am
|  | Informed | | | | Shreem,
Thanks for the great article. It does a great job of painting a picture of what it is we are after. So common sense tells us that the dominant order flow causes the same orderflow type and a continuation in the main trend. Meaning that if the market is buyer dominated, all the shorts(created via limit or market orders) will, under enough preassure become buys as well in the form of stops.
This might sound dumb..But I have an image in my mind of two groups of people playing tug-of-war with a giant rubber band. Instead of the losers falling in the mud, they are 'snapped' towards the winning side and everyone ends up running in the direction of the stronger side (a one way market). They have to if you think about it.
So when SK speaks of waiting for the market to show it's hand, he is most likely watching and waiting to see which side ends up dominating, and right before the rubberband snaps he's in going the right direction.
How he and the other guys see this is still up in the air, but we are getting closer.
The thing I liked about the article was that it mentioned a term I beleive is very important. That term is "open interest." Open interest in a market are the trades that are still open, they have not yet been liquidated or settled. The study of open interest is a whole other topic in itself. The only source I know of in the forex that records open interest is FX futures that trade on the CME Globex.
I think that the FX futures MKT is big enough to show us significant information in this data. The only tricky thing is that CME only records open interest once per day as far as I am currently aware.
Because I think that open interest is imporant to the topic of orderflow, here is a link that explains it well. The article has some interesting insights I thought. http://investopedia.com/terms/o/openinterest.asp http://www.investopedia.com/articles.../02/110602.asp http://www.investopedia.com/articles.../02/112002.asp
Now, I don't know how much this information is going to help us, but it is directly related to orderflow. I know that the futures data is significant, because guys like AlexS use it's volume data to trade profitably. He watches for high volume to form and then records the price at which the high volume formed and then waits for price to come back to that high volume price and then he trades the bounce. It's pretty neat really. I think that is a differant subject again in itself, but it tells me that prices on the FX futures exchange are informative. When an institution comes in and buys 5000 lots of euros, I beleive they probably know something that I don't. Also, their 'direction' ussually wins.
Now, I mentioned yesterday that I am wading through a ton of futures data..I have to much to look at really. So it would be helpful if we could all join forces in searching it all out. I'll post some links here so you can all start going through it.
CME FX products main page: http://www.cmegroup.com/trading/fx/index.html
CME Euro page (you guys will find all of them there though)
This link is cool because it gives you the significant volume data for free that many data vendors charge you hundreds of dollors per month to see.
Just click on the volume charts. There is a link there that explains how to read them. Pretty Cool! Also, in the main charts for the contracts, you can turn on an indicator that charts the open interest on the daily. I don't think this whole orderflow thing will turn into an indicator thing, but it's still very interesting to put on the chart, especially after you have read the article on open interest. http://www.cmegroup.com/trading/fx/fx/euro-fx.html
Various daily reports on open interst http://www.cmegroup.com/trading/fx/f...olume_voi.html
There is much more to look at on the CME site as you guys will find. If anybody see's anything they think is significant, please report back.
Here are some links from the CFTC:
There is a lot there as well. I think some of it can be helpful.
Market reports of bank participation in the futures markets: http://www.cftc.gov/marketreports/ba...tion/index.htm
Commitment of traders reports:
There is a niche of traders out there who know how to profit from this info alone.
Another intersting one: http://www.cftc.gov/OCE/WEB/eurodollars.htm
So there is a ton of stuff to go through....I don't know for sure if we need all this info, or if it will be useful to us, but it's worth a look nonetheless. I am actually at work right now (I work overnight), so it's slow, but I am just about to get busy again. So I will check back in later.
Regards,
Scotty B http://www.cftc.gov/marketreports/co...ders/index.htm
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Sep 3, 2009 1:50am
|  | Informed | | | | Quote:
Originally Posted by Scotty B Shreem,
Thanks for the great article. It does a great job of painting a picture of what it is we are after. So common sense tells us that the dominant order flow causes the same orderflow type and a continuation in the main trend. Meaning that if the market is buyer dominated, all the shorts(created via limit or market orders) will, under enough preassure become buys as well in the form of stops.
This might sound dumb..But I have an image in my mind of two groups of people playing tug-of-war with a giant rubber band. Instead of the losers falling... | Oh, one more thing...The bank participation report from the CFTC allows you to get a glimpse whether they are holding net long or short positions. I think this has the potential to be helpful. Especially if the bias is heavily skewed to one side.
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Sep 3, 2009 5:04am
|  | Informed | | | | Quote:
Originally Posted by FXEZ It's easy to be distracted by the sideshow. The basic principles explained in this thread regarding order flow, how to interpret it, the different types of orders and participants, and how to profit from this knowledge IMO is the gold herein. It's very easy to get sidetracked by interesting but not completely central topics such as br_oker shading, open interest, CoT, news providers, etc. I see pipmutt beat me to echoing this general sentiment.
Let me quote one of the posts early on (#8) that I think hits on or around the major focus of this... | I know what you are talking about, and yes it's pretty simple. I have not posted that which you are speaking of because it's the most important peice, yet the peice those of us must realize on our own. But even knowing the vital part of the puzzle you are speaking of, I doubt you are taking trades on IT, because you don't trust that you are in the right place. This is where I am focusing at the moment while trying not to chase my tail. Knowing the 'picture behind the picture' can give us an idea of open interest and how it's changing, but we are still guessing at this point. The reason I went to the open interest idea, is because I think the 'big players' or certain big player trade on a little bit longer term. If we can know when open interest is declining on the daily scale, then we can be in the right direction before the losers show up on the chart. Just an idea.Trading IT, alone is still risky unless we have more information. This is why I beleive a lot of these guys (OF traders) trade at the news times. When lots of people are trading in the same spots, these places become much more clear and likely to work out, allowing one to up the risk.
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Sep 3, 2009 5:10am
|  | Informed | | | | Quote:
Originally Posted by forextrend The banks can see their customers' order flow and therefore always have an edge so you have to use commonsense to figure which way they the banks are trading(big picture) and then follow them(banks).
k.i.s.s | Yes, and they have enough strenth to pry nickels and dimes out of the loser's hands. But PRY they must. It's kind of like a financial game of 'say unlce.'
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Sep 3, 2009 5:19am
|  | Informed | | | | Quote:
Originally Posted by Scotty B I know what you are talking about, and yes it's pretty simple. I have not posted that which you are speaking of because it's the most important peice, yet the peice those of us must realize on our own. But even knowing the vital part of the puzzle you are speaking of, I doubt you are taking trades on IT, because you don't trust that you are in the right place. This is where I am focusing at the moment while trying not to chase my tail. Knowing the 'picture behind the picture' can give us an idea of open interest and how it's changing, but we are... | One more thing...When I found IT, I realized why Gaston calls himself an orderflow sniper. Snipers are stealthy, quick, and precise. This leaves contrarian, momentum, TA, and FA traders in the prey catagory.
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Sep 3, 2009 5:34am
|  | Informed | | | | Hint So I don't look like a jerk, here is a clear picture you NEED TO STUDY AND UNDERSTAND if you are still lost.
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Last edited Sep 3, 2009 9:04am
| Reason: Changed my mind
| 
Sep 3, 2009 7:47am
|  | Informed | | | | Quote:
Originally Posted by pipmutt
'Probability' people, not 'certainty', that's what trading is all about isn't it? | Whatever floats your boat I guess.
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Sep 3, 2009 8:39am
|  | Informed | | | | Quote:
Originally Posted by Dopey Here's one way of looking at it. Whenever you look at price, ask yourself, what can happen (in the next minute, hour, day, week) that will screw the most amount of people. | To answer pip in response to you sir. Yes, most people certainly get the shaft.
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Sep 3, 2009 9:01am
|  | Informed | | | | Quote:
Originally Posted by pipmutt Not wanting to be mean but that's their own fault. Ok we've got two market certainties, charts go to the right (lol) and people get shafted, and probably a whole bunch of other certainties but none about price direction. Great
Don't get me wrong, I'm not trying to rain on your parade, all this stuff is extremely interesting and can be very useful in trading so thanks for all your research and for sharing it, but I think you've got to be realistic in your expectations of what you're going to find, the oasis is in fact more sand.
Just... | Yeah, probably...Like somebody else said, it's just supply and demand at work.
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Sep 3, 2009 11:31am
|  | Informed | | | | Quote:
Originally Posted by Nick_likes_pips thanks scotty for mentioning him! i checked em out because of your post.. and he's pretty much doing the exact same thing i started doing and developing.. but he's been doing it longer so im starting to read his threads to help me fully develop my strategy alot quicker. thanks again! | No problem nick..Good luck and trading to you.
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Sep 6, 2009 1:51am
|  | Informed | | | | Hey eveybody,
I'm glad that all of you are still working on this stuff. I think some of you are thinking that understanding this stuff means you will be automatically profitable. This is not true. When I say 'understand,' I mean understand how the markets work. There are pretty straight forward rules, and limitations the maket carries with it by nature. The reason some of you are not getting it, is because you have not taken the time to understand the basics.
This topic is not a door in itself to the promise land, but just a door to another door. When you get to the next door, you'll feel like a newcomer to this game all over again. Once you understand how the market works, you can move forward, thats it. There is no big secret to be revealed, and nobody is trying to hold anybody else back.
When I first came into the forex world, I started at babypips, and what I got was charts charts charts. Then I came here and got more charts charts charts. The majority of people here are chart bound. Think about the 'trading systems' section of this site. Anyone that has been a member for a while has seen the rapid growth of this section over the last year. Everyone is under the impression that to be a trader, you need a system based on some technical or fundamental studies.
This topic is about escaping all the insubstantial fluffy candy that you were told is trading. Its like leaving trade school (pardod the pun), where you are learning how to be an electrician, and going off to university to study electricity itself. Or like leaving med school, because you realize you skipped pre-med.
A solid understanding of the Forex, is the only foundation you should be building a stratagey on. Once you know the ropes, do whatever you want. I don't want want to minimize TA, and FA, they both hold merit and many people have given their lifes work to these studies. Just make sure your foundation is solid!
Be able to answer these questions: (these are just a few)
What is Forex?
What type of market place is it?
Why does it exist?
When was it created and why?
Who trades in it?
How is the market structured?
Are there any rules to the game, if so, what are they?
What is a chart?
How does price move?
What are orders and why do we use them?
What differant types of orders are there?
Trading is a zero sum game, what does that mean?
Who wins and who loses?
What is a broker?
What is a dealer?
What is liquidity?
What is demand?
What is greed?
What is fear?
How do the emotions of people effect how price moves?
Ect...
I could go on all night guys. This is where the Harris book and other sources like it can begin to help you. I think babypips and sites for newbies would be far better if they started with this stuff first. But people want an easy out, so I suppose they will always exist like they do and be wildly popular.
The reason I quit posting here is because there is so much to this stuff, that it cannot be effectively taught/learned in this format. It's something that a person needs to spend some time with on their own. Don't get too caught up on Darkstar, Gaston and the others. They didn't find anything new, they just studied the mechanics of the markets, and went and did what others have been doing for decades.
Regards,
Scotty B
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Last edited Sep 6, 2009 7:37am
| 
Sep 21, 2009 1:38am
|  | Informed | | | | Quote:
Originally Posted by Darkstar Not to be a stickler for accuracy, but this isn't orderflow trading. All your doing is commenting on market mechanics. There is no predictive value. IE- It's great that you understand the mechanics, but it isn't going to put any money in your pocket.
To trade order flow you need data from outside the chart. Level 2, a brokers orderbook, a service that gives you info about brokers orderbooks, etc. There is a fuckton of money to be made from orderflow trading if you know what your doing, but you need the datafeed.
And no, I won't tell you where... | Hey Darkstar,
Thanks for chiming into this thread. In many of the research papers I've read it's about looking into the interbank orderbook data i.e. where our retail prices are coming from. Bloomberg is $1900/month, and to my understanding they show some level 2 interbank mkt depth. I'm still researching the possibility, I have not actually confirmed that yet.
Aside from the market mechanics, the idea behind orderflow itself, is seeing the net liquidity demand on the interbank. Is that correct? Also, even after you have good data, it's still semi difficult to trade this stuff isn't it? I think it's you who talks about taking out peoples stops. Do you just trade at news times or when there is a buzz in the market-when the big players are stopped out, causing a strong one-sided demand for the current available liquidity? Or can you look at this data anytime and always be in a trade going in the right direction?
Thanks,
Scotty B
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Sep 21, 2009 6:25pm
|  | Informed | | | | Quote:
Originally Posted by giraia_br free or paid?
how much it is a "fuckton of money"? I ask because in this board i saw a member asking or proof for anyone that claims to make more than 15% year. For him more than it is improbably.
on the other hand i saw another member showing results of 100% in a month with less than 7% DD.
both have vouches from the owner of this forum.
and i aks it because j16 people aim for 300% year (no ideia if it is possible or not) and i read somewhere that 300% year was what you were aiming...although i did not read any post from you saying... | I know your post was directed at darkstar, but it reminded me of something I came across the other day..That is tape reading. A lot of the guys who trade using level ll in stocks call themselves tape readers. If you search around you will find lots of info on it. This is what I think 'orderflow trading' could boil down to. And thats like walking up to a chart for the first time all over again. Many of the guys who 'read the tape,' do it differantly. Thats why our questions to darkstar about how simple it is to trade once you have the data, are important.
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Sep 21, 2009 10:58pm
|  | Informed | | | | Hey Quote:
Originally Posted by LuboLabo Hi,
There's no way to have a true market depth, order book level 2, traded contract, time and sales etc... in forex spot, due to the OTC market structure, I think even with EBS or Reuters data feed.
A way can be using forex Futures data, since reflects spot price and is 5-10% of all forex market, and has market depth.
Lubo. | If you could look at Reuters or EBS you would be looking at the best level 2 in forex. The only prices and quantities you would not see were those being traded directly between dealers via the phone. Nowadays though, Rueters and EBS are the primary communication dealers use. I read that dealers hardly trade via direct dealing anymore, only rarely-usually in the exotic currencies.
You are right though, the transactions in the interdealer market are not recorded centrally. I read somewhere that time and sales data in the interbank is only published every three years. To my current knowledge, the only only post-trade information available regarding interbank trades are the prices at which transactions occur, but no volume.
Also, I am still a little confused about what exactly the level 2 data would be used for. Obviously you could get an idea of how much liquidity is available currently in the market going both directions, and could roughly gauge how far a big order would move the market, also you could see how large the spreads truly were on the interbank. If you were looking at rueters or EBS during a news announcement, you could see that the spreads were quite wide, while B r o k e r s like Oanda would keep their spreads around 10-15 pips. Because Oanda gets their quotes from their interbank liquidity providers, but keeps theirs small for their customers, you would know exactly how far prices would go in either direction post news. This would be an example of mis-pricing on Oandas part. So in theory you could set a sell stop on the interbank bid price, and a buy stop on the interbank ask and trade the momentum that the stops create past those prices post-news. This is just an idea, but still not necessarily orderflow trading.
Orderflow has more to do with market orders than the level 2 data. Orderflow as I understand it is Market buys - market sells. When the interdealer market is net long or net short they raise or lower prices to induce buying or selling from the public so they can net their books to zero inventory. They do this all day long in fact. Now, if you could recognize in the level 2 data that this is what the dealers were doing you could trade against them. Because once the inventory is offloaded to the public, prices will momentarily go the other way. Forex is ALL about the biggest banks in the world because they make the market. In the forex, orders are initiated against dealers who are always ready to absorb imbalances between buyers and sellers, but they constantly adjust their prices to keep their books flat. The more we can know about what they are doing, the better. We as retail traders want to put ourselves in their shoes as much as possible because they control this whole game.
One interesting thing I read is that dealers pay much attention to their financial customers orders, mainly hedge funds and asset managers. If they see a lot of buying from these guys for example, they infer information from that orderflow because orderflow carries private fundamental data. After dealers trade with informed traders, they adjust their prices.
Here is a quote from one of my many research papers that really hit this home for me
"Whether we like it or not, it is a stubborn fact that in the major currency markets, there is no exchange rate other than the prices these peope set [Banks]."
Another interesting tid bit I learned from my research is that macroeconomic data accounts for less than 10% of intraday movement in price. In fact, macro fundamentals only come out more strongly in price after the two month horizon. This is because the primary driver of exchange rates are commercial customers (after 2 months), or those who actually use the forex for real-side international business. Dealers and speculators are always in and out of the market and account for most of the movement intraday. Orderflow accounts for up to 80% of intraday price moves. This is why it makes sense to understand it.
I've had many more ideas about how to interperate Level 2 data if I had it. But I won't go into that anymore until I actually have the data.
Regards,
Scotty B
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Sep 22, 2009 12:03am
|  | Informed | | | | One thing I just remembered...In one of my research papers I read that on the interbank, the market depth those people see are limited to the best bid/ask and the quantities at those levels. So if this is correct, you wouldn't see the best 5 bid and asks like on the CME futures exchange, just the depth at the current market. Can someone confirm this?
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Sep 22, 2009 12:14am
|  | Informed | | | | Here it is Quote:
Originally Posted by Scotty B One thing I just remembered...In one of my research papers I read that on the interbank, the market depth those people see are limited to the best bid/ask and the quantities at those levels. So if this is correct, you wouldn't see the best 5 bid and asks like on the CME futures exchange, just the depth at the current market. Can someone confirm this? | Sorry guys, just found it.. Here is the quote, this is from Osler. Bold for emphasis.
"EBS and Reuters share a common, uncomplicated structure. Standard price-time priority applies. Hidden orders are not permitted. Limit orders are not expandable. Orders must be for integer amounts. Trading is anonymous in the sense that a counterparty?s identity is only revealed when a trade is confirmed. Dealers pay commissions on limit orders as well as market orders, though the commission on limit orders is smaller.
These markets have low pre- and post-trade transparency relative to most other limit-order markets. With respect to pre-trade information, price information is limited to the best bid and offer quotes, and depth information is limited to total depth at the quotes unless it exceeds $20 million (which it usually does during active trading hours). The only post-trade information is a listing of transaction prices. The exchanges do not publish any trading volume figures.
Trading on the electronic brokerages was restricted to dealers until 2005. Now, certain hedge funds are permitted to trade on EBS. Automated (program) trading was permitted around the same time. These shifts are reported to be a major source of the surge in trading between dealers and their financial customers since 2004 (B.I.S. 2007)."
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Sep 24, 2009 6:48am
|  | Informed | | | | Quote:
Originally Posted by Prime# These guys HAVE the information long before price exposes itself on our charts or DOM. | I don't know if they do. If SKFX emphasizes the speed factor, I assume he is watching time and sales/DOM in realtime and acting quickly on his observations. Time and sales IS orderflow. Depth of market is possible orderflow- a glimpse on the currently available liquidity/trading options. I think these guys use simple futures data to do their analysis, and laugh and laugh when they see us searching for something that does not exist; a chasing of the wind. I read a very intreaging research paper tonight that has convinced me of this.
Gaston said that everything that we need is out there, we just need to dig around a little. I am finding that to be true. It's not as far out and mystical as one might think.
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Sep 24, 2009 7:56am
|  | Informed | | | | Quote:
Originally Posted by Limstylz http://portal.knowledgebase.net/disp...r=7.091922E-02
Taken from the above:
"Spot (cash) forex is a decentralized market and usually does NOT include volume with each trade. This affects the Footprint chart within MarketDelta and related volume based studies (Volume breakdown indicator) because they require volume in order to work properly....
...Monitor the trades NOT volume. This is a quasi-method for monitoring trading activity with spot... | Market Delta uses futures data. Unless you can get a spot feed, maybe thats what you are talking about..Knowing the number of trades is one approach of meassuring orderflow, although there are a few methods that can be used in doing so. So yes, the number of trades IS orderflow. Remember, orderflow is the sum of buy trades and sell trades. The sum of those two is orderflow. If you have more buying then selling, the market is net long, if there is more selling, the market is net short. When the market is in one of these states, price must move so that dealers in the interbank can clear their books. Remember, it is the interbank that makes up the core of the market. We need to align our priorities with those of the dealers. They don't like holding inventory positions because it exposes them to risk. So if they are net long, prices will be raised to induce selling to the commercial public. They then net their books to around zero inventory and the same process begins again. If you know how the dealers are situated, you could in theory take advantage of them. Its not as easy as it sounds though. It's just another iron door you come to in your quest to learn. There are many aspects of this suff guys.
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Sep 24, 2009 8:49am
|  | Informed | | | | Quote:
Originally Posted by Limstylz Actually MarketDelta can take ANY feed from the relevant broker. They recommend Interactive Brokers for forex trading. So it not only uses futures, but stocks, indices and forex (given the relevant data). | Yeah I guess I should have known that. Market Delta is just a platform, but you are right, they have some interesting tools. I don't know how helpful a spot fx feed would be using MD. I would be curious to know how they determine bids from asks with a spot feed. If they are simply using tick counts, it's probably not good enough, and I doubt they are doing anything other than that. But if you are plugged into futures data, which is highly transparent, you could get bidXask counts that were much more accurate. I talked to a guy at a brokerage in Chicago a while back about the Market Delta fx futures feed and he said they get all relevent trade info down to individual buy and sell initiated trades. So if what he said is true, they are using pure, raw transaction data to fill in their footprint charts and not relying on tick counts or fancy algorithyms.
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Sep 24, 2009 9:34am
|  | Informed | | | | Quote:
Originally Posted by Prime# You may be right, I don't know.....could be under my nose, hell I could be doing some of it.. I don't know...
I just know I found things that worked well for me so much so that I gave up on that hunt a long time ago, but always wondered what they were looking at... | Yeah, even simply watching volumes in market delta at the bids and asks you'll notice that price goes into the direction of the dominant side. Also, you can trade away from the low volumes. For example, when price makes a swing high during an upmove on a lower time frame and you see that at or near the high there were under 10 contracts traded, you would have a pretty safe short setup. The possibilities are endless really, but thats more market profile trading than orderflow. I'll attach a chart of this just for the heck of it..It's an old chart I had saved, it's shows a swing low with weak volume and then a good up move.
If any of you are interested in playing with Market Delta, they do have a demo package you can use for one month. Sign up with them, and infinity futures for your data.
Scotty B
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Sep 24, 2009 11:15am
|  | Informed | | | | Quote:
Originally Posted by Prime# I dig everything you say..
Trust me mate,... | If you think about it, even the dealers at the biggest banks can only know so much. They look at their own customer orderflow and glean market insights from it. If you are a dealer at X bank, and a hedge fund buys a ton of Euro's from you, there is a good chance you will get long too. This is because orderflow from certain customers is informative, especially financial customers. When those people trade, they usually know something about fundamental values that dealers don't, this induces the dealer to then buy from another dealer and so on. Many times, orderflow will subtley reveal the outcomes of news before it's publically realeased. One time Gaston mentioned that when price ticks up by one pip, something was just factored into the market. I think this is what he was refering to. So orderflow transmits information.
Objectively speaking, the dealer actually knows nothing until he has orders to look at. If he does not have stop orders attached to open orders on his book, then he can't know about stop orders unless say, another dealer shares information with him about stops in his book. But once a dealer receives orders, he does have an informational advantage. Because the forex is unregulated, dealers can do things that dealers in other markets would be disbarred for. Like taking advantage of large market orders from customers and stepping in front of them, taking advantage of stops, sharing info about customer orders, thinning out liquidity in places where TP's will trigger ect..I could go on all day about how dealers could take advange of what they know. And thats my point, all they need is customers to click buy or sell and they've got them already.
Now, I've already said this, but if you have streaming time and sales data, and your purpose is to trade orderflow, you really wouldn't need a chart. At this point, I am 90% certain that this is what the orderflow guys are doing. It's not nessisarily about having price levels way before hand, but keeping tab of buyers and sellers in real time and trading accordingly.
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Sep 24, 2009 11:27pm
|  | Informed | | | | Quote:
Originally Posted by FXEZ A service that gives info about brokers orderbooks. I'll take issue with Darkstar on his last statement. I believe he actually has revealed what service he uses but in the spirit of maintaining the "mystery" you'll have to do a search on his posts to find it. | We've already brought up IFR Markets, is that what you are referring to? In all honesty, I really hope Darkstar and the others are not dependent on some service. What happens when this little man quits whispering secrets in your ears? Nothing good ever lasts, especially something like this, if it is infact what they rely on. Good traders have control of what they are doing, they are certainly not dependant on some service that could vanish tomorrow.
I think that trading orderflow is a skill that starts with a thorough understanding of the market you trade in. Something that a person needs to develop. Thats why there are so few of these guys, nobodys interested in doing any homework. I'm not directing that at you, just pointing out it is the norm. On a funny side note, we don't know if these guys are even legit or not, we're just giving them the benefit of the doubt.
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Sep 25, 2009 3:47pm
|  | Informed | | | | Quote:
Originally Posted by thesnacker I have a feeling, posters on this thread are trying to create their own 'order flow religion' or trying to find a 'new age philosophy' to guide their life /sarcasm.
I can assure you it is much simpler than that. http://en.wikipedia.org/wiki/Supply_and_demand | The only problem with thinking with your feelings is that they won't lead you anywhere worth being. Orderflow is not simple supply and demand. The spot market daily volume is actually around 1.5T, thanks for trying wikipedia. If you don't have a correct understanding of orderflow, then why are you trying to explain it? If you are gonna pull the 'orderflow is on the charts' card, while not knowing what orderflow is anyways, why do you waste your time typing up such long monologues? I'm not trying to be a jerk here, but I take issue with posts like this because they dumb down the thread. Posting links to wikipedia might sometimes be helpful, but you've really proven nothing.
"There are many kinds of sincerity and insincerity. When you say 'thank you' for the salt, do you mean what you say? No. When you say 'the world is round,' do you mean what you say? No, it is true, but you don't mean it. Now, sometimes a man like your brother really finds a thing he does mean. It may be only a half truth, quarter truth, tenth truth; but than he says more than he means--from sheer force of meaning it." - G.K. Chesterton
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Last edited Sep 25, 2009 4:00pm
| 
Sep 26, 2009 12:53am
|  | Informed | | | | Quote:
Originally Posted by slimcat Quote from Darkster
Not to be a stickler for accuracy, but this isn't orderflow trading. All your doing is commenting on market mechanics.
I have read most of Darkstar's posts and if we want to try and emulate what he is doing we have to use the orderbook as this is what he uses, nothing to do with charts.
The thread starter showed us some chart examples of 'thinking' in terms of orderflow but in my opinion this is just price action as we cannot see what orders in terms of volume were being traded, as others have said we are just guessing... | Good post, good points. Retail stops most likey don't interest anyone but the brokers who exercise them. We are too small. It's the stops that the big guys at the banks have set that matter. I read recently that the retail sector of forex is still too small to have any lasting impact on the spot market. You bring up a good topic with options. They are important and certain types of options can be very powerful. If darkstar is looking for options placements, he's probably looking for barrier options. To my current knowledge, when barriers expire, price often explodes through them. I think someone may have mentioned them in this thread even. I think someone mentioned china holding barrier options in Euro and talked about how price would be sold off as it would rise and approach the option value. You could even play that kind of information negatively and sell/buy off of the places you know that these are placed. When they expire, trade through them.
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Last edited Sep 26, 2009 1:16am
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Sep 26, 2009 4:23pm
|  | Informed | | | | 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.
[color=black][font=Verdana]What you need? A prime broker... | Hey Darkstar,
Thanks for the insights. Are you serious about the Oanda open interest? It surprises me you find valuable information in something like that. Also, when you speak of gapping areas of weak open interest, are you talking about areas in the book of low liquidity? Or are you talking about pushing the market over open orders i.e. people with established positions, thus pushing them into drawdown? The only reason it's not clear to me is because I've heard people use the term open interest when refering to both of those things. And lastly, are you speaking in the first person? I know thats a silly question for sure, but are you saying that you Darkstar have the ability to carry out the things you mention, or are those things that bigger market participants do and you 'follow along,' because you know whats up? I'm just curious because in one of the research papers I've read recently, they say that the average trade size on the interbank is 50 million. Who knows, maybe you have that kind of cash to work with and you can move the market a pip or two, but I am just assuming you get word from your buddies at a bank who are doing this and you partake in the action yourself. I hope you are at least buying these guys drinks for them  Also, I hope not to many brokers hate you for using them as your personal ATM.
Thanks,
Scotty
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Sep 26, 2009 4:35pm
|  | Informed | | | | Quote:
Originally Posted by Scotty B Hey Darkstar,
Thanks for the insights. Are you serious about the Oanda open interest? It surprises me you find valuable information in something like that. Also, when you speak of gapping areas of weak open interest, are you talking about areas in the book of low liquidity? Or are you talking about pushing the market over open orders i.e. people with established positions, thus pushing them into drawdown? The only reason it's not clear to me is because I've heard people use the term open interest when refering to both of those things. And lastly,... | Sorry man, I guess it wouldn't matter if the orders you gap were open or sitting limits..Once you steam rolled them they'd be open and losing anyways. So disregard that question.
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Sep 27, 2009 1:17am
|  | Informed | | | | The ironic thing about this thread is that probably less than .001 percent of all who read it will make it to the final goal. Even with Darkstar's insights, steering us in a focused direction, it's not an end but a mean. Who do you think will actually develop a friendship with someone at a bank?  <-not laughing at the idea, just the sheer thought of it, and facebook friends don't count guys!
Also, common sense tells me that Darkstar has every reason in the world to mislead. I'm not accusing him of that, but that would be his best response to the sudden public interest in this topic here at FF.
Harris in his book talks about something he calls "orthogonal estimates," the idea being that traders who use unique valuation estimates that give them a true niche in the profitable trading catagory-are the most profitable traders. The more orthogonal your proven approach to trading, the more profitable you will be. The more people that catch on to any successful stratagey, the less orthogonal it becomes and therefore less profitable. So keeping that in mind, Darkstar's either misleading (his best response [since trading is a zero sum game]) or he's just really generous and doesn't mind the thought of sharing his income with the people who ussually supply it. I give Darkstar more credit though. He would not be profitable is he was not a sharp, shrewd dude. So I'll take the points you gave Darkstar and flesh them out, but with a few grains of salt.
Good luck everybody,
Scotty B
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Sep 27, 2009 4:40am
|  | Informed | | | | Quote:
Originally Posted by MartinFx With a grain of salt... |    
Just lots of laughter here..Thats all
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Sep 27, 2009 9:28am
|  | Informed | | | | Quote:
Originally Posted by Ferrari haha
dude you really are on the holy grail search.
i'm not calling you out in particular, but this point really needs to be driven home now. darkstar himself said that it is largely discretionary and a very intuitive aproach requiring money management. clearly, from your post you cannot accept this. |
Lol..I don't want to waste to much time with a response so I'll keep it short. You tell me what Darkstar has said about his own money management. How much does he risk with this 'largely discretionary' system? Give me the number and then explain to me why that number is highly meaningful in the context of successful trading. To me the 'holy grail' is something that is rational and transparent, highly objective; emperically adequit. A level of market knowledge, experiance, and understanding that allows one to open a trade and expect to profit, while using a R:R that would make the other 95% of traders blush. So you are right, I am looking for that holy grail and it is in my grasp. It's been a highly enjoyable puzzle to peice together.
As for you..Keep your stops really tight my friend, I'm gonna need them. Ughhhh I mean you're gonna need them to ensure your account grows and stuff. You should check out the trading systems forum. That stuff is pure gold over there. You'll need a good moving average, possibly more and an RSI no doubt. Just letting you know because I want you to be as profitable as possible.
Kind Regards,
Scotty B
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Oct 1, 2009 1:06am
|  | Informed | | | | hmmm Quote:
Originally Posted by LuboLabo I use futures data to trade fx spot
Look yesterday max sel buy tick trade volume and how react price to this level. This is one of many way to use market depth from currencies futures for trade spot fx.
Lubo. | If thats market delta, then you don't have a good data feed. You should not have all those zeros. I remember back when I got market delta I was baffled by all the zeros and could not figure it out. So I called them and they said, oh you don't have any data..Anyways, the demo data feeds are spotty anyways. So don't base anything on your current charts..try hitting your space bar with the chart pulled up, it should populate the chart with at least the last days data.
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Oct 1, 2009 4:44am
|  | Informed | | | | Quote:
Originally Posted by LuboLabo I tried MD last year and I gave up because there were a lot of problems also with data, but now I'm trying it again coz it has a real good out of the box tools that are worth for my trading stile, and seems the data with infinity future is now good.
The zero you saw on my picture are due to that I set a filter for the volume, so it displays only the box with that volume, and if u see the price react to it.
Lubo. | Very good then..
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Oct 2, 2009 8:19am
|  | Informed | | | | Quote:
Originally Posted by LuboLabo I have to correct myself, today Market Delta doesn't work good with data.  | Hey bud,
It doesn't matter too much.. You were not trading orderflow anyways, just market profile which is a whole other ballgame in itself.
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Oct 2, 2009 10:26pm
|  | Informed | | | | Quote:
Originally Posted by LuboLabo
This is volume and traded contracts....
| i.e. Market Profile..It's what Market Delta is all about.
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Jan 16, 2010 9:17am
|  | Informed | | | | Quote:
Originally Posted by Porkpie Order flow is easy to see on the charts. | Hmmm interesting..So what does it look like?
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Jan 16, 2010 9:32am
|  | Informed | | | | Quote:
Originally Posted by scooby-doo Retail traders using MT4 cannot see true order flow or support/resistence.
Fact. | And what do you consider orderflow to be?
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Jan 16, 2010 9:41am
|  | Informed | | | | The funny thing about this thread is that there is a huge gap between theory and practice. There is really next to nothing in this thread that will help you in filling it. I don't mean to be disrespectful, but even SKs charts are somewhat illogical in the context of trading orderflow.
You can't see anything but price on a price chart. I think thats why they are called price charts.
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Jan 16, 2010 9:46am
|  | Informed | | | | Quote:
Originally Posted by scooby-doo Retail traders can not see any of the above in Forex, and thus, are "blind" to order flow and size of buyers and sellers. When you submit an order in Forex, your broker will either pass the trade through to the market, or actually take the other side... Thus, you are blind to the market, other than the last print shown and the charts you are watching. All of this is exactly why technical analysis is so vital in Forex, as outside of economic and currency related news (and analysis), the really only other indicators traders have is??? technical... | I appreciate your thoughts on this and from your vantage point your are right. But you will have a heck of a time trying to make a living trading blind as you yourself stated. Price alone does not give enough information.
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Jan 16, 2010 9:47am
|  | Informed | | | | Quote:
Originally Posted by Porkpie That would be telling...  | 
Indeed it would...
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Jan 16, 2010 9:52am
|  | Informed | | | | I'm watching an online trading seminar by a guy named electronic local. He was supposedly going to teach some orderflow stuff..Haha..The poor guy has no idea what he's talking about. He's brought out keltner channels and MA's..The truth is that you cannot see orderflow on a chart, hence my hysterical laughter at porkpies response.
But I have heard of X ray vision. I bet thats what he's doing.
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Jan 16, 2010 9:57am
|  | Informed | | | | Quote:
Originally Posted by scooby-doo I trade full-time for a bank. So I see more than just price on my screens.
Retail traders using MT4 or alike are blind to the bigger picture including pending orders at interbank level. | So what do you consider orderflow to be as an official bank trader?
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Jan 16, 2010 10:04am
|  | Informed | | | | Quote:
Originally Posted by Porkpie Like I say scotty, its down to your interpretation and definition of order flow. If you had experience of dealing with order flow, knowing where all the orders were stacked at particular times and you looked at a price chart, you would know what order flow looked like on a price chart. | You're proving my point man. I have no idea what you mean by stacked orders. If anything you want them to be all in one place...Also, if your orderflow knowledge comes from experience, and then you supposedly see it on the chart then you don't really see it on the chart, you're just aware of it in the background.
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Jan 16, 2010 1:04pm
|  | Informed | | | | Quote:
Originally Posted by PipAdder I believe Porkpie means "orders sitting at those levels" when he says "stacked orders".
Actually, I like the "stacked orders" metaphor very much. There is a guy called Sam Seiden who has several online seminars and therein he talks about this stuff (google him, they are worth a look). He started as a floor trader somewhere before everything was computerized, and he always mentions how he could literally see orderflow by looking at his desk and noticing at which prices level the thickest stacks of pending order slips were sitting... that was... | If those stacks of tickets were all stop orders then I'd be pretty excited, but it sounds to me like good old limit orders. The problem is that limit orders don't move price, but they do allow it to move. I've become a full blooded momentum trader, but if I was more contrarian I might care about limits more. If for example I knew that there was some level full of limit sells, I might take that as a place of value and maybe I should consider selling off of it..Thats just boring to me though, because the only way price is going to move down off of it is if traders start hitting bids after that point is reached. All those limits will do is stop price from moving up momentarily if at all. I'd love to see price eat right through them and keep going though. Thats my kind of setup..Luckily I wouldn't need to be staring at the depth all day to see this happen..
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Jan 18, 2010 5:45pm
|  | Informed | | | | Quote:
Originally Posted by Marsh Guys, there are two types of trading being talked about here.... | Thanks for the informative post Marsh. I apply the idea of one sided orderflow to loss liquidation. Many times, stops will be in roughly the same place and when they are triggered you see strong one sided orderflow onto the respective bids or asks. If you know this is about to happen you can front run these orders with little to no risk.
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Jan 18, 2010 6:33pm
|  | Informed | | | | Quote:
Originally Posted by Marsh LOL, and then it happens. Low liquidity, slow market, 25pip run up to take out the stops behind 1.44 on Euro. Happened sooner than I thought...but still. What next? Nothing. The move is done, and Tokyo open is about to start, different ball game. | You make a good point. The market does crazy things when liquidity is thin. Often times it is the low liquidity moves that run over the big stops. Like the mouse that scares the elephant. The big dumb elephant.
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Jan 18, 2010 6:43pm
|  | Informed | | | | The big stops are are down below right now on EU. Nobody has lost much on this up move. 1.4300 is the magic number for now. This could change..The longs could get lucky, but like I said, there is no real meat to this buying. If we see real buyers come in, then we'd have a good little long opportunity, but thats just not the case right now..What a boring day.
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Jan 18, 2010 11:40pm
|  | Informed | | | | Quote:
Originally Posted by FXTradeX6 I have to say im pretty disappointed. | Get used to it. If you want to learn to trade, you're gonna walk the road of disappointment for a long time.
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Jan 19, 2010 1:47pm
|  | Informed | | | | Eu sure did stomp those poor longs overnight..I love those quick trades. Right now we have a nice battle setup. We have some big potential losses in both directions. Judging by current price action, I think the sellers will get stomped today. Their stops are resting in the 1.4310 area.
This doesn't mean that a good little up move will happen, just that the PA is supporting this possibility at the moment. PA in the context of orderflow is the way to go. It's a little more risky than waiting for the stops to be triggered to trade, but your trading week is made a lot shorter if you can take your portion and be out with the help of those extra pips.
Like I said, we have a dual setup going. Price could breakout to the shortside and take out the bulls..Orderflow is mostly a waiting game.
Good trading,
Scotty B
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Jan 19, 2010 2:33pm
|  | Informed | | | | GU As I stated last night, the upmove that was going on in EU was phony. It was a low liquidity move. If you don't pay attention to the orderflow then you might be tempted to get long as many probably did. Never never trade into low liquidity! Most of the time it is a trap. There are ways you could take advantage of these moves with your bucket shops, but if you were in the real market you'd just wait to get in.
I'm also watching GU today. Right now there is a pin bar (or Pinocchio nose) on the 1hr with drop in price. Blind PA traders might dive in and sell right now, but this move has no conviction in it. The big boys are not throwing their money at it, at least not yet. This tells me to beware.
The stops in GU are on the high side right now, I'm personally waiting for that to set up. If the market proves herself and puts her money where her mouth is I might be willing to short the Pound, but I'm calling her bluff for now.
Anyways, just thought I'd throw in my 2 cents for this pair.
Scotty B
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Jan 19, 2010 2:49pm
|  | Informed | | | | A picture..Selling right now would be pure gambling..It could work, but you'd be thanking lady luck more than anything else..If you count on her to trade, she's gonna burn you good in the long run.
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Jan 19, 2010 3:55pm
|  | Informed | | | | Quote:
Originally Posted by StonerRock Hummm....
Either EU and GU stops probably resting above. NY is about to close.....MAYBE something happens.
Anyway, too much cats out of the bag these parts lately  | Don't worry,
The cats are stuck in the bag. I just thought I'd offer some analysis to pass time.
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Mar 10, 2010 1:28am
|  | Informed | | | | Quote:
Originally Posted by Darkstar Well thats kind of sad. You guys spent like 7 months working on this stuff and didn't come up with any conclusions. Anyone still interested in the subject? |
I've learned a heck of a lot and am still plugging away, but have not found whatever it is you do. You're a legend around here man, even on google itself. The essays you penned about spreads and the structuring of FX brokers is scattered all over the place. Anyways...
I am of the mindset that if I keep studying and quit asking for the answers that I'll 'make it.' Gaston said a couple of times that he made it by way of a curious mind and the ability to ask the right questions. I like that and I am inclined to beleive him.
Don't get me wrong though, I belevie I have found some very curious and peculiar things, but I wouldn't put 12.5% of my account on any of it. What you shared here a while back as this thread was winding down was mostly criteria that most of us would not be able to pull off. Like having a friend inside a bank. If your success is hinged upon factors like that then no wonder so few of us have 'figured it out.'
It would be my hope that your success was built on a solid understanding of the market and an uncanny ability to extract information out of what is mostly obscure data to the rest of us.
Thanks for keeping us honest,
Scotty B
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Jun 22, 2010 7:20am
|  | Informed | | | | Quote:
Originally Posted by hanover To quote the mathematician and philosopher Bertrand Russell (1872-1970): "[i]In the modern world the stupid are cocksure, while the intelligent are... | Good post Han. I appreciated the MrGreen reference as well. It's as the old saying goes, "The more you know, the more you realize the very little that you don't know." I think arrogance creeps in after a cursory read, and the humility after a couple pieces have been studied vigorously and you get a sense for the depth of that which you are working to understand. It's kind of like 'syllabus shock.'
I'm not going to get into the OFA discussion again too much (for times sake), but the very concept of trading OF is not very well defined anywhere, especially when it comes to the small guy trading it. All the OF research papers are somewhat helpful, but they are doing the analysis on the dealers side. This is why Gaston and others have said they do not trade OF like a dealer would--they're not dealers.
OFA in a nutshell, for us small guys, can be summed up like this:
Order flow analysis is all about seeing trader intentionality in the details the market gives.
That's all their is to it. It's easy though only when you surpass all the hurdles along the way, and even then I beleive the gravy train won't last forever. Good and honest data is the bedrock upon which real OFA can occur. Without it, you're sunk. My only word on this is you get what you pay for.
There are further pitfalls once you have good data as well. You can't just watch one market and assume you have have enough info. This is why those who are truly serious about it are those who run everything on full automation. To do it 'right,' takes a holistic view of the market at any one time.
Am I running on automation? Not a chance, I'm doing things the old fashioned way. What I do works, but it's hardly efficient. I've been thinking very seriously as of late about going to school to become a programmer.
Having a solid grasp on microstructure is helpful, but there is really no power in that part of it. The microstructure is just the simple framework--the field upon which we all play. Focus on the game being played and not the field.
This wasn't all directed at you Han, I just took the opportunity with this post to say everything I want to say regarding the latest developments in this thread.
All the best,
SB
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Jun 22, 2010 9:01am
|  | Informed | | | | Sorry guys, I just realized that the saying I tried quoting from memory does not make sense. lol, I said the opposite of what I was going for. I got some help from google. Here is the correct saying:
"The more you know the more you know you don't know."
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Jun 22, 2010 5:13pm
|  | Informed | | | | Quote:
Originally Posted by woo Seriously man, we have a whole thread where people go nuts trying to figure out the op:s strategy.However, as luck would have it,... | Woo,
What was your $9000 comment about? I didn't know anyone was selling secrets. Also, are you implying that this has produced your 'results?'
**edit**
I just read one more post back where you initially brought up the $. So is that your agenda then? If you're making so much trading 'order flow,' why would you need to sell out your own corner in the market? It's a lose lose. And trading OF does not require any special form of intelligence. I could easily train 1st-2nd graders to do it.
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Last edited Jun 22, 2010 5:26pm
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Jun 22, 2010 11:40pm
|  | Informed | | | | Quote:
Originally Posted by FXSurfer Just another term that is subject to wide misinterpretation around here.
See also: Scalping, Liquidity etc. etc. |  Yep..Funny how these OF guys never talk about oh I don't know...Analyzing ORDERS! MT4 just ain't gonna do it for ya...
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Jun 24, 2010 2:59am
|  | Informed | | | | Quote:
Originally Posted by Cyrus
Who knows what "order flow" is supposed to really be anyway. It seems like there's 1 or more variation per person here. But hey! As long as it works aye? The principle behind it is still the same - getting in ahead of the liquidity flush down. | To trade orderflow, you make your trading decisions based off of orders you see in the market, not price charts. It's much easier than you can imagine. What this does is, in a way, puts you in a virtual pit. You can begin to 'hear' what the other traders are doing. We are never parasitic as I once thought, but we are coat-tailers. Informed traders have very predictable trading behavior and their trades make prices more informative by pusing price back to value. Therefore, when we trade with them we push price back to value with them. What do you think are the top 3 characteristics of informed traders? (Questions for you to answer personally) Once you have your criteria, go hunting . Since I've stumbled accidentally upon what OF is, after stumbling in the dark for close to a year, I have a new perspective on TA. It's no different from what I've said in my Quest for Wisdom thread. Basically though, TA is a thought process that happens outside of a market. It provides one with enough data points to begin drawing fallacious conclusions about causation in price movement (illusionary thinking/erroneous pathology). I personally applaud those who can successfully employ statistical data mining techniques, but what they are basing their decisions on does not have much to do with trading, but with hidden patterns in all the numbers. Nothing wrong with that of course, but I like to get to the heart of the matter. What separates TA and OF/Informed traders is the trading order. On the trading spectrum, the informed trade first, OF/algos trade after them, common TA traders then trade, and then the uninformed. Ironically the most informed trade with the least informed most of the time, while the semi informed traders (TA traders), trade somewhere in the middle. This is why the ignorant usually lose everything quickly, while the TA crowd endures mostly horizontal or worse equity curves.
Sorry, I know you were replying to Hanover, but we do need a definition around here for OF.
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Jun 24, 2010 8:56am
|  | Informed | | | | Quote:
Originally Posted by Sauron As every major player tries to hide his intentions I can't see how one can profit from "knowing the orders" without some inside information, like knowing that Deutsche Bank intents to sell X billion of currency Y till next Friday.
What Scotty wants is to profit by front-running but somehow he doesn't realise he is at the bottom of the food chain and the information that he needs (aka who, when and how much) will be rather used by those who are a few steps above him. | No no, make no mistake about it. I am not a front runner. I don't trade until I see the big players enter the market. I am therefore coat tailing and trading after them. I trade in their wake, if you will. I am not at the bottom of the food chain either, but I am by default at least 2nd in line in the spectrum of informed traders.
I didn't make my previous posts for any other reason than to say that OFA, even if it's just my definition, has to involve working with orders. If not, then everyone could say they trade orderflow. That might be true in a general sense, but when I use to trade with fibs I was basing my trade decisions off fibs. Yes, orderflow was the mechanism that moved price, but I made my trade decision with a fib, which has nothing to do with what is really going on behind the scenes of the market.
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Jun 25, 2010 2:01am
|  | Informed | | | | Quote:
Originally Posted by Darkstar I'd like to try and clarify a few things... First off, what Scotty is doing is one way to trade orderflow, but it isn't THE way. The truth is, there is no ONE way to trade orderflow.
[color=black][font=Verdana]As I've said before, orderflow trading is a mindset. The common thread that ties it all together is making decisions based on future orders. Sometimes those orders come from fundamental factors (econ reports or headlines), sometimes from technical (trend... | Thanks Darkstar. I admit my definition is completely subjective, I base it only on my working knowledge and experiance. The truth is, I don't have a working frame of referance to see what you are saying. I think you are describing the development of a feel for the market. I've only been trading for ~ 3.5 years now, not enough for that type of intuitive judgement to form. Furthermore, I have all but left TA and chart reading in the dust. I don't know how long what I do will continue to work, hopefully for a long long time, but my plan is to exploit that one thing until it's gone.
I'd like to hear more from you so I can understand more where you are coming from. That may be in the form of me reading your book. How is writing going by the way?
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Jun 7, 2011 7:48pm
|  | Informed | | | | Quote:
Originally Posted by Adal
Also the fact that you (and others) shifted FF attention from losing 100% chart based TA to more complex forms of trading. | Amen!
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Jun 8, 2011 4:51pm
|  | Informed | | | | Quote:
Originally Posted by RichFWebb Yesterday there was some rough commentary about the dollar. Perfect place to buy EUR/USD? Maybe if you are impulsive and like losing money. Is it a coincidence that it fell 120 pips today, or perhaps the perfect opportunity for a large entry into a long position, 120 pips cheaper, for someone smarter than you.
Am I thinking about this the right way? It sounds like it is all about option barriers and fundies, for you, DS. | exactly. You never know WHO is behind a price move, but the current market enviroment suggests that buyers will pick the market right back up. I don't think we'll see much below 1.45 if at all. I'm personally watching 1.4550. I'm targeting 1.5 and beyond.
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