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Old Aug 27, 2009 9:15pm
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Default Rock Paper Scissors - A Trading Analogy!

I just received this email talking about order flow and I thought the analogy was pretty creative. A couple of statements that got the wheels turning.

"Know what other traders are thinking - and you can position yourself to profit from their actions."

"Like Rock Paper Scissors, if you know the likely decisions and actions of your competitor, you'll know how to position yourself for a higher probability of success."

(If this isn't relevant to the thread, let me know and I'll delete the post)

Kinda of long, but here is the whole excerpt from the newsletter:


Rock Paper Scissors - A Trading Analogy!

Yeah... I'm serious!

Rock Paper Scissors!

I know all the other trading educators are talking about poker and the lessons it provides in position sizing and trader psychology. I'd love to sound really cool as well and talk about No-Limit Hold 'em, or Aces over Kings, or all manner of other great-sounding terms. But the fact is that I don't know the first thing about poker. And I figure I'm not the only one.

So, here's one for all of us non-poker nerds... a game that everyone should know, which also provides an excellent lesson for traders.

If you're not familiar with Rock Paper Scissors, check out Wikipedia or the World RPS Society website. That's right... there is a worldwide body dedicated to the promotion of this game, the standardization of its rules and to overseeing the annual International World Championships.

Essentially, Rock Paper Scissors is a game that is widely used for decision making or solving disputes. Two players simultaneously deliver a hand signal representing either a rock (clenched fist), scissors (as per rock, but with the index and middle finger extended representing the two blades of a pair of scissors) or paper (open palm facing down).

  • Rock breaks scissors.
  • Scissors cut paper.
  • Paper covers rock.

Typically, in an informal setting the winner will be determined by the best out of three throws, although you may from time to time see a single throw, sudden-death game. If you aspire to attending the World RPS championships, the winner is determined by the best out of three sets, each set being won by the best out of three throws.

If you're confused, don't worry - personal Rock Paper Scissors trainers are available.

So, how does Rock Paper Scissors relate to trading?

Let's first examine the nature of the game. On the surface the result of each game appears to be random. Basically a coin toss, but with three outcomes instead of two - win, lose or draw. On closer examination though you'll recognize that the reality is much different. Unlike a coin toss, the outcome of each game depends on decisions made by the human participants.

And human decision making is NEVER random, particularly when there are high stakes involved.

Your decision about whether to throw rock, paper or scissors, will largely be influenced by your beliefs about your competitors decision. If you know what they're likely to throw, you'll adjust your throw to ensure it beats their choice.

A great example of this is the following exchange between Lisa and Bart in The Simpsons episode #9F16.

  • Lisa: "Look, there's only one way to settle this. Rock Paper Scissors."
  • Lisa's thought: "Poor predictable Bart. Always takes rock."
  • Bart's thought: "Good old rock. Nothing beats that."
  • Bart's throw: Rock
  • Lisa's throw: Paper
  • Bart: "D'oh!"
The result in this example is far from random. Lisa has managed to win the game through awareness of her opponent's belief systems.

In fact, there appears to be a little bit of Bart Simpson in all of us.

The World RPS Society reports statistics from a number of Rock Paper Scissors sources. The one providing the largest sample comes from the Roshambull application on Facebook, which at the time of reporting had logged over 10 million throws from over 1.6 million games. Statistics in this sample show Rock being thrown 36% of the time as opposed to paper 30% and scissors 34%. It appears that rock is more often the number one choice of Rock Paper Scissors competitors.

If you doubt that psychology plays such a great role in Rock Paper Scissors, schedule a high stakes game against a family member or friend. Something harmless of course, but high stakes - maybe the loser has to wash the winners car each fortnight for the next 12 months. You'll find that your throws are not random at all, but rather you're trying desperately to anticipate your opponents move, exploiting any knowledge you have about the way your opponent thinks.

Before you schedule this game though, let's have a quick look at how you can gain an edge at Rock Paper Scissors.

Firstly, we know from the above studies that the distribution is skewed slightly in favor of rock. So, if we're playing against a novice, the initial edge is available through throwing paper, as paper covers rock. It's a very slight edge, but it's still an edge.

Of course, the strategy will have to change against someone with a little more experience, or in fact anyone who recognizes the non-random nature of the game. These people will be expecting that we'll throw paper, in order to beat their 'obvious' rock. As a result, they're more likely to throw scissors in an attempt to beat our paper. So, instead of paper, we'll throw rock to beat their scissors.

It's all about staying one step ahead of your opponents thought processes.

There's more... watch out for two throws in a row of the same type. People are very wary of being too predictable. If your competitor has produced two throws in a row exactly the same, their next throw is statistically more likely to differ. As an example, let's say they've had two rocks in a row. Not wanting to be too predictable, they'll most likely throw either paper or scissors on the third throw. So, your choice should be scissors, as it'll win against their paper, or draw against their scissors.

Another great option is to suggest a throw to your opponent. Imagine your reaction if we were competing and I said to you, "It's so easy to read you - your next throw is going to be paper." Subconsciously I've implanted in you a desire to avoid paper. You don't want to be predictable, so you'll be more likely to throw either rock or scissors. This makes my choice easier. The edge for me is in throwing rock as it will beat your scissors, or worst-case tie against your rock.

The opposite of this is to state your own intentions before throwing. I could for example say "I'm going to smash you on this final one. Get ready for my rock." The last thing you'd expect now is for me to actually be so stupid as to throw a rock. So you'd be expecting me to throw paper or scissors, leading to your likely choice being scissors in order to get a win or draw. So, I simply give the throw I mentioned - rock - beating your scissors.

Love it!

Of course, it's not all that simple. The World RPS Society website has a strategy guide for sale if you're interested in exploring this further. Remember though, you are playing against humans. Not only are their decisions not random, but they're also often irrational. So, although you might have an edge, you're still playing over a very small sample of games. Be sure to never bet what you can't afford to lose.

So, how is this a trading analogy?

Novices mistakenly think that Rock Paper Scissors is a game of chance.

As we've seen though, Rock Paper Scissors is actually a game of skill and strategy in which success comes from being able to read your opponent, adapting your game to profit from their likely actions. Success is not guaranteed in any particular throw, but if you can successfully get within the mind of your opponent you'll gain an edge which will see you to victory over a series of throws.

Likewise with trading...

Some novices believe it's a game of fundamentals. They'll study the company reports, PE ratios, dividend yields, or wider economic factors such as the retail sales or payroll figures. They aim to find a stock or instrument which is valued differently from what they believe is its true fundamental value. They'll then enter expecting the fundamental factors to push price to their perceived 'correct' value.

Other novices believe it's a game of technicals. They'll use indicators, which are simply a derivative of price, in an attempt to predict future price movement. As price moves in a particular direction the indicators will follow, eventually triggering our novice trader into the market. There is rarely any thought as to what caused the initial price movement, or whether or not the context of the current market supports continued price movement. They operate simply on hope, that the price movement which triggered them into the trade will continue in the same direction.

In fact, neither is correct. Trading is not a game of fundamental or technical analysis.

Like Rock Paper Scissors, trading is a game of understanding people and how they make decisions.

True, your competitor is not one individual. Rather, you trade against the collective market which is made up of millions of other traders and investors all making individual buy and sell decisions.

Price moves in response to the net order flow that results from all these individual buy and sell decisions. If the net order flow is bullish, price will rise. If the net order flow is bearish, price will fall. It's as simple as that. The fundamentals don't move price. They technicals don't move price. Order flow moves price.

So, the game of trading is one of identifying those areas where a significant number of traders are going to feel compelled to take action and then entering before they enter. It doesn't matter whether you use fundamentals or technicals or any other form of analysis. If you can achieve this on a consistent basis, you've got yourself an edge.

Know what other traders are thinking - and you can position yourself to profit from their actions.

There are numerous ways of achieving this. A simple example is the use of chart pattern failures. The more obvious the chart pattern, the better. A technically perfect head and shoulders pattern will produce a large order flow short as price breaks the neckline. But should that pattern fail there will be an even greater order flow long, as the bears scramble to cover their losses. Knowing how traders will act at the point of pattern failure, I can position myself to enter long at this point, to exploit the increase in bullish order flow.

So, examine your trading approach. Whether it's based on fundamental or technical or quantitative or astrological or any other means of analysis, ensure you consider the fact that the market exists because traders make trading decisions. It's not about the technicals or fundamentals. It's about knowing what your competitor is thinking.

Like Rock Paper Scissors, if you know the likely decisions and actions of your competitor, you'll know how to position yourself for a higher probability of success.

Lance Beggs

(c) Copyright 2009. Lance Beggs. All Rights Reserved.
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  #33  
Old Aug 28, 2009 6:09am
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Originally Posted by skfx View Post
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.

You will need a very very good understanding of the market to see what many cannot.
Is this getting in the micro structure of the market then?
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  #85  
Old Aug 28, 2009 7:09pm
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This is like trying to solve a puzzle with a 1000 pieces all scattered across FF without a picture to go off of...

There was a post awhile back that has bothered me for a long time. Someone said, LITERALLY, price HAS to go to certain level. It has no choice. The roulette wheel that always lands on black sound like the same thing.

If you knew where price had to go eventually because it has no choice but to go there, then I guess trading would get really boring really fast. At least you'd be rich to do other stuff.
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  #94  
Old Aug 29, 2009 6:38am
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Originally Posted by FOREXflash View Post
it is like some puzzle.....you need to combine this thread with some other dark "bold" members.....
You need to understand the WHITE SPACE and what's in it.
Understand this and it's game over.
What are the choices? There are orders in it or there is nothing in it.
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  #102  
Old Aug 29, 2009 7:29am
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Originally Posted by Scotty B View Post
One other thing that unites these guys is the notion of taking out peoples stops.
Well we know price will go where the orders are. If you look at chart #4 it's a H&S pattern, so you'd expect a ton of sell orders at the break of the neckline.

So if you have sellers selling, then it stands to reason someone is buying. Now who is buying and why? Or is price dropping until buyers can be found?

Anyone that went long and placed a stop would basically have a sell order, so you'd have a ton of sellers. So does price keep dropping until there are enough buyers to absorb all the sellers?

That's the part I scratch my head on. Maybe ordering the book on micro structure is a good investment.
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  #122  
Old Aug 29, 2009 8:23pm
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Originally Posted by auxesis View Post
Think like the MMaker, if you wanted to get a better price to fill a large order, how could you engineer a move that would give you a better fill plus the stops of those that were on the wrong side to propel your position? What would that look like on the charts? If you saw that in the markets ( on the chart)what would it tell you?
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.
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  #126  
Old Aug 30, 2009 12:27am
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Originally Posted by capitalist88 View Post
Several years ago I wrote an article about one technique that can help a market maker (or a bank in the FX world) to fill a large commercial customer order. Here's a link:http://market-geeks.com/articles/009_StopHunting.php
Nice article and easy to understand. Thank you.
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  #156  
Old Aug 30, 2009 7:25am
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Originally Posted by Limstylz View Post
So, in that case in our example, we would be better to SELL at the higher price, rather than BUY at the high price, unless you intend to sell at an even better price, in which case you better hope that you have enough liquidity left in the market to push you higher to do it.
I guess it all depends which way you think the market is going to move. If I understand the example if the intent is to take price even lower, then I would say yes, you sell at the higher price (taking out the buyers) and when the last buyer has bought price can only go down.
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  #161  
Old Aug 30, 2009 7:40am
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Originally Posted by Limstylz View Post
So this is when 'market whispers' and interpretation of fundamentals comes into play for a much wider picture than the immediate view (unless you are stop hunting also).
Same as mutt's example. If the market maker / whoever wants to take price lower and sell, why not sell to someone willing to pay more (the buy stops).
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  #162  
Old Aug 30, 2009 7:48am
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Quote:
Originally Posted by Ferrari View Post
I think I know what your getting at here... can I ask what resources you use to trade then? It must be some sort of level 2 orderbook data yes? Where do you source this information from?
Well, he did say:

Quote:
It's your job to find out:
Who's trading?
Why are they trading?
How are they trading?and;
Where are they doing business?

How can i capitalize on the answers i found to the questions above?
So we are looking outside the box to find out who is trading and why. I guess once the 'Hand has been tipped' then price only moves in one direction because it has no choice.

I believe price action is a reflection of the order flow, so the who and why are secondary. BUT, if you KNEW in advance someone HAD to trade long, then putting on a long trade is a no brainier. That is what I'm getting out of the thread, to understand the order flow and where it's going, by who and why.

Other clues we've been given? You can do it by looking at price and not using a chart. If you want to look at a chart the less on it the better.
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  #166  
Old Aug 30, 2009 8:02am
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Originally Posted by Ferrari View Post
Yeh I think you missunderstood,
Sure... I was just relaying the clues he's given us.
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  #206  
Old Aug 30, 2009 9:41pm
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Originally Posted by Scotty B View Post
If the roulette wheel is only black, then what is the probability you will hit black? SK is portraying this thing as certainty.
If not a certainty, then at the minimum as close to a sure thing as you can get in forex trading. It sounds like they have discovered a specific inefficiency in the market that they are exploiting.
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  #207  
Old Aug 30, 2009 9:50pm
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Originally Posted by capitalist88 View Post
I remember reading that a few months back. Not taking sides in the debate, just that Merlin's classifications made it more clear to me. Plus trading with Oanda you basically place a market order or a limit order (I know the MT4 platforms use the whole buy stop (limit) sell stop (limit) thing).

Quote:
Hopefully I can clear up this "right side" and "wrong side" terminology with respect to order types
Good explanation, makes sense to me.

Quote:
In regards to order flow; order books like the one to which you posted a link, as well as NASDAQ level II and so forth are showing limit orders. These orders tend to restrict price to a range because sell limits are above the market and buy limits are below.
Is it that basically limit orders are on the book and stop orders are off book?
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  #216  
Old Aug 31, 2009 7:54am
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Originally Posted by Scotty B View Post
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.
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.
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  #219  
Old Aug 31, 2009 8:19am
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[quote=Scotty B;3007811]
Quote:
Wait, whos stop hunting?
I'd imagine anyone with a super sized order that needs to be put in the market and wants / needs the extra liquidity or get in at a better price.

Quote:
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.
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....
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  #222  
Old Aug 31, 2009 9:04am
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Originally Posted by Scotty B View Post
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.
Quote from DS:

Quote:
PS- While I happily give the nod to event trading, there are other inefficiencies that one can capitalize on. One just needs to escape the chart to find them.
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  #246  
Old Sep 1, 2009 6:39am
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"Trading and Exchanges: Market Microstructure for Practitioners" by Larry Harris

Darkstar probably said it best.
This book and a lot of time thinking are all you need.

So that tells me there is something in microstructure outside of the market that can be exploited. ScottyB is on the HUNT!

Some thoughts I had (scary), was let's take a corporation like Coca Cola with world wide operations. They have to convert back to USD. Now how much do they transact and when? enough to even matter?

Maybe it's something bigger like Central banks. If the US Dollar is the reserve currency then I'd imagine all the banks need to keep a certain amount in reserves and when those levels fluctuate they need to balance it.

Commodities are sold in US Dollars so maybe that is another avenue to explore. Bonds? Options? Tbills? China?


My book shipped, so I eagerly await.

good trading to all
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  #266  
Old Sep 1, 2009 9:27am
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Anyone willing to translate this for me?

Quote:
London, September 1. EUR/USD Dealers report more trading of Friday 1.44"s this morning in London. The contract going through several times around the 13.5 level. Our maturity calendars ) now indicate an accumulative [EUR 800mln] of this strike, which are likely to contain spot if it is in the vicinity come Friday. The well hyped Asian CB barriers at 1.4450 are due to expire around 22nd September and should continue to cap any fresh advance.
What are 1.44's and 13.5 level? 800 mln will contain spot? Why will barriers at 1.4450 cap price advance?
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  #299  
Old Sep 1, 2009 7:36pm
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Originally Posted by supremeChaos View Post
This involves FX Options.
1.44 is eur$ exchange rate (1.4406 is the high last Friday/late Thursday). it must have something to do with this.
13.5 level? i have no idea.
800mln is a value/amount in euros possibly involved in the transaction related to the barrier.
"barriers" can be literally looked at as barriers: something that hampers/prevents. in the above article, an Asian CB (Central Bank) has an interest for price (of eur$) not to touch &/or exceed 1.4450 (this Asian CB set up this 1.4450 barrier). every time price nears 1.4450, this...
That is interesting. thank you.
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  #301  
Old Sep 1, 2009 9:57pm
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[quote=Scotty B;3012567]
Quote:
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.
My limited understand of the Osler papers was the take profit was pretty insignificant compared to stop losses.

Someone posted about what the broker has to do to offset their books when they have to take on a lot orders, like the H&S pattern where they know they will have to buy into a market drop. So that kind of brings it back to how the banks are transacting with each other.

EDIT: TP orders generate negative feedback and do not contribute to price cascades and wouldn't be triggered in waves. While SL's generate positive feedback and run in waves and contribute to price cascades.
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  #346  
Old Sep 3, 2009 9:42am
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Originally Posted by Scotty B View Post
Yeah, probably...Like somebody else said, it's just supply and demand at work.
There is some certainty in the markets. Price is going to consolidate, price is going to trend. Price is going to correct / retrace. You are going to reach levels where there are more buyers than sellers and vice versa.

If we can understand order flow than we can understand that at some point when when the last buyer buys and only sellers are left, we have a one way market until new buyers come in. When price starts to drop, those last buyers are in a world of hurt and will have sell pushing price down further until it the whole process reverses.

The trick is catching these points where orders run out and be on the right side of the trade. Because everyone has to exit their order at some point.

I think we can be certain of these things in the market.
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  #363  
Old Sep 3, 2009 10:34pm
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If you mysteriously disappear, I guess we'll know what happened...

Outside all the cryptic stuff, if the thread did anything, it was to think about order flow and think about how the market is structured. Motivated me to get book on micro structure and see things in different perspective and try to understand how the brokers are working things on their end.. I'll put that in the win column.


Quote:
Originally Posted by capitalist88 View Post
Well since I'm not one of the mystical kung-fu cryptic thread kinds of posters... I'll just blurt out exactly what I see on those charts. If the big important FF "insider super duper secret holders" want to send me PMs telling me not to give it away, I guess they'll have to pound sand.

All three charts show annotations which pertain to a single price bar. Each bar does the following:

1. It opens at or near an area of consolidation which is a previously tested area of S/R.

2. Price then moves away from the open (obviously)...
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  #412  
Old Sep 4, 2009 8:45pm
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Originally Posted by Cellar Door View Post
Something else for you to ponder.

What appears in the market is not true....this is why so many people lose at this "game".
sounds a bit cryptic.

What isn't true? The current price?
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  #422  
Old Sep 5, 2009 12:07am
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Originally Posted by jpat1023 View Post
But market participants may push price one way or another in order to get in at a better price. This has already been discussed in this thread, but I'll give a real world example that you can then apply to the market.
I appreciate you taking the time to post this, but I was being facetious with my questions. Good post none the less.
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  #430  
Old Sep 5, 2009 5:44am
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Originally Posted by Ferrari View Post
What is the program? Can you tell me more? Thx
Here's a screenshot of the program and as the poster said:

Quote:
(this program will not help you much, but you will get the real feel
of what order flow is and how could it help you...
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  #451  
Old Sep 5, 2009 2:41pm
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Originally Posted by Dopey View Post
i don't know who posted the Osler stuff, but thanks. It's some very good work and worth reading.
Thank StoragePro from J16 for mentioning them and ScottyB for posting links.
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  #460  
Old Sep 5, 2009 3:58pm
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Originally Posted by jpat1023 View Post
Jesus Christ...Can you not look at a chart and think in terms of order flow?
That may have been the original intent of the thread. To help those that cannot think in terms of orderflow on the chart.
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Old Sep 5, 2009 7:00pm
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Originally Posted by auxesis View Post
Just using this as an example, if pair ABC/DEF moves to 1.0000 wouldn't all orders, stops, profit, market buy and sells sitting at that price be activated, not necessarily filled as price may have to move to find a match if not able to offset all at that level? Guess it would be better to say filled, as the b roker may be counterparty until it can be off loaded.
How does a broker offload the position? If Br_ker A is net short, does he look for a another Br_ker that is net long and they swap positions at set price?
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  #526  
Old Sep 6, 2009 6:58pm
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Some really great posts here recently. Here is one I found on another thread. I don't trade VSA and honestly don't know much about it, but the point is not the method or using volume. What I like about this post is the orderflow aspect of it, the buyers coming into the market. It's a bar by bar play by play and I found it very interesting, I hope you do you as well.

http://www.forexfactory.com/showpost...postcount=3210
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  #527  
Old Sep 6, 2009 7:33pm
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Quote:
Originally Posted by PeterFM View Post
As the man said..'everyone gets what they want from the market' or something like that.
This quote is by Ed Seykota:

"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."

He's a long term trend follower and actually has a n interesting bio.
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  #530  
Old Sep 6, 2009 8:10pm
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This was a very informative post, much appreciated.


Quote:
Originally Posted by jpat1023 View Post
In reality, the buyers we are referring to were the original sellers that got this downward movement started in the first place…if smart money is selling, we have a lack of buying, which is ultimately why price moved down (we have to entice buyers with a cheaper price, just as anything in the 'real economy'). Once it did, these original sellers are now buyers, where they take profit and position themselves for the next movement with buy orders…
So another way to look at important S/R areas (that holds), in terms of orderflow, is that they are areas of liquidity that allows the informed traders to switch sides so-to-speak.

If the informed traders sold early and price has dropped to a level that they have a good idea where a ton of buyers are sitting, they start getting out. The uninformed trader is getting in late or actually selling in support giving the informed even more liquidity to exit their positions and reverse and new informed traders sitting on the side lines to enter.

The uninformed that sold late will eventually help move price against themselves (buying) when price reverses and they have to exit their position at a loss.
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Last edited Sep 6, 2009 8:26pm
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  #568  
Old Sep 21, 2009 3:17pm
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Quote:
Originally Posted by giraia_br View Post
how much it is a "fuckton of money"?
This looks about right....



.
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  #570  
Old Sep 21, 2009 6:57pm
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But who's order book? The FX market is decentralized so each institution has it's own order book.




Quote:
Originally Posted by Harry Banes View Post
What I come to realise is that, the biggest puzzle that is missing now is the "Order Book" itself. If this Order Book is found and known, it can help to answer the OP's original questions about :
Who places them?
Why they place them?
Where they place them?
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  #574  
Old Sep 21, 2009 8:04pm
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Quote:
Originally Posted by opie999 View Post
Nope. That looks closer to a shitload.
How many shitloads in a fuckton, ya think? 4? 5?
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  #636  
Old Sep 26, 2009 4:34am
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Quote:
Originally Posted by Scotty B View Post
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.
You can follow the reply's from my post regarding the barrier options. Interestingly enough price blew threw that level.

http://www.forexfactory.com/showpost...&postcount=266
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  #640  
Old Sep 26, 2009 2:05pm
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Quote:
Originally Posted by LuboLabo View Post
I found this image for data feed route's.
EBS is used mainly for EUR/USD, USD/JPY, EUR/JPY, USD/CHF and EUR/CHF, and Reuters D2 is used for all other interbank currency pairs, mostly commonwealth pairs such as Australian dollar and British pound.
Here is another view of the network.
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  #646  
Old Sep 26, 2009 3:23pm
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Quote:
Originally Posted by Darkstar View Post
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 currenex/ebs...

This is appreciated, Thank you.
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  #670  
Old Sep 27, 2009 1:58pm
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Quote:
Originally Posted by Zkf View Post
Does oder-flow trading stategy perform betther than other methods? Different strokes for different folks: investers, TA traders, Arbitrageurs,Model traders all have their niche in market.
My interpretation is that looking at the market in terms of Order Flow is that its a filter and/or lens to see the market closer to the reality of what it is.

Secondly, understanding Order Flow gives you a head start in the trade so-to-speak and allows you to position yourself at a better price with less chance of price moving against you. If anything, you will at least be trading in the same direction as the smart money (considering you got it right).

I'm not convinced the EDGE of understanding Order Flow can really disappear since it is the nuts & bolts of how markets work. You can probably say all methods are built on top of Order Flow.
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Last edited Sep 27, 2009 2:35pm
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  #687  
Old Sep 29, 2009 2:16pm
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Quote:
Originally Posted by Zkf View Post
Maybe we are looking at this issue from 2 different perspecitve.
It's possible. At least its all an interesting discussion.

Quote:
However the market is huge and volatile, what about the importers are happily hoarding the dollar in the above case? That's why DarkStar emphasized the "psychologic issue" is his post. If this is an exploitable inefficiancy, why do hell need the mental therapy just go with sound money management.
I understood that to mean, learn to trade first then worry about exploiting an inefficiency. What point is there in handing someone an inefficiency or a winning system if they are not seasoned enough to trade it? I think that is all that was meant, at least that was my interpretation.

Thank You.
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Last edited Sep 29, 2009 3:42pm
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  #788  
Old Mar 10, 2010 12:37am
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I think the conversation has recently continued a little bit at this thread: http://www.forexfactory.com/showthread.php?t=223371
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