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  #1032  
Old Jun 4, 2012 1:14pm
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Quote:
Originally Posted by HipsterPipster View Post
This is an interesting conclusion...

[color=black][font=Verdana]I read the book. I make money from a variety of market analysis, but DarkStar's book has provided me with a different outlook on technical analysis and how those that approach it in a generic way are exploited. Order Flow, like any other trading discipline, is not some special secret. It is, however, a great way to understand how technical and fundamental analysis collides to create market direction. Both are about order flow; and both affect...
I've not read DS's book, though I've heard good things about it... if one is to very carefully read the market wizards books, and pay close attention to any references of stops, and how markets move when stops are hit, how they move towards stops...etc...

you can basically figure out everything you need to know for the basics of understanding order flow.

I'm sure the DS book, as well as a better understanding of market microstructure in general will provide further insights. I know my own understanding of how barrier options worked was expanded after reading some of dark stars posts.... and that is something i've since incorporated into my trading and made good money from it...

but by and large, all one has to know is that orders tend to cluster around highs and lows on a chart, what type of order is just above or below highs and low, and that large players fill such quantity that for them to just click "buy" or "sell" without having enough orders on the other side to fill them would result in signifcant slippage, so they tend to want to fill up at a price where there are a lof of opposing orders to fill them up without slippage.

There's a lot more to it of course, but, this is the basics, IMO

Good luck.

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  #1035  
Old Jun 4, 2012 3:00pm
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Default Well.. It's actually really really simple.

Hmm... it's actually pretty darn simple. here's a picture of how it works.

People place stops at previous highs and lows.

if it was a high, this means people who are short put a "limit buy order" usually right at or barely above that high. This is because if your short, and you close your trade, you do this by "buying back to cover" your position.

So, that's why it's a buy order. really, really, painfully obvious and simple.

Now, If someone wants to sell a WHOLE LOT... their problem is if they do so, they could push price like, 30 pips. This is not good. imagine if every trade you took pushed price 30 pips by filling it. you would never make any money, your slippage would be horrible.

So, you would only fill your order when you knew there were a lot of buy orders to absorb most of your sell order.

So, you know to sell it when a previous high is broken.

This is the most important part, IMO, and it's also the most simple. lol

people like to put special little names and "ideas" about orderflow concepts together, and it's really just painfully simple.

big traders have big orders, and therefore need to find price points that have big amounts of buy or sell orders to fill the other side of the big traders order without the big trader experiencing much slippage.

That's basically it. now, why some highs/lows result in breakouts instead of reversals is a totally different aspect, and one I don't care to get into.

but... ya. that's basically it.

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  #1037  
Old Jun 4, 2012 3:19pm
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Originally Posted by deeZG View Post
@forextraderx

yep...that's what we call a stop-hunt. and it is fairly simple as your picture suggests. although, there are some variations, i guess. actually, countless. actually, as many as common price patterns that most of the people look at. each of them carries the possibility to trigger the domino effect.

on the other hand, analyzing ranges and their structure, Wyckoff suggested there are ways of making some conclusions that big money is doing. and i guess false breakout (thrusts), climaxes and stuff like that are part of that bigger picture....
Ok, sure,... i guess then maybe i don't understand a working definition of the use of the word "orderflow"

as I understand it, the word "orderflow" was originally used by large financial institutions as they would seek to watch where orders were being placed in the market, so they could tell where market bias was, as well as how they could best exploit the existing orders to profit from this bias.

in fact, large market makers would often buy the "orderflow" from large brokerages, so they could see this in real time... or was brokerages buying from market makers... ah well, no matter.

I see what your saying though, and i guess that's order flow... but, what's the difference between looking at "price action" to determine where the market bias is pointing, and looking at "order flow" to determine where market bias is pointing?

and i'm not talking about candlestick patterns or chart patterns... just price action on the whole...

it seems to me there is no difference. am I wrong here?

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  #1039  
Old Jun 4, 2012 4:28pm
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Originally Posted by deeZG View Post
yes, exactly, you're completely right about order flow in terms of definition and that's what brought confusion in topic at some point of time (at least as i understood reasons).

i guess none. at least, i don't see it. the only reason that i see calling anything 'an orderflow' on fx spot market is: making conclusions (or should i say educated guesses) about where and what kind of orders might be and all of that based on pure price action.
at least that's how i see it.

technically, it's trading price action (by definition). but personally, i can...
Ya ok...i'll go with that. i think a new term or maybe better definition or something would be helpful, but, i don't even know how i would define this, or who would know...

I will say that in terms of what may be considered "trading using orderflow concepts" is how I will sometimes trader to take advantage of the natural tendency of markets to move toward large areas orders, and then bounce off of them the opposite way.

There are some times that...regardless of what "price action" is, or even where it is, there is a clear and fairly obvious reason (if you know what to look for) that once price hits level X it will very likely move up toward level Y.

For example, if I know where a large barrier option is in the market, I can sometimes put an order in a little ahead of that barrier...knowing that price will very likely reverse when it gets close to this price...at least for a while.

I may use PA to tell me where to get out...but to get in, because I know that there will be a large imbalance of order at that price point... when price finjally gets there, i'll take it to reverse many times.

And i didn't need to see candles or anything else to know that is what i wanted to take.

just as one example anyway. Since darkstar wrote a book on this stuff, i'm sure he has a lot more ways of how this all plays out.

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  #1045  
Old Jun 4, 2012 10:32pm
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Quote:
Originally Posted by Halifax View Post
I suppose for me this is the biggest area of contention, because I have no problem with the concept of stop-orders being hit and causing a little run, I just find it illogical for someone to do it on purpose.

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

I do try and figure out where stops/limits are likely to be when I'm putting on an order, but it's the idea of...

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

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

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

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

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

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

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

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

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

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

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

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

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