thread: Order Flow - Achieving the mindset

66950

It's not really about price patterns, price patterns are the outcome. It's more about behavior patterns.
And yes, read all DarkStar's posts, combined with Gaston's.

Hello Scott89, yep I receive that price action is a consequence of order flow. However, PA and TA appear to be the only thing we have since order flow information isn't available to any of us.

If I am not confused, order flow information is spread out on many systems (at the actual orders that are entered into systems), without a centralized view of those orders existing anywhere. The quality of those orders is a queries, since it is quite difficult to tell an order is sitting on a system and the intentions of the trader or organization that placed it.

Additionally, many large institutions avoid entering these orders in to systems. Instead, there are a number of planned orders that just exist within the minds of the institutional traders/organizations. And, the actions by central banks will be kept as a secret.

I am not wanting to rain on anyone parade here, because I feel an order flow mind set is quite beneficial in trading. IMHO, however, there are limitations to. It is something. As we e together with the market, and as PA/TA unfold in front of us, we are constantly asking ourselve what the traders are currently doing about how the next candle might grow, and they're telling us.

So to DS and many others that are know much more about this than I do, can it be possible to come up with an order flow method with out the order flow information, or can it be necessary (demanded ) to wed up TA/PA at some point?

If I've taken this thread off track, just let me know and I'll return to just reading the thread. Please believe me that I admire what you people are doing here. Thanks! And good trading!

113725

You never know for certain. You try to set your stop set up, where it is just beyond the range of the market. You attempt to set it into a place where by the time the market reaches there, it has gone through 2-3 different layers/phases of mispricings. If specific market participants consider it as a mispricing they can come and generate order flow, whether market orders or standing limit orders. You merely put it in a place where particular market participants would be only salivated at the chance to get in through market or limit orders.

So...

Hi grkfx, I've really enjoyed your articles here. I wanted to supply a notion based on this post: is the notion of mispricing a generation of the retail FX market? I am not sure (really don't understand ) is institutional traders think this way.

Big banks, hedge funds, and so forth, are constantly in the market with places moving both ways. If the euro drops 100 pips, they have places that are in the cash by 100 pips, and places that are down 100 pips. So as soon as the market stalls, they make the process that is stalling by dumping some of the positive places and adding positions moving the other way. At some point, the market reverses and their new rankings help them rescue the negative positions that were abandoned while the market made the move.

For these big men, do they view the market as mispriced, or is their opinion more related to portfolio positions and balance? Where we can find information on their considering 14, I am not certain. However, the idea of mispriced could be all we can utilize and create (as retail traders) to approximate what is really happening in the market.

66950

Big banks, hedge funds, and so forth are always in the market with positions going both ways. If the euro drops 100 pips, they have positions that are in the money by 100 pips, and positions that are down 100 pips. So when the market stalls, the process that is stalling is created by them by adding positions going the other way and ditching some of the favorable positions. The market reverses as well as their new rankings help them save the negative positions that were abandoned while the market made the first move.

You're talking here about dumb retail hedging. Big banks have.

But netting is quite difficult to perform in practice, since you can have several desks/systems putting on positions. A lot of money was invested in the last years by banks on internal order-flow crossing technology, so that the flows are aggregated at one global order book.

For these huge men, do they view the market as mispriced, or is their view more related to portfolio positions and equilibrium?

Statistical arbitrage is about finding mispricings. A lot of participants do this all day long, among other things like HFT that play games.

66950

So to DS and many others who are know much more about that than I do, is it possible to develop an order flow method with out the order flow information, or is it required (required) to wed up TA/PA sooner or later?

Depends what you mean by info. If your asking is it done without all of the large banks and brokers providing you that their orderbooks... the answer is definitly yes. Can it be done without even knowing where traders have their orders? No more... thats the whole point of the methodology.

The best way to go about getting it's the question you need to work on. There's an answer; you just need to give a thought to it.

66950

Hello, I've really enjoyed your articles here. I wanted to offer a notion based on this post: is the thought of mispricing a generation of the retail forex market? I'm not sure (actually don't understand ) is institutional traders think this way.

Big banks, hedge funds, etc, are constantly in the market with places going both ways. If the euro falls 100 pips, they have places which are in the money by 100 pips, and places which are down 100 pips. So when the market stalls, they create the stalling process by dumping some of the positive places and...

Well you can call it mispricing or even the stars aligned for youpersonally, or anything you want. It does not matter what you call it. Is that it generates order flow and transfers prices. Since the one thing which will determine if you profit or not is the order flow and behaviour of other market participants who can and will move price.

Big banks and hedge funds constantly have places that move both ways? Really? Why do they want to do that? There has to be sometimes they think the price should go a certain way and just bet on that. Why the hell do they want to hold positions which are both 100 pip in profit and 100 pip in declines? Now perhaps the market manufacturers have stock they need to manage, but that would be the huge banks and not the funds.

You seem to make the premise that the market manufacturers balancing their books and hoping to bail from transactions always causes market motion. Well I really don't know much about that. However, they're not the one thing which generates order flow. Sometimes they can play a huge part, other times their order flow and bandwidth is just a drop in the bucket.

I just concentrate on things that I can objectively potentially quantify.

As for what the big men see, I just think about their positions, their emotions, their expectations, their prospective pain tolerance, their sentiment etc and determine when they can generate order flow and move price.

Sorry if it wasn't the answer you were looking for, but that's just what is going through my thoughts.

66950

Depends what you mean by info. If your asking can it be done without all the big banks and brokers providing you their orderbooks... the answer is definitly yes. Can it be done without even knowing where traders have their orders? No more... thats the entire point of the methodology.

How you go about getting it's the question you need to work on. There is an answer; you have to give it a thought.

I believe two of the easiest ones to figure out are techs and news. Because techs, certain patterns may attract orders . News may bring people to put orders in the market, albeit in which way it's sometimes difficult to figure.

Then there is bank intervention, commercial transactions, option play... and likely a small number of additional orderflow generators.

66950

Of course not. If there's anything as true/fair value (and there is), then what exactly are deviations from stated value?

Thank you eurotrash, I'll appreciate your remark. In the event that you asked 1000 traders what the value of the euro is, my guess is you'd get 2000 answers.

66950

You are talking here about dumb retail hedging. Big banks have.

But netting is quite hard to perform in practice, as you can have multiple desks/systems putting on positions. A lot of money was spent by big banks on internal order-flow crossing technologies, so that all the flows are aggregated in a single global order book.

Statistical arbitrage is about discovering mispricings. A lot of participants do so all day , among other matters like HFT...

Hi Adal, no I'm not talking about retail hedging. I am talking about how large institutional operations work. You all should understand, these operations are holding positions going both ways. . .always. Knowing that is pretty significant to some conversation in order flow, at least in my mind.

66950

Depends what you mean by info. If your asking is it achieved without all of the large banks and brokers providing you that their orderbooks... the response is definitly yes. Could it be achieved without knowing where traders have their orders? No... thats the whole point of the methodology.

How you go about getting it is the question you want to work on. There's an answer; you have to give some serious thought to it.

Due Darkstar. My response is that I use TA and PA to do it, with all the consciousness of order flow functioning in the background. It sounds like your strategy is a order flow strategy, is that right?

66950

Hello, no I'm not speaking about retail hedging. I am speaking about large institutional operations work. You should know, these operations are currently holding positions going both ways. . .always. Knowing that is significant to a conversation in order flow, at least in my own mind.

I think you are confusing them having limit orders at the book on both sides together having places both ways. In one tool you may have a position at any given time - the net position of the orders, even if you both sold and bought multiple times. The orders will average out to provide the position that is legitimate to you.

You're probably thinking with a MetaTrader like mindset of multiple opened places.

This is an issue of defining the word position. You're employing the retail definition, I am using the definition.