Order flow trading

[JJayFX]

Most traders associate the term "order flow trading" as a very short term day trading / scalping strategy which requires hyper concentration on a singular product's price ladder. Others use the term "tape reading".

If you are interested in longer term order flows, I would suggest looking at Market Profile.

If most traders concentrate on the shorter time frames, and think that you must news trade in order to trade well, then that must be one of the reasons there's such a high percentage of people who just can't make this trading thing work for them.

It's a sad truth that the longer time frames offer the clearer signals. And it doesn't matter whether you use an orderflow approach, a trend approach, market profile or any other approach...use whatever you want as long as it allows you to stay in sync with the market.

The orderflow mindset is about having a grasp of market microstructure, a grasp of market sentiment and some chart geography. Sentiment runs on all time frames, not just on the weekly or daily (so I'm not talking about sentiment as in "COT Index"). Sentiment is the collective current perception about the future...and can be roughly divided into "themes" (like the current zero interest rate environment, the taper theme, the Russia/Ukraine tensions, etc.) and headline events (Philly fed or housing data from today).

Get a grip on what current themes are driving the markets you are following (if any) ang look to fade some evident stop levels in line with the theme. If the theme is strong, then there also should be accompanying price action to match it. That's why charts still are important in my opinion: they can help you decipher more about the market's psychology at certain levels or after certain key events.

Let's see the case of YM today. I diddn't play it but it was pretty clear.

we're in a clear upward trend (driven by easy moneytary policy) which was little shaken by the housing data and actually benefitted from the Philly Fed. What did price do? It retraced to yesterday's low (a key reactive stop level) and printed a neutral candle on the hourly where we expected to find buyers and that's what happened.

So as you can see, I'm incorporating sentiment into a plan that is not news trading or scalping. Far from it!

 

[TechnoTrader]

Don't mean to be a dick but had to register to say this is not order flow trading. Its TA with fatter lines. Companies like OrderFlowEdge don't teach you how to read order flow. I've spoken to them about order flow and they were pretty clueless. They are marketing guys. Would you really wack on 300 lots trading like this?

 

[bone]

Hey, if it works you can call it anything you would care to !

I was simply adding some context and clarification to Magic's post regarding your choice of terminology - nothing more. It might be confusing to some readers given the traditional use of the term " order flow trading".

Again, if you are profitable with it then who cares what you call it.

 

[JJayFX]

So we've got some data coming up:

Regarding Gbp, I think we're still range bound and will look to see what happens AFTER the data.

So today we have reached the zone we were keeping under observation. There has been a reaction at the level but there are some considerations:

1) London is closing up. Therefore, participation will be limited until tomorrow.

2) There has only been a sub-hourly sign of strenth and it would be nice to see some hourly confirmation as well.

So this trade will have to wait until tomorrow, if the conditions will still be acceptable.

 

[JJayFX]

Don't mean to be a dick but had to register to say this is not order flow trading. Its TA with fatter lines. Companies like OrderFlowEdge don't teach you how to read order flow. I've spoken to them about order flow and they were pretty clueless. They are marketing guys. Would you really wack on 300 lots trading like this?

I can't speak for OrderflowEdge, OrderflowTrading, OrderflowFugazi or anything else...I give credit where it's due and having read Daemon Goldsmith's book "Orderflowtrading for fun and for profit" gave me a little boost in my trading and has allowed me to tie together stop orders, limit orders, sentiment, trends, etc. So I call myself a hybrid orderflow trader :-D

I don't use a DOM in my trading. And i certainly don't use tech analysis only.
I combine: economic data, evident price flows, orderflow information, market sentiment, and use "technical analysis" for timing and risk-management.

I think we all agree that tech analysis doesn't drive markets. Orderflow drives markets. And the orderflow that's generated comes from the decisions people make, which are influenced by underlying themes and headline events (call them fundamentals if you wish). There's a big difference between looking at a chart, trying to understand what's going on and take a trade based on price action or tech analysis alone...or first go through some order analysis, economic data analysis, sentiment analysis, and then look to certain key areas on charts where you can find value entries...

 

[TechnoTrader]

I can't speak for OrderflowEdge, OrderflowTrading, OrderflowFugazi or anything else...I give credit where it's due and having read Daemon Goldsmith's book "Orderflowtrading for fun and for profit" gave me a little boost in my trading and has allowed me to tie together stop orders, limit orders, sentiment, trends, etc. So I call myself a hybrid orderflow trader :-D

I don't use a DOM in my trading. And i certainly don't use tech analysis only.
I combine: economic data, evident price flows, orderflow information, market sentiment, and use "technical analysis" for timing and risk-management.

I think we all agree that tech analysis doesn't drive markets. Orderflow drives markets. And the orderflow that's generated comes from the decisions people make, which are influenced by underlying themes and headline events (call them fundamentals if you wish). There's a big difference between looking at a chart, trying to understand what's going on and take a trade based on price action or tech analysis alone...or first go through some order analysis, economic data analysis, sentiment analysis, and then look to certain key areas on charts where you can find value entries...

You should stop saying say its orderflow if you are not reading a DOM or at least market profile. The reason I say this is while it may make you feel better to say you are a hybrid orderflow trader, it could lead people who are reading this thread down the wrong path. Thats my only problem with it.
Orderflow/reading the DOM/watching bids and offers getting pulled,added,hit is the only way to see inside a chart. Obviously you need to know about news and trends and all that malarky but to trade in the "now" is only going to happen with reading the DOM. Fundamentals are best used to keep you out of trades, not to get you in. In some respects it could be said that you are on the right track in terms of mentioning the words "order flow" but you should really delve into ACTUAL order flow full on. It will be the best thing you ever do for your trading. If you want to tighten your stops to the point of them being almost nonexistent then you cannot fault it.

Heres a great video from yesterdays ES session. http://www.futurestrader71.com/Webi...elly/2014-7-15-Convergence-Stephen-Kelly.html

 

[JJayFX]

Techno Trader,

in FX there's no book/DOM to trade off of anyhow..so from here on in I'll just call it the OrderFugaziTrading Method if you're cool with that

Can I also say TGI-Friday?

 

[JJayFX]

So it seems that GbpUsd wants to attempt a rotation from yesterday's lows/7090 level we were focusing on. Here is my order analysis for today, showing what type of action we can expect to the topside if this thing grows legs.

The first area where I'll be cautious is the imbalance area where offers lay at 7135. If we pass through that, the juicy stops could get snatched and propel us up to the 7165 offer zone where the trade will have already returned a good R:R. So let's see how it plays out.

There's only CAD data this afternoon and the UoM consumer sentiment out of the US. I do not open fresh positions on friday afternoons as the liquidity is generally very thin, so focus will be on Cable. The other eye will be kept on the Malaysian Airlines developments which could flick the risk on/risk off switch fairly easily depending on who gets the blame for the incident.

 

[JJayFX]

You should stop saying say its orderflow if you are not reading a DOM or at least market profile. The reason I say this is while it may make you feel better to say you are a hybrid orderflow trader, it could lead people who are reading this thread down the wrong path. Thats my only problem with it.
Orderflow/reading the DOM/watching bids and offers getting pulled,added,hit is the only way to see inside a chart. Obviously you need to know about news and trends and all that malarky but to trade in the "now" is only going to happen with reading the DOM. Fundamentals are best used to keep you out of trades, not to get you in. In some respects it could be said that you are on the right track in terms of mentioning the words "order flow" but you should really delve into ACTUAL order flow full on. It will be the best thing you ever do for your trading. If you want to tighten your stops to the point of them being almost nonexistent then you cannot fault it.

Just a couple of extra thoughts: a DOM is a reaction to something. The orderflow mindset I use helps to understand WHY, giving context and understanding to DOM.

DOM by it self is not a reason to enter a trade imo and if you can trade with 300 lots, why are you here challenging my modest way of tackling the markets, and not doing your business as usual? Also, i already said it but FX has no Dom.

Regarding the mindset I use, you can think about it like this: if there are two themes running simultaniously, like a nuclear war and the Fed interest rate decision, and you wanted to know which was more important, you could look at the correlations to find out. Increased geo-political tensions and the risk of war would be bad for stocks and bonds and good for gold.

Fed lowing rates would be good for bonds, bad for stocks, good for gold. If you see stocks and bonds down, with gold up, you can conclude that the eastern tensions are more important to the markets at that moment in time. and thats useful info because it allow syou to focus on the same things as other market participants (geopolitical healdines) and avoid things they dont care about (nfp), allowing you to stay potentially in line with the markets.

Reading the market's mind, and getting in line with it. That's probably the best practical application of the old adage "trade what you see".

 

[JJayFX]

This week opens with a dull macro calendar day. So without macro data, currencies will probably follow equities. And this week we've got some serious earnings reports out of the US: Apple, Microsoft, Texas Instruments, Whirlpool and Ford. Super Thursday brings out 49 firms on that day alone.

So what's on the map for the week? We must be very selective with our pickings during the summer doldrums. Last week closed with some decent USD strength; NZD might be picking up the bearish momentum and the Euro is still under pressure.

The week has opened with some retracement of that USD strength, so Euro & Nzd are retracing and Gbp has found some continuation after friday's fakeout.

Early week momentum players are probably looking for some rotation higher on the Euro after the break and consolidation above friday's highs/1.3530 but there have been offers seen in the 1.3560s which I'll be paying attention to. Sentiment on the Euro is still bearish so those offers "should" easily cap the rally.

Regarding Kiwi, we either hold these 8710s and rotate lower, or my bias will need to change. After some dull data last week and the bad dairy auction, the bird has suffered some losses and printed a bearish outside week. The only positive backdrop is that the RBNZ is due to raise rates this week.

And finally a tactical situation on AudNzd worth paying attention to.