Completely agree with you regarding the non-importance of book imbalance also..
Order Flow Trading
- Thread starter Alphafuturestrading
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Completely agree with you regarding the non-importance of book imbalance also..
That’s not what I said. I made the case that if traded VOLUME at price was such a dominant controlling factor in the architecture of the market - then market moves made on thin volume (like the off-hours or in the brief time after an economic release) would be rejected by prime time market participants or rejected off-hours by market participants and we know that is emphatically not the case.
Aren't these still reported on the time and sales? Are we talking about below or something else entirely?
Yes, crossed orders count as volume - that’s my point. More specifically - crossed orders from spec accounts running algorithms.
I operate systems that are placing and canceling hundreds of orders a day and I am a lowly retail trader.
I think the OP has titled the thread Order Flow Trading which is the wrong terminology for his style of trading which is really a mix of market profile/volume profile (horizontal distribution based time and sales data). Personally I don't use order book information to build trading systems, yet. However, I do believe a high rate of pulling/canceling orders is not to be simplistically discounted as being simplistic. I think your true feeling would be that most do not have the ability to profit from it, vs it being worthless gamesmanship.
Artificially creating order imbalances for capturing the bid ask spread = profitable. A simplistic fade of artificially created order imbalances = unprofitable. I agree 100%
Certainly a high volume node on a horizontal distribution is not in itself a simplistic definer of speculative intent, but along with other factors (some of them very short term price action that often create order flow ripples) they can be the accepted value (soon to be rejected value) level that is the launch area for a new "Step 1" which is in tune with Steidlmayer's later work.
Below, in an ES chart using 10K volume bars with VPOC and VWAP, is an example of one way I use market profile/micro volume profile/price velocity to locate trades. Study "AVG 1" measures the cumulative velocity of upward price movement vs downward price movement for the day, study"60K" measures the velocity of the up price movement vs down price movement of the last 60K contracts traded. On this chart of last Thursday the AVG 1 study is simply showing me that price is increasing faster than it is decreasing for the day creating a long bias for the day (gamesmanship? maybe).
One RTM trade opportunity occurred when price traded 2 sigma from the vwap/poc and the last 60K contracts traded showed price increasing at a greater velocity than decreasing.
Another trade opportunity occurred when price was on top of the VWAP/POC spending time, accepting value. Having an upward bias for the day I was again looking for the velocity of the up price movement to be taking place at a faster rate than downward price movement. Using this method had me long before John Williams spoke. This type of setup does not use 'order flow' (placed and cancelled orders), but does use time and sales based Market Profile, micro volume profile and price velocity data in an attempt to find a new 'Step 1'
My personal view is that Steidlmayer's initial work was done before 24 hour trading, nowadays we can have the market spend a lot of time in the ETH/off hours at a price level simply because Europe and America are sleeping. RTH time and volume POCs are generally always the same. If not, it is occurring at extremes and the fact that we may see 'no time - rejected value' and high volume at the same level is a tell of stops being puked up which is great information for the short term trader. Retail liquidity burns or speculators being flipped always shows in volume velocity.
As stated, I am a lowly retail trader. I do use Volume and Time based POCs/VWAP and std deviations from those levels based on RTH and 24 hour. I also use time and sales data/trade velocity rates for fine tuning and bias. I am sure that I am not the only day trader who only hold trades for seconds, minutes and maybe hours who have found benefit with this info.
I appreciate your posts Bone, they help refine my thoughts.
Algos, crossed orders, and every order is printed on the tape which is the volume profile. Most markets are indeed 24H so “off/on-hours” is a rather subtle. The tape is graphically represented by footprint and volume profile.
The thread is titled “order flow” because we are talking about order flow. So far we have discussed areas of fair/unfair value and supply and demand and volume at price. If it matters can define further order flow but there are a number of other elements to take on board but “order”’ and “flow”’are quite telling. Microstructure and subtleties around it is very interesting indeed, but my whole point is that there is no need to worry about it until we are in the areas
of interest we have defined.
And yes price > POC > VWAP and inversely indicates up/price momentum and trend and statistics like these involving trend/momentum/volatility (it is a good idea to trace ATR and % of achieve ATR within each session with potential statistical room for further move up/down) are certainly to be integrated.
The idea is to discuss what works for us Retail traders. The fact that it does not technically fit all elements of microstructure or the definition of markets in the 80s even by experts is very interesting but it is also equally interesting to discuss what works for us.
The thread is titled “order flow” because we are talking about order flow. So far we have discussed areas of fair/unfair value and supply and demand and volume at price. If it matters can define further order flow but there are a number of other elements to take on board but “order”’ and “flow”’are quite telling. Microstructure and subtleties around it is very interesting indeed, but my whole point is that there is no need to worry about it until we are in the areas
of interest we have defined.
And yes price > POC > VWAP and inversely indicates up/price momentum and trend and statistics like these involving trend/momentum/volatility (it is a good idea to trace ATR and % of achieve ATR within each session with potential statistical room for further move up/down) are certainly to be integrated.
The idea is to discuss what works for us Retail traders. The fact that it does not technically fit all elements of microstructure or the definition of markets in the 80s even by experts is very interesting but it is also equally interesting to discuss what works for us.
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Regarding spoofing, it is not a problem, I have made some of the best money i've ever made from spotting spoofers. They stand out a mile. They have been clamped down on a lot by regulators. I wish there was more of them. You see size appear on the best 3 or 4 bids showing double the volume normally showing. They all get pulled at once and the price drops 3 or 4 ticks. Then offers stack up and flip back up. They would come in for 15 mins usually until people stop fooling for the fake size and go to another market. There was one guy a couple of years ago that did it in Brent, Silver, Gold and Dax. Was a year of free money then he got busted. I miss those days. Was free money #BringBackSpoofing.
Glad you found it useful. I will try to add some more when I have time