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A little bird told me order flow was about me taking all my charts, throwing them in the fire, and promising to never ever use such naughty tools in the future. I think order flow is better expressed on a chart than any other available medium. It looks like the attached screenshot. I'm posting this in the hope of finding other people employing similar techniques and automated analysis, that(like myself) aren't afraid to talk about it and explain what we are doing.
The chart isn't cherry picked, it's the most recent trading day. There are no short entries, because order flow never indicated a short entry with the appropriate probabilities of 1) low risk of loss, 2) short-term profit.
So, who else is looking at something similar to what I'm looking at, and not afraid to show it because people will "steal my secrets!!"?
Sure, the vertical histogram bars are price delta over <X> time, which adjusts algorithmically along with the rate of price change(more changes = shorter time period for delta calculation, less changes = longer time period). The horizontal yellow line is volume delta, with an identical algorithm to the price delta adjustments. The dashed lines represent thresholds being calculated and moved about in response to the price and volume algorithms, and in response to the lot size observed(eg, are these 1 lot warriors or 256 lot bank orders).
The sweet spot here is determining the marker order imbalance required for price delta to increase, and the marker order imbalance required for limit orders to stop being reloaded(for the price to crack). When that sweet spot is achieved, that is the entry signal. Entries and exits are both automated, with exits being triggered when limit order reloading in the direction against your position is no longer happening(ie, the bids propping up your position fail to increase despite market sell orders being observed).
I should have mentioned in the original post, but the motivation here is to shake out other people using similar techniques, so we can all learn from each other. Is your limit order reloading algo better than mine? I want all the information you're willing to share. Is it worse? I'm willing to share mine. Let's build a better mousetrap.
I salute you if you were able to successfully build an algo to trade order flow. I haven’t.
Once I had figured out what to look for and was able to profitably trade from the DOM, I tried quantifying it.
Several hundred hours later I had to realize that I could not do it. There are too many nuances to it. Is there spreading going on? Are those limit orders real? They pulled the orders, are they going to stack again? Yesterday there was a big guy sitting at 153’03, is he still there? What are correlated markets doing? Have we been trending the past couple of days or trading sideways? There is news coming out in 10 minutes, how is that affecting order flow? Who is trapped and where? Who is in control? Just to name a few questions.
I’m not saying it is not possible, but I just can’t do it. So I'm stuck relying on my puny little human brain.
In the sept 17 contracts accuracy is 81% for 2 tick profit targets. That's running 7a-930a CST, and inactive for 5m before and 5m after any major economic news, trading fewer than 16 lots. There are 3 average positions per day. Average losing trade is -2 ticks.
The profit targets are conservatively small, trying to keep my time in each trade as low as I can get away with. If/when I take 4 ticks before 9:30a, I turn it off early for the day.
