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Information on how to trade Order Flow
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Information on how to trade Order Flow

  #31 (permalink)
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joselopezde View Post
Sorry if I misspoke, but wasn't being sarcastic.

I mean that IMO those ideas you've listed above are the key, along with risk management and discipline, to be successful in trading.


Well in that case, it is for me to apologize to you! I thought you were being so, when my only intention was to help those who try to find their way. Not that I want anyone to agree with me per say, or think that I am right, but I am just putting in my input to try to help! In case case, sorry if I misunderstood your intentions!

To auto-criticise my onw post in fact, I would add that this is not about an exhaustive list, or specific tools etc, again these were just general points and examples. There is no need to use expensive and very often useless tools or data (altough data is important ovbiously). Amusingly, the better I have got throughout time, the more gadgets/tools I have got rid of. There is a market out there for Retails traders, and those who sell to that market know too well, that admitting it is simple (and very hard at the same time!) to read the market, provided one looks at the right things, would not be a very good marketing strategy..!

Additionally, to me at least, entering and order is not about putting a stop-loss and a TP. An oder if entered for a good reason, at the right time, should pay off, but might well need to be worked if the trade does not go immediatly my way, if the order flow indicates so.There are various techniques that I use such at times to work a trade, and "help it" to go in my favour. As for everything else, this has to be actionned for good reasons, at the right moment, as it might otherwise lead to danger (I am thinking about averaging and scaling in for example), but used properly this just makes sense.

I am getting off topic, as this has to do with order placement techniques rather than order flow, but this has to do with the discipline and risk management aspects that you point.

The secret and Holly Grail is that there is not any, and it's all about being to read the story as it unfolds before our eyes, trying to limit as much as possible to luck, and guesstimates!

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  #32 (permalink)
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order flow scenarios after a brick wall

Thanks for the comments again.

I've been thinking about it some more and have come up with some scenarios...

---------------- Order flow – what might happen ------------------------

Situation: Price moves up then hits a brick wall and trades there for a while. CD rises while PA is flat. Bullish offense has met bearish defense – the ASKs are piling on to prevent price from rising any further. What might happen?
• Scenario 1: The bears relent, the ASKs dry up and bullish offense (market buys) continue on and price rises. The flat lining PA has become a continuation pattern. Tradable pattern is to buy a few ticks above the top of the consolidation zone. Or even better, wait for a pullback to confirm that the consolidation has become support.
• Scenario 2: The bulls relent, market buys dry up and the bears, sensing this, come on strong with lots of market sells. PA and CD drop. Tradable pattern is a sell stop a few ticks below the consolidation area’s low. Or even better, wait for a pullback to confirm resistance.
• Scenario 3: The fake out breakout Part I. The bears seem to relent, PA rises above the brick wall consolidation area. Break out traders get sucked in. Then bullish offense, market buys, gets exhausted. Bearish offense, market sells, comes on strong against a bullish defense, BIDs, which is weak because bullish offense, market buys, got exhausted. Scalpers may have gone long too; but as soon as there is any hint of bulls letting up they must exit. Or a tight stop loss could be used with the understanding that, in a breakout, PA should take off and go for a while. That’s why they call it a breakout.
• Scenario 4: The fake out breakout, Part II. Everything said in part I applies except the scalper didn’t go long. Instead he waits for the turnaround. A very telling signal is a gravestone on the CD study, especially after CD has made a move of at least 800 contracts (on CL).

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  #33 (permalink)
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Hello, an old file, but I thought the conversation about Order Flow was interesting, and as I have recorded a few videos since and recently, I thought I'd add a bunch of links - Again, nothing exhaustive here, no magic or secret or grail, but just to show how I go about looking at the order flow and trading it, with the tools I find useful. I think it is down to everyone to own their own method and whatever works for each one of us at the end of the day, but there we go:

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  #34 (permalink)
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wmueller View Post
Thanks for all the comments. Much appreciated.

I have been thinking some more on the subject and remember some questions from mark Douglas that I think might be worth answering from the perspective of my model...

----- Framing the Now Moment Questions from Mark Douglas (The Disciplined Trader, p.216) using the Order Flow Model with Volume Bars -----
(PA = price action, CD = cumulative delta)

1. What is the market signaling at this moment?
*Is PA convergent or divergent with Cumulative Delta (CD)? Is PA consolidating, expanding, ranging? Is defense or offense controlling?

2. Who is paying up to get in or out?
*Market Buys/sells, or bids/asks.

3. How much strength is there?
*Small range bar = lots of defense bids/asks. Quick action = lots of offense (market orders)

4. Is momentum building?
*Look at slope. Are the volume bars getting larger?

5. Can it be measured relative to something?
*Compare the size (range) of the volume bars.

6. What would have to happen to indicate the momentum is changing?
*PA – CD divergence, PA slope change

7. Is the trend weakening or is this a normal retracement?
*PA – CD divergence, PA slope change. Compare the size (range) of the volume bars.

8. What would show that? If the market has displayed a fairly symmetrical type of pattern and that pattern has been disturbed, then it is a good indication the balance of forces has shifted.
*Look slope changes, bar length changes and cumulative delta divergences.

9. Are there any places where one side will definitely gain dominance over the other? If that point is reached, it still may take sometime for the other side to be convinced they are losers. How long am I willing to give them to rush out of their positions?
*Look for support/resistance, swing highs/lows that show a top/bottom, supply/demand.
What happens with PA there? Sideways action – could go either way, must wait. Reversal, wait for the pullback. Ploughs through – wait for a pull back. Always look for a spot where you can define a low risk point where your expectation is wrong and you would exit the trade (a low cost fail point).

10. If they don’t rush out, what will that indicate?
* If PA doesn’t move and CD doesn’t show a divergence, then there is agreement and lack of activity.

11. What did traders have to believe to form the current pattern relative to the past? Remember that people’s beliefs don’t change unless they are extremely disappointed (by unfulfilled expectations).
*Thee is always disagreement in the market; otherwise prices don’t move. It takes a stronger belief on the part of the bulls (bears) for prices to go up (down). The move can brought about either by offense or defense.

12. What will disappoint those with the predominant force?
*Lack of strong enough PA in the desired direction or a move in the wrong direction.
13. What is the likelihood of that happening?
*Must have statistics on the PA and CD patterns you are seeing to know what the likelihood is.
14. What is the risk in finding out in trading?
* The risk is difference between entry and fail point.
15. Is there enough potential for movement to make the trade worth the risk?
* must look for a likely target based on previous edge levels and volume-at-price structures to come up with an educated guess. Bu remember it is only a guess. Anything can happen.

Any thoughts would be most welcome and appreciated.

That's a lot of thought.
If you're profiling you can also ask yourself if we are either in balance or imbalance. You can further it down to early, mid, late(imo). This will give you the context.

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