Hi all,

As I'm about to go live (finally), I was disappointed to see how little features are available with the FREE version. I thought being a NT brokerage customer would give me some more functionality. I can't even create tabs on my windows with the free version. Oh well...

So, I will probably go for a lease for now. Is that what everyone else here is doing as well?

Regardless, I thought some of the new tools look interesting, although probably not enough that I'll want to pay up for a lifetime license to get them at this point.

Anyone trialed these yet?

Regards.

LaissezFaire 

Hi all, As I'm about to go live (finally), I was disappointed to see how little features are available with the FREE version. I thought being a NT brokerage customer would give me some more functionality. I can't even create tabs on my windows with the free version. Oh well... So, I will probably go for a lease for now. Is that what everyone else here is doing as well? Regardless, I thought some of the new tools look interesting, although probably not enough that I'll want to pay up for a lifetime license to get them at this point. Anyone trialed these yet? Regards.

Don't get too caught up in "Order Flow" tools. At the end of the day it is just information. I have painfully lived through Footprint, Depth Map and even the Jigsaw suite. I got tangled in its ugliness and I found it to be of little use with no statistical advantage, or edge that could be proven.

I no longer use any of these products. It took me a long time and a good friend (who works for a large institution) to come around to the fact that Order Flow tools are no more credible than anything else. My opinion on Order Flow tools runs much deeper, but I’ll keep this post friendly. VWAP is a great tool, but without historical (3 to 5 day) VWAP or standard deviation levels extended to the right of the chart, the NT version is just basic.

NinjaTrader were very late to the party with their Order Flow Suite. Other platforms had all this stuff for years. My feeling is that NinjaTrader didn’t want to get left behind so included it. Perhaps only including this to Lifetime Licensees may tell its own story. Who knows.

I think if you are trying to rationalize the market then sometimes order flow / Level 2 data can be useful in understanding things. Often times retrospectively you can pinpoint past events back to order flow mechanics. While I will stop short of saying there is little merit down this path, I will say that the majority of traditional level 2 information is not very actionable in practice (for retail traders).

I will use a simple example to illustrate this point: Consider a transaction price level with a Bid Volume of 500 and an Ask Volume of 100. Order Flow practitioners will predict that the likely outcome here will be that the Ask queue will deplete prior to the Bid queue (500 is > 100) and therefore the price level will move up. This is a fair interpretation, and if the Ask level came from the resting strong side, this is an even more likely outcome.

But monetizing this event is extremely tricky. If you join the Bid queue you would need to have all 500 people in front of you get filled before you get filled, and if you are joining this queue on the basis that you think this is the right side and the 100 people in the Ask queue will deplete first, then you can imagine the obvious issue here. You likely won't get filled. So even if you know which side will break first, this is of little actionable value. Your path to getting filled in this scenario is only via adverse selection. (I.E. You join the Bid queue at # 501, then suddenly 400 more people show up to Ask queue and then suddenly 450 people ahead of you in the Bid queue cancel) You will get your fill, but this is now a toxic fill.

This is just one example, but from what most can observe, the majority of the insights that have a high probability using Order Flow / level 2 data, come with the caveat that you have to be in line very early to participate. So the people that are late to the party never get to participate unless the circumstances change at the very last second and then your participation is now only through adverse selection.

Traditional retail players are at an extreme disadvantage here. The proper way to take advantage of level 2 information is to always have orders open at multiple price levels on both sides at all times, and then when one of your orders has optimal queue position on the transaction level, you can determine if you like the order flow mechanics / level 2 signals, etc. If so, let the trade play out, you will likely get filled because you have good queue position, but if you don't like the setup or things change, cancel the order, or do a price modification to move it to another price level and repeat.

In short you need both the execution algorythm as well as the insight from this type of information to make the whole thing work. The most common outcome will be you missed fills and your prediction was right, or you got filled and your prediction was wrong because the market changed. (And these two scenarios assume you had an edge in your prediction in the first place, I would even be skeptical of this in most cases.)


There may be some order flow / level 2 events that have less obvious edges that can be actionable to retail traders, but generally speaking anything that looks like an obvious outcome, that has some legit predictability to it, will come with the caveat that you had to be an informed trader early in order to participate.... and this is nearly impossible for retail traders for the obvious reasons you would imagine.

Best of luck

Ian

iantg 

I think if you are trying to rationalize the market then sometimes order flow / Level 2 data can be useful in understanding things. Often times retrospectively you can pinpoint past events back to order flow mechanics. While I will stop short of saying there is little merit down this path, I will say that the majority of traditional level 2 information is not very actionable in practice (for retail traders). I will use a simple example to illustrate this point: Consider a transaction price level with a Bid Volume of 500 and an Ask Volume of 100. Order Flow practitioners will predict that the likely outcome here will be that the Ask queue will deplete prior to the Bid queue (500 is > 100) and therefore the price level will move up. This is a fair interpretation, and if the Ask level came from the resting strong side, this is an even more likely outcome. But monetizing this event is extremely tricky. If you join the Bid queue you would need to have all 500 people in front of you get filled before you get filled, and if you are joining this queue on the basis that you think this is the right side and the 100 people in the Ask queue will deplete first, then you can imagine the obvious issue here. You likely won't get filled. So even if you know which side will break first, this is of little actionable value. Your path to getting filled in this scenario is only via adverse selection. (I.E. You join the Bid queue at # 501, then suddenly 400 more people show up to Ask queue and then suddenly 450 people ahead of you in the Bid queue cancel) You will get your fill, but this is now a toxic fill. This is just one example, but from what most can observe, the majority of the insights that have a high probability using Order Flow / level 2 data, come with the caveat that you have to be in line very early to participate. So the people that are late to the party never get to participate unless the circumstances change at the very last second and then your participation is now only through adverse selection. Traditional retail players are at an extreme disadvantage here. The proper way to take advantage of level 2 information is to always have orders open at multiple price levels on both sides at all times, and then when one of your orders has optimal queue position on the transaction level, you can determine if you like the order flow mechanics / level 2 signals, etc. If so, let the trade play out, you will likely get filled because you have good queue position, but if you don't like the setup or things change, cancel the order, or do a price modification to move it to another price level and repeat. In short you need both the execution algorythm as well as the insight from this type of information to make the whole thing work. The most common outcome will be you missed fills and your prediction was right, or you got filled and your prediction was wrong because the market changed. (And these two scenarios assume you had an edge in your prediction in the first place, I would even be skeptical of this in most cases.) There may be some order flow / level 2 events that have less obvious edges that can be actionable to retail traders, but generally speaking anything that looks like an obvious outcome, that has some legit predictability to it, will come with the caveat that you had to be an informed trader early in order to participate.... and this is nearly impossible for retail traders for the obvious reasons you would imagine. Best of luck Ian

Ian,

I really like this answer. It succinctly summarizes my thoughts and conclusion in using Order Flow tools as a retail trader. I wrote a very arduous investigatory piece (on a separate blog) that highlighted many of the issues you address. I will not share as I link to many YouTube videos within the piece back to a very popular Order Flow ‘practitioner’ on FIO.

By dissecting these videos it was amazing to me the necessity of scratching positions on a regular basis, because the “Order Flow” read was incorrect due to the toxic nature of the fill (providing you got a fill and the market hadn’t already moved away). This was a rinse and repeat behavior with the reward being the pickup of a few ticks here and there.

My good friend has worked in the institutional space and he opened my eyes to this fact. Large institutions spend millions of dollars every year on machine learning algorithms to ensure you can’t see the price levels of where they trade. You don’t know, and they want to keep it that way.

To label a quick move down in an uptrend as a “Retail Flush” (for example), but conveniently label it after the fact is ludicrous. You can’t possible know why or what caused that sharp down move or you would have shorted it! Too much credence has been given to Order Flow tools but like me, people get wrapped up in thinking it is helping them, when in fact it is doing exactly the opposite.

Very interesting read. Thank you @iantg and @JonnyBoy Always learning something new from your posts.

JonnyBoy 

Don't get too caught up in "Order Flow" tools. At the end of the day it is just information. I have painfully lived through Footprint, Depth Map and even the Jigsaw suite. I got tangled in its ugliness and I found it to be of little use with no statistical advantage, or edge that could be proven.

Interesting comments, JonnyBoy and Ian. Thanks.

I never used any of these tools at this point and I remain unconvinced of their value in this day and age, particularly for my chosen market (ES).

I was just curious if anyone had tested these additions on NT8. I ended up going for a regular lease.

Regards.

boy am I glad I didn't spring for that $5000 footprint-style indicator being sold by the informative youtube video I was watching a while back

ycomp 

boy am I glad I didn't spring for that $5000 footprint-style indicator being sold by the informative youtube video I was watching a while back

Well that is a lot of money to consider spending on a footprint style indicator. Wow.

There is zero proof of concept using footprint charts. Some will state, "but you can see bid/ask imbalances, unfinished auctions and adsorption" and yes maybe you think you can. But it is just information. That is all it is. There is no magic formula when using footprint charts as that information you see is so subjective.

Volume imbalances for example across price levels have so much variability. For a start, depending on what data series you use, trade size filter etc. the footprint of the market will vary greatly from one time frame to another. So one traders bullish imbalance is another traders bearish absorption.

I spent years using footprint. It worked, sometimes. But so does a moving average cross over. Footprint and Order Flow for me is in the trash pile.

There are many YouTube videos from NOFT, Trading The Tape and Market Delta that will have you convinced you need to trade footprint. You cannot and I mean CANNOT see institutions trading - except perhaps when the move is finished - which is easy to spot in hindsight like everything else - but can they see it in real time? Hell no.

If there is a "system" out there that uses footprint or promises some other order flow shenanigans - if it can't be back tested it is hard to quantify any justifiable reason to purchase it. I spent years with footprint and order flow tools and it took me a very long time to debunk them, but debunk I have.

If order flow / footprint vendors really knew what institutions were doing, they sure as hell would be better off trading it themselves and making a shit ton of money, rather than selling systems that have no verifiable method of back testing, profitability or proof of concept.

JonnyBoy 

If order flow / footprint vendors really knew what institutions were doing, they sure as hell would be better off trading it themselves and making a shit ton of money, rather than selling systems that have no verifiable method of back testing, profitability or proof of concept.

As an order flow vendor - I agree with this 100%.

Whenever you hear a people claiming stuff like "the algos are taking it up to xxxxx" (name your price) or "know what the HFTs are doing" or get on the side of the institutions - it's all nonsense. It is basically telling people that there's some mystery organisations moving the market and only their tools can show you their footprint.

This is total nonsense - it's just a sales pitch.

In fact, if you look at some of the order flow tools out there now - they dont' look so different to the price charts we used to see with so many indicators on them, you can no longer see the price.

The bottom line is that order flow is fairly simple. It's a set of information. Just like price.

For those new to it/doubting it, I'd recommend you start in one place. Watch the balance of trade + volume after you enter a position and make notes on the relationship between that and your stops being hit.

It's the ideal place to start with order flow because it deals with the most basic order flow skill - reading momentum. Which is naturally simpler than reading a turning point.

Most retail traders are trying to guess where the end of moves are so they can trade there. Buy support/sell resistance. Which is basically buying when the market is moving down, selling when the market is moving up. This is a losing strategy and no amount of indicators or order flow is going to make that work.

If you want to know how institutional traders are trading, watch the tape on ES/CL as a market is in the middle of a move - as all those 100+ lot (ES) and 50+lot (CL) trades are going through. That's the smart money buying where most retail traders consider it 'too late'.

JonnyBoy 

You cannot and I mean CANNOT see institutions trading - except perhaps when the move is finished - which is easy to spot in hindsight like everything else - but can they see it in real time? Hell no. If there is a "system" out there that uses footprint or promises some other order flow shenanigans - if it can't be back tested it is hard to quantify any justifiable reason to purchase it. I spent years with footprint and order flow tools and it took me a very long time to debunk them, but debunk I have. If order flow / footprint vendors really knew what institutions were doing, they sure as hell would be better off trading it themselves and making a shit ton of money, rather than selling systems that have no verifiable method of back testing, profitability or proof of concept.

You actually can see "institutions" trading real-time. Who else is going to walk into ES and sell 500 back-to-back, or ZN and sell everything on the bid, offer lower, and sell everything else on the next bid? You and I don't have enough capital to put on even 1000 contracts in ZN. Somebody with large pockets does, and that somebody is a big player.

I definitely agree that order flow is tough to backtest. That's where the feel for the market comes in. What's your market of choice? I bet you can tell me when the action looks bearish but feels bullish, and the reverse. It's all about knowing your product and the way it flows.

There's no "proof of concept" in order flow. You aren't going to buy a system which flashes green and red lights to buy and sell, but I'm guessing that you already know that. Those things exist, but every last one of them is a sham.

You can see what institutions are doing, but the tough aspect is predicting what they will do. That's what trading is all about. Order flow tools help you see when large, significant, market-moving size is trading and aggressively clearing prices. It's then up to the trader to decide what to do with that information.