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Is Orderflow An Outdated Concept?


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Is Orderflow An Outdated Concept?

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  #101 (permalink)
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RickW00716 View Post
Has anyone used Jigsaws Auction Vista to assist in orderflow trading?


spideysteve View Post
Iíve used it. To me it hasnít been very helpful. Just my own opinion of course


hadamkov View Post
I am using it. It is an amazing tool.
But honestly, you need years in front of it to make sense of it.
And you have to be willing to see and accept when the market changes and learn it all over again.
H.

Here's my thoughts on this genre of tools. Trainer wheels. Something that highlights activity while you are still getting used to the DOM. I'm a DOM man personally. I have a low attention span and need the activity.

That was the intent anyway - hence the way the cirles work - just showing up in specific spots just like the same action does on the DOM.

Not that anyone has to follow the vendors approach to using tools. People always find ways to use tools that the creators never thought of.

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  #102 (permalink)
 RickW00716 
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Jigsaw Trading View Post
Here's my thoughts on this genre of tools. Trainer wheels. Something that highlights activity while you are still getting used to the DOM. I'm a DOM man personally. I have a low attention span and need the activity.

That was the intent anyway - hence the way the cirles work - just showing up in specific spots just like the same action does on the DOM.

Not that anyone has to follow the vendors approach to using tools. People always find ways to use tools that the creators never thought of.

I've been working on using the Auction Vista to identify price action (my settings are 15 seconds with a 4 circle tuner setting) near zones/levels of interest.

For example: If I saw a big blue buy circle occur at or above the high of yesterday but it immediately gets taken out to the downside, my first thought is it is a false breakout and I look to position myself short.

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 hadamkov 
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Jigsaw Trading View Post
Here's my thoughts on this genre of tools. Trainer wheels. Something that highlights activity while you are still getting used to the DOM. I'm a DOM man personally. I have a low attention span and need the activity.

That was the intent anyway - hence the way the cirles work - just showing up in specific spots just like the same action does on the DOM.

Not that anyone has to follow the vendors approach to using tools. People always find ways to use tools that the creators never thought of.

I watch liquidity in Auction Vista, those are my levels.
I watch DOM for the type of action that gets the market into liquidity.
Simple but not easy.

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RickW00716 View Post
I've been working on using the Auction Vista to identify price action (my settings are 15 seconds with a 4 circle tuner setting) near zones/levels of interest.

For example: If I saw a big blue buy circle occur at or above the high of yesterday but it immediately gets taken out to the downside, my first thought is it is a false breakout and I look to position myself short.

Did you hike up the tuner when COVID hit? That's what it's for...

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 RickW00716 
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Jigsaw Trading View Post
Did you hike up the tuner when COVID hit? That's what it's for...

I've been trading crude oil and was under the impression that 3 or 4 was the best setting for CL.

Is that correct?

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 saints51 
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Hulk View Post
I will take a stab at this. A lot of what was said on that post at reddit is correct.

I am a professional trader. One of my strategies is based 100% on "order flow" but its nothing anyone has ever seen or based on what is available for sale via courses or tools these days. It can never be. But I am faced with the same challenges this person is talking about so I can tell, he knows what he is talking about.



Agree. Retail folks look at various structures like cumulative delta, market/order profile, LVN/HVN in various ways and try to find reasons to establish their bias. I dont use any of these. I have not been able to generate a backtest that consistently performs based on any of these theories.



Agree. I learnt many of these theories - NoBS, L2ST, JigSaw... etc. cannot even remember the rest but he is right. These theories came from traders that scalped thick markets were you could see the order book. There was only one type of refreshing order - an iceberg which was a clear indication that someone had a large order and he did not want the world to see that. He kept it hidden in order to get filled. Apparently, this observation would help people establish a short term bias for scalping purposes.



This is the meat of what happens today on the screen. What this means is that now orders are not limited to one particular market. An order could span multiple contracts and instruments. Normal people can never tell which trade is getting filled. For instance, in the commodities markets (I cannot speak for anything else), if someone is bullish WTI outright and wants to establish a long position, he will probably never buy just the front month. Instead, he will employ an "aggregator" type of order that will start filling the front 3-4 months, the front few spreads, cracks, WTI to Brent etc. Basically, he would express his bias in WTI relative to forward months and other markets. If you are monitoring just the front months using some of these retail tools, you are looking at a flea on the tail of a dog - completely missing the dog itself.

There is rarely an outright bias for a commodity being expressed in the markets these days. The bias is expressed mostly relative to either time or correlated markets or both.

OTC markets are where block trades are executed by communicating your order to a broker. Most retail price feeds do not disseminate these trades. And even if you had a feed that did, these are reported to the exchange (I am talking mostly CME/NYMEX Clearport here) with up to a 7 to 8 minute delay so you cannot make sense of it anyway. If you want to know the % volume of these trades, just look at the volumes page for that contract on cmegroup.com.



A stale order is one that has been on the book for a long time. You can see this if you subscribe to a data feed that disseminates MBO. I dont know what he means by professionals screening stale orders to lean on. I dont fully agree with this statement. OTC venues do not dictate the bias. They are just like the screen - no one really knows where the market is headed. But having access to OTC data definitely helps in different ways. I havent found an electronic way to get this data. I dont know if there is one but if I had the OTC order book electronically, I would be very very happy.


Scalpers do this. I mean, this is a different class of traders that have a very short term trade duration. But it has nothing to do with what he has been talking about earlier. 2 very different types of algorithms.



Yep, this I agree with. If you are trading NatGas, you are monitoring electricity and weather for sure. If you are trading Crude oil, you are monitoring Brent, Gasoil, gasoline, diesel both forward in time and across. This ties into what he says earlier and like I explained. If an outright bias isnt being expressed, you wouldnt look for it. Instead, you would focus on monitoring relative bias. Simply put, if WTI is bullish, then its bullish relative to what? Look at the WTI and the RBOB gasoline charts since Feb 21. Look at the front month and then look at the Apr/Dec or May/Dec spreads. Also look at the front RBOB crack and the front RBOB vs HO spread during this time. You will go nuts trying to figure out what you should have traded and when.



This is the statement I agree with the most. I wish everyone that reads this statement above, believes it and acts on it. But I know, no one will.

So... still aspiring?

This makes the many retail vendors frown. Thank you for helping people save money.

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Hulk View Post
I will take a stab at this. A lot of what was said on that post at reddit is correct.

I am a professional trader. One of my strategies is based 100% on "order flow" but its nothing anyone has ever seen or based on what is available for sale via courses or tools these days. It can never be. But I am faced with the same challenges this person is talking about so I can tell, he knows what he is talking about.


Good post & interesting insights. Not sure what you do but I am sure you will agree that the title "professional trader" covers a hell of a lot of different skills. I know a trader that ran a team for RBS running barrier options for FX. Massive things. Another that ran an open outcry desk for an obscure currency pair and could write a billion dollars on a busy day. Another that made markets in options. Another that traded spreads so complex that to this day, thinking about it gives me a headache. All traders, all different skills. Ask any of them about MACD and they would have no idea that you were talking about trading and probably tell you that Burger King was superior.

Some skills did indeed expire. Aussie interest rate spreading is a good example. I know people that made money there for years but couldn't adjust when it died.



Hulk View Post
Agree. Retail folks look at various structures like cumulative delta, market/order profile, LVN/HVN in various ways and try to find reasons to establish their bias. I dont use any of these. I have not been able to generate a backtest that consistently performs based on any of these theories.

I've heard of a firm using MP - but never seen it myself, nor asked specifically what was done with it. I've seen long term charts used but sparsly. It's not as if you can walk up to people and say "what's that there for?".

I don't know of any prop traders that did any backtesting. It has always been 'get trained, earn your live account' or cases of people getting in based on their performance. I've seen a lot of introspection and reviewing trades though.



Hulk View Post
Agree. I learnt many of these theories - NoBS, L2ST, JigSaw... etc. cannot even remember the rest but he is right. These theories came from traders that scalped thick markets were you could see the order book. There was only one type of refreshing order - an iceberg which was a clear indication that someone had a large order and he did not want the world to see that. He kept it hidden in order to get filled. Apparently, this observation would help people establish a short term bias for scalping purposes.

NoBS is thicker markets. Wasn't really Jigsaws thing, nor was scalping if you mean trading the spread. Icebergs have become an issue for sure. It's not hard to see reloading & retailers always seem to want to revert to a one rule trading system. Like "see an iceberg on the bid, go long". Considering all the training and time and effort and reviews and introspection and pain a prop trader goes through to become consistent - it's a bit of a kick in the teeth for people to still think this is realistic.

Markets were thicker when we started out - but we moved with the times. There was never a point where we said "iceberg = entry". It was always about order flow being a story that played out with more confirmation being paid for in fill price and trying to get into a position at a choke point.


Hulk View Post
This is the meat of what happens today on the screen. What this means is that now orders are not limited to one particular market. An order could span multiple contracts and instruments. Normal people can never tell which trade is getting filled. For instance, in the commodities markets (I cannot speak for anything else), if someone is bullish WTI outright and wants to establish a long position, he will probably never buy just the front month. Instead, he will employ an "aggregator" type of order that will start filling the front 3-4 months, the front few spreads, cracks, WTI to Brent etc. Basically, he would express his bias in WTI relative to forward months and other markets. If you are monitoring just the front months using some of these retail tools, you are looking at a flea on the tail of a dog - completely missing the dog itself.

This has been the case since electronic trading started. You can never presume that any execution means that
- a position has been opened
- the participant will react to short term moves (might be those Kellogs people again)
- that the trade is directional and not part of a spread

On the other hand, you can see momentum and you can learn what drives it.


Hulk View Post
There is rarely an outright bias for a commodity being expressed in the markets these days. The bias is expressed mostly relative to either time or correlated markets or both.

OTC markets are where block trades are executed by communicating your order to a broker. Most retail price feeds do not disseminate these trades. And even if you had a feed that did, these are reported to the exchange (I am talking mostly CME/NYMEX Clearport here) with up to a 7 to 8 minute delay so you cannot make sense of it anyway. If you want to know the % volume of these trades, just look at the volumes page for that contract on cmegroup.com.

Good stuff, but it's all based on there being little urgency to trade right? I know a trader that trades stocks on earnings, because at that point the urgency to do business goes up and you have people willing to give up the spread (and more) to get filled.

As for the OTC stuff - it's like the old pits. Illiquid venues where there's not always someone to take the other side - so your trade will get layed off against the electronic. Clearport does just over 300k contracts a day, it's a drop in the ocean compared to the electronic markets. Once the urgency comes in - any trades will be reflected in the electronic because the only way you'll get filled is against a counterparty that's laying off the bet on the electronic markets. Much like the pits did with S&P.

The spread/arb - is really what keeps it all in line. It's like phsyics. Volume comes in - you'll see it.



Hulk View Post
A stale order is one that has been on the book for a long time. You can see this if you subscribe to a data feed that disseminates MBO. I dont know what he means by professionals screening stale orders to lean on. I dont fully agree with this statement. OTC venues do not dictate the bias. They are just like the screen - no one really knows where the market is headed. But having access to OTC data definitely helps in different ways. I havent found an electronic way to get this data. I dont know if there is one but if I had the OTC order book electronically, I would be very very happy.

Never heard of leaning on stale orders but have heard of MMs looking to trade the other side of a large order - see it get taken out & then market reverts back. A strategy for very specific conditions.




Hulk View Post
Yep, this I agree with. If you are trading NatGas, you are monitoring electricity and weather for sure. If you are trading Crude oil, you are monitoring Brent, Gasoil, gasoline, diesel both forward in time and across. This ties into what he says earlier and like I explained. If an outright bias isnt being expressed, you wouldnt look for it. Instead, you would focus on monitoring relative bias. Simply put, if WTI is bullish, then its bullish relative to what? Look at the WTI and the RBOB gasoline charts since Feb 21. Look at the front month and then look at the Apr/Dec or May/Dec spreads. Also look at the front RBOB crack and the front RBOB vs HO spread during this time. You will go nuts trying to figure out what you should have traded and when.

This is the statement I agree with the most. I wish everyone that reads this statement above, believes it and acts on it. But I know, no one will.

So... still aspiring?

100% agree - because it's all about cause & effect. Some things bring volume into the market and some things bring volume urgently. The days with a lot of people needing to trade are the biggest days for prop traders trading outrights.

As for needing all related markets - I know outright traders that don't. I know plenty that trade Crude - along with 30 or so other markets they have on their horizon and they don't watch all the iol breakdown products because they are only trading news driven momentum - which hits different markets at different times. They do know what's happening in energies, interest rates, metals, indices etc. They have more screens of news than charts or order flow. They look for the drivers first.

Lots of different ways to do this. But you have to actually chose one of them and that seems the biggest problem for retailers - hopping about too much.

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 Hulk 
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Jigsaw Trading View Post
Good post & interesting insights. Not sure what you do but I am sure you will agree that the title "professional trader" covers a hell of a lot of different skills.

To me, it just means I get paid to trade as opposed to using my own capital. And that the size I trade requires a significantly large risk appetite.


Jigsaw Trading View Post
I don't know of any prop traders that did any backtesting. It has always been 'get trained, earn your live account' or cases of people getting in based on their performance. I've seen a lot of introspection and reviewing trades though.

NoBS is thicker markets. Wasn't really Jigsaws thing, nor was scalping if you mean trading the spread.

I have a lot of respect for NoBS, L2ST and Jigsaw. I was your customer years ago. Actually, you guys started me off in this path. What you all had to offer made a lot of sense to me but being a programmer and coming from a binary world I just couldnt build my belief system without solid rules and some proof that whatever I am trading actually has worked in the past. Backtesting is far from perfect, but it helps me execute without hesitation. Even if it means I have to manage terabytes of data. I got lucky to have found the required support to be able to do this but there was no way I would have been able to do this sitting at home trading my 50k account.

Scalping to me means intra-day trading. Trade durations less than a few hours. I couldn't do that consistently and scale up my portfolio at the same time - in terms of adding size and markets. I cannot imagine consistently trading 5-10 markets with an intra-day bias looking at changes in order flow. Maybe when I was younger, I could have but I am old now and my brain just isnt that capable.


Jigsaw Trading View Post
Never heard of leaning on stale orders but have heard of MMs looking to trade the other side of a large order - see it get taken out & then market reverts back. A strategy for very specific conditions.

Actually, I can relate to this. On one of my long term momentum strategies, I am constantly being filled by an MM on the block and whenever this happens, I know its going to go against me for a bit. Its OK, they get to make a few ticks but I have statistics on my side .


Jigsaw Trading View Post
Lots of different ways to do this. But you have to actually chose one of them and that seems the biggest problem for retailers - hopping about too much.

Totally agree.

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Hulk View Post
To me, it just means I get paid to trade as opposed to using my own capital. And that the size I trade requires a significantly large risk appetite.

And you sleep at night.



Hulk View Post
I have a lot of respect for NoBS, L2ST and Jigsaw. I was your customer years ago. Actually, you guys started me off in this path. What you all had to offer made a lot of sense to me but being a programmer and coming from a binary world I just couldnt build my belief system without solid rules and some proof that whatever I am trading actually has worked in the past. Backtesting is far from perfect, but it helps me execute without hesitation. Even if it means I have to manage terabytes of data. I got lucky to have found the required support to be able to do this but there was no way I would have been able to do this sitting at home trading my 50k account.

Being with something you believe in is one of the most important aspects IMO. In a prop firm, the traders believe what they are taught because usually - there's people there making bank....

But then I've seen prop firms pop up and only care about commissions. That aside - the man at home will always be conerned his approach isn't working 'cause the guy who sold it to him ripped him off - so he bounces to something else.

A few years ago - after knowing Gary Norden for a while - he offered to teach me for free. It wasn't a long-term agreement - more that he'd show me and we'd see where it went. After 2 days I pulled the plug. Not that I was afraid to learn new things - but I didn't want to completely change and become novice. I got what he did - and that was golden - I just saw no need to become someone else's trader.

You move forward - but you build on where you are.


Hulk View Post
Scalping to me means intra-day trading. Trade durations less than a few hours. I couldn't do that consistently and scale up my portfolio at the same time - in terms of adding size and markets. I cannot imagine consistently trading 5-10 markets with an intra-day bias looking at changes in order flow. Maybe when I was younger, I could have but I am old now and my brain just isnt that capable.


Actually, I can relate to this. On one of my long term momentum strategies, I am constantly being filled by an MM on the block and whenever this happens, I know its going to go against me for a bit. Its OK, they get to make a few ticks but I have statistics on my side .

I get this. I bailed on equities because I was trying to do the Briefing.com "chase earnings stocks" style. Then a friend got a job as an analyst for a trader doing the same thing - but with 4 full time analysts. The switch to futures was because I felt chasing that stuff was too much for a solo trader, ok for a firm or someone with researchers.

Everything is a method that suits some. Look at options pits - still open - because no-one has any idea how they do what they do. Guys are savants.

You have a style - you move with the times - but a refresh or something that doesn't suit you? Never gonna fly.

Same with order flow - it's a set of data. Trying to boil it down to magic one rule systems will never fly.

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Terra
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josh View Post
I use some notion of "order flow" as one pillar in my trading strategy. Yet, I agree 100% with the sentiment expressed here so far, mostly by @ Hulk -- markets are exponentially more complex today than they were 20 or even 10 years ago. In fact, I'd say that they're more than just complex -- they are sophisticated. The participants are sophisticated. Yet, "order flow tools" are thrown around and have been the hot retail thing for some time now.



The problem is not that they "don't work" -- it's that you seem to be looking for a turnkey solution, dare I say, "indicator," that will tell you when the market is going to change directions, so that you can catch the bottom and top. I'm sure you're not consciously thinking this, but your question certainly indicates a line of thought that lines up with a need to find "the answer." "Does this work?" is not even the right question, because it seems to want a "yes/no", binary answer. Does it work? Of course it does. Trendlines "work" -- fib retracements "work" -- higher highs and lower lows "works."

The question is, do you have the skill set to find an opportunity, recognize it as actionable, and then take risk based on it?

If it were as simple as putting up a footprint/order flow chart and seeing volume and fading it, well, everyone would do it, and yes, then it wouldn't work. Markets are too complex and sophisticated for anyone to consistently extract profits without doing something that is different from what most people are doing. I don't think that the method has to be complicated, despite the complexity of the market. I don't think you have to be a math whiz, or anything like that at all. But you must have some advantage to compete with others. The trader must think different and do something different than what everyone else is doing, to achieve results which are different from everyone else's results.

I completely agree. Concepts such as Absorption do work! BUT...... It is all based on context. It is based on an ability to judge a "signal" on its merits. It is based on knowledge of price action and market behaviour. At least for me that's true.

In fact, I traded MNQ earlier today by identifying what I believe was a very clear example of absorption. I did this with just the standard Order Flow tools in Ninja Trader 8. I use VWAP, a 5 and 15 minute Footprint chart, (Volumetric chart) and Trade Detector indicators. I wait for the opportunity and I constantly look at the context of price and price action. I am generally profitable most days. This is because I have spent a lot of years (1000's of hours), in front of screens studying price action with a great deal of determination.

There is no turnkey solution! Your success as a trader will come from experience and hard work AND maintaining your confidence through the inevitable losses you will make. Its the price you will need to pay. Good Luck!

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 joe s 
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thanks for the info

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 forgiven 
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the idea behind the order flow grail is you can use a very small stop .. a few ticks not 4 or 5 points on the ES for example ... sure it can be done its possible. but it takes less time and pain to look for larger targets 12 to 20 points. you also suffer less slippage , commission , over trading , cost of the grail software and training ..ect. ect.

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 RickW00716 
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What causes bars like this to sometimes appear out of "nowhere"?
CL 08-20 (15 Second) 2020_06_18 (9_29_51 AM)bigbar

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Given the very short time frame of the bars, and the fact that CL usually has a fairly thin book of resting orders, my guess is that a single institutional OTC order caused that sharp a move. It could be a speculator or hedger, but Iím pretty sure a fairly sizable institutional investor probably had an order to fill, was not overly sensitive to price (perhaps a position or risk limit was exceeded and they had to downsize their position), and the order caused the sizable, but very temporary price fluctuation. I usually trade Treasuries, which is a much thicker market than oil, and usually all the longer duration contracts (ZB, UB, TN, ZN) are in very tight correlation, but sometimes I will see one of them quickly move erratically , but quickly correct, and I can tell from the timing of it that itís an institutional order from a customer that doesnít really care that much if they leave ticks ďon the tableĒ.

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 Schnook 
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RickW00716 View Post
What causes bars like this to sometimes appear out of "nowhere"?
CL 08-20 (15 Second) 2020_06_18 (9_29_51 AM)bigbar

A combination of factors. The chart pattern just before the break shows wedging / coiling / consolidating price action with a fairly well-defined trend support line. Once this support broke, it likely touched off several stop orders, which simultaneously hit at the market and took out a large number of resting bids. While this happened, market makers who got hit pulled their remaining bids and went offer (basic position and risk management), while range / volatility breakout traders and algos jumped in with their own sell orders just as liquidity was being pulled.

So it was not one large trader slamming the market for several hundred contracts all at once (no one trading that kind of size would do something that silly), it was several traders who were triggered for different reasons within a very short time-period. Actually quite similar to the flash crash, although on a much smaller scale. Happens all the time in crude - so much so that some traders build strategies around just this kind of a move (the range breakout traders alluded to above).

Look at a footprint chart for this move on a small range or reversal bar periodicity and you might glean some further insight.

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ORDER FLOW ANALYSIS, my experience.

At first I thought this was an old dead thread, but there will always be an interest in Order Flow Analysis, or what I call "Inventory Analysis" as a predictor of when Markets may end a trend, or pivot turn the trend, or hold support or resistance levels; all of which can be understood and well predicted when "Order Flow Analysis" is properly done.

The biggest issue is that "real Order Flow Analysis" is computationally, and memory-intensive. It is also "fractal" in the loose sense that Inventories are moving Net Long and Short dynamically, are are dependent upon the time width of the Analysis interval chosen.

First of all, I used to sell software which implemented this stuff; but I no longer sell it. I don't mind, however, describing the rough algorithmic basis for calculation of "useful Order Flow Analysis" in case some of you are smart enough, and skilled enough to implement it.

Yes, "Order Flow Analysis" is useful; and what does it tell you? It tells you whether Market Maker (considered on aggregate) is net Long or Short against the Retail population (both small and large retail institutional traders, who are NOT Market Makers) and that is an interesting piece of information. BUT... it is by no means that useful in predicting a pause, reversal or continuation of a Trend.

The real money is in a further refinement called "Inventory Risk Analysis" which, in a nutshell, is telling you whether the Inventory is Long or Short, sure, that's informative; but much more important is "whether Market Maker is in the money, or is losing money on the current Inventory, on the current Timeframe" since everything in trading is "timeframe dependent".

Consider that "major swings of the market" represent Accumulation and Distribution periods, during which Market Maker (MM for short) is doing "Accumulation" against the Retail players, and perhaps doing that with a steady down-trend; or whether in a "Distribution phase" usually associated with an up-trend in Pricing. Anyway, if it were the case, that major trend changes occurred over, say, 2 hour cycles, then you'd want to Evaluate your Inventory over roughly a 2 hour period in order to appreciate MM's Inventory situation, assuming that you wanted to trade also on roughly that timeframe.

COST BASIS. For MM's Inventory, which is determined over a calculation of "all trades" which occur over the interval of interest, we need to first establish an estimate of COST BASIS. If MM is "Long", meaning that more Retail Selling is occurring than Retail Buying so that MM is holding Inventory which she wants to Sell off at a Higher price, then we want to know the Cost Basis price for the "Net Long Inventory". That is done by starting with "the Lowest Price Retail Sale Trade (MM is a Buyer)" and searching for a "matching Retail Buy Trade (MM is the Seller)" which is at least 1 Tick higher. Inventory which was Bought by MM; let's say 1 Contract, to Sally the (Retail) Seller; can be matched with 1 Contract Sold by MM, say to Billy the (Retail) Buyer; at a minimum of 1 Tick or more profit.

The preceding operation "neutralizes the single contract which Sally sold to MM and which Billy bought from MM at least 1 Tick higher". So that single contract "disappears" from Total Inventory. It is a special case, most likely of "a spread trade" in which Market Maker (MM) is able to profit on the Bid/Ask spread, where there is no Retail opportunity for profit.

So, proceeding from the Lowest price MM-Buy trade, we search upwards for MM-Sell trade(s) which "neutralize" that volume. We eliminate the entire MM-Buy trade, and we deduct from the MM-Sell trades, the Contract volumes which are "matching". If an MM-Sell trade volume goes to zero, of course, that means that MM-Sell trade effectively disappears and has been "neutralized" or "removed from this Inventory evaluation" due to matching volumes.

TRYING TO STAY out of the weeds here; let's just say we do this until we have processed and eliminated MM-Buy trades (the ones generated from Retail Sell transactions) by finding matching MM-Sell volume at a higher price. BUT THEN WE FIND THAT we have a bunch of MM-Buy trades WHICH DO NOT YET HAVE matching MM-Sell trades. So, we have a bunch of "pure MM-Buy transactions" which have yet to find any matching MM-Sells at a higher Price. THIS IS MM'S NET "LONG" INVENTORY and the Volume Weighted Average of this collection of MM-Buy trades can be taken as the COST BASIS for MM's LONG position (against the Retail Market) and so then.....

...THEN WE KNOW THE COST BASIS PRICE which MM must achieve in order to Profit on this collection of LONG inventory. If the Current Market Price is below which COST BASIS, then I say that MM is "In Long Risk" or, in plain terms, "is losing money" on her LONG inventory, at this moment, over the timeframe of evaluation.

TO AVOID YOUR UNDERSTANDABLE REACTION "tldr;" (Too Long, Didn't Read) LOL ... This means that when MM is "in Long Risk" then she will be reluctant to deviate "too far below" her Cost Basis, which is a very Dynamic calculation.

Obviously, the inverse operation would be used in order to evaluate a situation in which MM had an excess "Short" Inventory, and when that Cost Basis is calculated, then any Current Market Price above that price level, would result in "Short Risk" resulting in a reluctance to raise the Price much further, as "Short Risk" (just like Long Risk) means that MM is actually "losing money" at that moment in time, on aggregate.

TO END THIS DISCUSSION, this process of extending Order Flow Analysis into yielding a Risk Evaluation; is the only way I know to predict when a Market Price will be "reluctant" to proceed further into Risk; and often signals a Market Reversal.

DISCLAIMER AND APPRECIATING THE SCALE OF MM'S ACTIVITIES. We can measure a particular market over time, by experience, and appreciate just how much Risk MM wishes to, or is willing to, take; before deciding to "reverse a trend direction" or proceed in the same direction. Knowing the Total Net Inventory in contracts, say, and its Cost Basis, we can then literally estimate (pseudo-calculate) Market Maker's total Risk in actual Units of Currency. In a Market such as ES, we might see Risk levels in the hundreds of thousands or even low millions of USD. These levels of Risk are, however, just "business as usual" for the Market Makers in such a highly liquid market.

MARKET MAKERS HAVE DEEP POCKETS. Markets are Dynamic and they show "sawtooth" behaviors on multiple "fractal-like" timeframes, precisely because MM's strategy is to use Retail Trade Volume in order to "take a Long position against Retail Players, and temporarily dip into Long Risk" and then reverse, so that she can then swing the other way and "take a Short position against Retail Players, and temporarily dip into Short Risk" as part of the game.

In my view, this is the best and only way to truly use "Order Flow Analysis" or what I call "Inventory and Risk Analysis" to predict when a Trend may come to an end, and show some pullback, or reversal, perhaps at some of the Support and Resistance levels. These, of course, are what I call "volume inflection points" so we can expect them to be violated. But WHETHER A SUPPORT LEVEL BREAKS is almost totally controlled by the RISK ENVIRONMENT which exists at that moment in time, over a significant Inventory Timeframe.

SO THAT IS MY WAY OF THINKING ABOUT, AND CALCULATING Order Flow, which means "Inventory and Risk Analysis" and is my "Commitment of Traders" (COT) evaluation method in real time. Comments welcome; but you can appreciate how complex and how dynamic "real" (in my view) Order Flow Analysis needs to deal with the Time and Sales tape; in order to be of significant value in trading.

[EDIT] An equally useful pairing with Inventory Analysis is Depth of Market (aka "Book") Analysis to determine Market Price direction. DOM Analysis and Inventory Analysis taken together can provide a day trader with useful information, so maybe we can discuss somewhere else how the DOM introduces concepts useful in prediction.

hyperscalper

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hyperscalper View Post
ORDER FLOW ANALYSIS, my experience.

At first I thought this was an old dead thread, but there will always be an interest in Order Flow Analysis, or what I call "Inventory Analysis" as a predictor of when Markets may end a trend, or pivot turn the trend, or hold support or resistance levels; all of which can be understood and well predicted when "Order Flow Analysis" is properly done.

The biggest issue is that "real Order Flow Analysis" is computationally, and memory-intensive. It is also "fractal" in the loose sense that Inventories are moving Net Long and Short dynamically, are are dependent upon the time width of the Analysis interval chosen.

First of all, I used to sell software which implemented this stuff; but I no longer sell it. I don't mind, however, describing the rough algorithmic basis for calculation of "useful Order Flow Analysis" in case some of you are smart enough, and skilled enough to implement it.

Yes, "Order Flow Analysis" is useful; and what does it tell you? It tells you whether Market Maker (considered on aggregate) is net Long or Short against the Retail population (both small and large retail institutional traders, who are NOT Market Makers) and that is an interesting piece of information. BUT... it is by no means that useful in predicting a pause, reversal or continuation of a Trend.

The real money is in a further refinement called "Inventory Risk Analysis" which, in a nutshell, is telling you whether the Inventory is Long or Short, sure, that's informative; but much more important is "whether Market Maker is in the money, or is losing money on the current Inventory, on the current Timeframe" since everything in trading is "timeframe dependent".

Consider that "major swings of the market" represent Accumulation and Distribution periods, during which Market Maker (MM for short) is doing "Accumulation" against the Retail players, and perhaps doing that with a steady down-trend; or whether in a "Distribution phase" usually associated with an up-trend in Pricing. Anyway, if it were the case, that major trend changes occurred over, say, 2 hour cycles, then you'd want to Evaluate your Inventory over roughly a 2 hour period in order to appreciate MM's Inventory situation, assuming that you wanted to trade also on roughly that timeframe.

COST BASIS. For MM's Inventory, which is determined over a calculation of "all trades" which occur over the interval of interest, we need to first establish an estimate of COST BASIS. If MM is "Long", meaning that more Retail Selling is occurring than Retail Buying so that MM is holding Inventory which she wants to Sell off at a Higher price, then we want to know the Cost Basis price for the "Net Long Inventory". That is done by starting with "the Lowest Price Retail Sale Trade (MM is a Buyer)" and searching for a "matching Retail Buy Trade (MM is the Seller)" which is at least 1 Tick higher. Inventory which was Bought by MM; let's say 1 Contract, to Sally the (Retail) Seller; can be matched with 1 Contract Sold by MM, say to Billy the (Retail) Buyer; at a minimum of 1 Tick or more profit.

The preceding operation "neutralizes the single contract which Sally sold to MM and which Billy bought from MM at least 1 Tick higher". So that single contract "disappears" from Total Inventory. It is a special case, most likely of "a spread trade" in which Market Maker (MM) is able to profit on the Bid/Ask spread, where there is no Retail opportunity for profit.

So, proceeding from the Lowest price MM-Buy trade, we search upwards for MM-Sell trade(s) which "neutralize" that volume. We eliminate the entire MM-Buy trade, and we deduct from the MM-Sell trades, the Contract volumes which are "matching". If an MM-Sell trade volume goes to zero, of course, that means that MM-Sell trade effectively disappears and has been "neutralized" or "removed from this Inventory evaluation" due to matching volumes.

TRYING TO STAY out of the weeds here; let's just say we do this until we have processed and eliminated MM-Buy trades (the ones generated from Retail Sell transactions) by finding matching MM-Sell volume at a higher price. BUT THEN WE FIND THAT we have a bunch of MM-Buy trades WHICH DO NOT YET HAVE matching MM-Sell trades. So, we have a bunch of "pure MM-Buy transactions" which have yet to find any matching MM-Sells at a higher Price. THIS IS MM'S NET "LONG" INVENTORY and the Volume Weighted Average of this collection of MM-Buy trades can be taken as the COST BASIS for MM's LONG position (against the Retail Market) and so then.....

...THEN WE KNOW THE COST BASIS PRICE which MM must achieve in order to Profit on this collection of LONG inventory. If the Current Market Price is below which COST BASIS, then I say that MM is "In Long Risk" or, in plain terms, "is losing money" on her LONG inventory, at this moment, over the timeframe of evaluation.

TO AVOID YOUR UNDERSTANDABLE REACTION "tldr;" (Too Long, Didn't Read) LOL ... This means that when MM is "in Long Risk" then she will be reluctant to deviate "too far below" her Cost Basis, which is a very Dynamic calculation.

Obviously, the inverse operation would be used in order to evaluate a situation in which MM had an excess "Short" Inventory, and when that Cost Basis is calculated, then any Current Market Price above that price level, would result in "Short Risk" resulting in a reluctance to raise the Price much further, as "Short Risk" (just like Long Risk) means that MM is actually "losing money" at that moment in time, on aggregate.

TO END THIS DISCUSSION, this process of extending Order Flow Analysis into yielding a Risk Evaluation; is the only way I know to predict when a Market Price will be "reluctant" to proceed further into Risk; and often signals a Market Reversal.

DISCLAIMER AND APPRECIATING THE SCALE OF MM'S ACTIVITIES. We can measure a particular market over time, by experience, and appreciate just how much Risk MM wishes to, or is willing to, take; before deciding to "reverse a trend direction" or proceed in the same direction. Knowing the Total Net Inventory in contracts, say, and its Cost Basis, we can then literally estimate (pseudo-calculate) Market Maker's total Risk in actual Units of Currency. In a Market such as ES, we might see Risk levels in the hundreds of thousands or even low millions of USD. These levels of Risk are, however, just "business as usual" for the Market Makers in such a highly liquid market.

MARKET MAKERS HAVE DEEP POCKETS. Markets are Dynamic and they show "sawtooth" behaviors on multiple "fractal-like" timeframes, precisely because MM's strategy is to use Retail Trade Volume in order to "take a Long position against Retail Players, and temporarily dip into Long Risk" and then reverse, so that she can then swing the other way and "take a Short position against Retail Players, and temporarily dip into Short Risk" as part of the game.

In my view, this is the best and only way to truly use "Order Flow Analysis" or what I call "Inventory and Risk Analysis" to predict when a Trend may come to an end, and show some pullback, or reversal, perhaps at some of the Support and Resistance levels. These, of course, are what I call "volume inflection points" so we can expect them to be violated. But WHETHER A SUPPORT LEVEL BREAKS is almost totally controlled by the RISK ENVIRONMENT which exists at that moment in time, over a significant Inventory Timeframe.

SO THAT IS MY WAY OF THINKING ABOUT, AND CALCULATING Order Flow, which means "Inventory and Risk Analysis" and is my "Commitment of Traders" (COT) evaluation method in real time. Comments welcome; but you can appreciate how complex and how dynamic "real" (in my view) Order Flow Analysis needs to deal with the Time and Sales tape; in order to be of significant value in trading.

[EDIT] An equally useful pairing with Inventory Analysis is Depth of Market (aka "Book") Analysis to determine Market Price direction. DOM Analysis and Inventory Analysis taken together can provide a day trader with useful information, so maybe we can discuss somewhere else how the DOM introduces concepts useful in prediction.

hyperscalper

How are you categorizing what is a market maker's order or what isn't? Do you mean to say limit orders vs market orders? How do you match if someone say enters with two orders and exits eighth one? How do you match orders up at that point? Otherwise it would basically just be cumulative delta right?

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 hyperscalper 
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TWDsje View Post
How are you categorizing what is a market maker's order or what isn't? Do you mean to saw limit orders vs market orders? How do you match if someone say enters with two orders and exits eighth one? How do you match orders up at that point? Otherwise it would basically just be cumulative delta right?

By my definition a Market Maker is the entity which Buys the BID price, to which a Retail player Sells;
and Sells the ASK price, from which a Retail player Buys. The MM never "pays retail" but is the Market
Maker, while all other players (large or small) are Market Takers and are subject to the Bid/Ask price
penalty, that's all...

So a trade on the Time and Sales "tape" at the BID is a Market Maker "accumulation" from a Retail Seller,
while a trade at the ASK is a Market Maker "distribution" to a Retail Buyer.

Those are my criteria for categorizing events.

Regardless of whether a Retail player uses a Market Order or uses a Limit Order; to be "Retail" s/he is
suffering the Bid/Ask penalty. On some "unusual exchanges" so-called "retail" players are allowed
to place Bids and Offers on the Market Depth Book. For our purposes, that converts these guys
into "mini Market Makers" (in a very limited way),
but they are not the large entities to whom the term Market Maker largely applies.

Generally when a Retail player uses a Limit Order, that is converted to a Market order at the
moment of execution. S/he does not "make the bid-ask" but is forced to "pay the bid-ask" penalty.

[EDIT] Any trader or Market Maker who has genuine access to place orders on "the
Order Book" will also be in competition with other Market Makers who "jockey for position"
on the Order Book on the Price-specific FIFO queue. If a Market Maker "pulls" his Bid or
Offer which is placed on the Primary Book on which the Matching Engine operates,
then that MM is penalized, and loses her place on the Book in the FIFO queue as the
first one entitled to execution at that price level, against Retail players. This is what
makes the Depth of Market or "the Book" interesting as a possible predictor, but that's
another topic entirely. Unless I'm wrong, please let me know.

[EDIT] The term "Order Flow" is misleading; what I really mean is "Trade Flow" since
only Executions (Time & Sales) count toward the Inventory Analysis which I use.
Order Flow, in the
sense of Bids or Offers on the Order Book which DO NOT execute, have a different
role in giving us insight into where Market Maker intends to forcibly move the market
price. Hope that helps?...

hyperscalper

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hyperscalper View Post
By my definition a Market Maker is the entity which Buys the BID price, to which a Retail player Sells;
and Sells the ASK price, from which a Retail player Buys. The MM never "pays retail" but is the Market
Maker, while all other players (large or small) are Market Takers and are subject to the Bid/Ask price
penalty, that's all...

So a trade on the Time and Sales "tape" at the BID is a Market Maker "accumulation" from a Retail Seller,
while a trade at the ASK is a Market Maker "distribution" to a Retail Buyer.

Those are my criteria for categorizing events.

Regardless of whether a Retail player uses a Market Order or uses a Limit Order; to be "Retail" s/he is
suffering the Bid/Ask penalty. On some "unusual exchanges" so-called "retail" players are allowed
to place Bids and Offers on the Market Depth Book. For our purposes, that converts these guys
into "mini Market Makers" (in a very limited way),
but they are not the large entities to whom the term Market Maker largely applies.

Generally when a Retail player uses a Limit Order, that is converted to a Market order at the
moment of execution. S/he does not "make the bid-ask" but is forced to "pay the bid-ask" penalty.

[EDIT] Any trader or Market Maker who has genuine access to place orders on "the
Order Book" will also be in competition with other Market Makers who "jockey for position"
on the Order Book on the Price-specific FIFO queue. If a Market Maker "pulls" his Bid or
Offer which is placed on the Primary Book on which the Matching Engine operates,
then that MM is penalized, and loses her place on the Book in the FIFO queue as the
first one entitled to execution at that price level, against Retail players. This is what
makes the Depth of Market or "the Book" interesting as a possible predictor, but that's
another topic entirely. Unless I'm wrong, please let me know.

[EDIT] The term "Order Flow" is misleading; what I really mean is "Trade Flow" since
only Executions (Time & Sales) count toward the Inventory Analysis which I use.
Order Flow, in the
sense of Bids or Offers on the Order Book which DO NOT execute, have a different
role in giving us insight into where Market Maker intends to forcibly move the market
price. Hope that helps?...

hyperscalper

Ok that makes sense and answers one part of my question. The second part had to deal with how do you match orders up. If you are just adding and subtracting all the orders that hit then you basically get cumulative delta. But it sounds like you're looking for the lot size to match up exactly? So if mm bought 10 at one level and sold two 5's at another level since the size didn't match up you'd still say there's 10 net long and 10 net short?

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 forgiven 
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there have been some very good post on order flow concepts. however most traders me included would never be able to master the advanced concepts. give us some thing easier. when the market opens the market makers will have retail and institutional orders . depending on the size and where the orders come from they will short them or add to them with there own inventory . tell us how to tell with out a masters in math ..

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 hyperscalper 
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TWDsje View Post
Ok that makes sense and answers one part of my question. The second part had to deal with how do you match orders up. If you are just adding and subtracting all the orders that hit then you basically get cumulative delta. But it sounds lidke you're looking for the lot size to match up exactly? So if mm bought 10 at one level and sold two 5's at another level since the size didn't match up you'd still say there's 10 net long and 10 net short?

OK, I'll try to explain this without going into code. So you are retaining a record of ALL trades which cross the Time and Sales, and you are of course able to categorize them from some original sequential trade list, into 2 lists, the MM-Buy list (Retail sales to the BID) and the MM-Sell list.

All of these items are, of couse, timestamped but in calculating Buy/Sell volume pairings, the time order is not important since you can clearly Buy, then Sell; or Sell, then Buy and so Inventory Evaluation is not done in time sequence. However, it is ALWAYS done with a particular Timeframe subset of the action, for example, all Trades for the past hour.

Once you have these 2 lists for the past Hour, all within the same time range, you'll need to make a determination whether there is more MM-Buy activity than Sell activity; and decide to call the Inventory "Net Long" or whether the opposite is true, so you call the Inventory "Net Short". Having made this determination, then...

...if "Net Long", then Sort both lists lowest to highest price; and if "Net Short", then Sort the lists highest to lowest price.

Then we have to do "matching" of any MM-Buy volume, and eliminate it, by finding MM-Sell volume at a higher Price. From the MM-Sell entries, most of the time, we'll be able to find enough Volume to match each MM-Buy volume entry, with 1 or more MM-Sell entries at the higher Price levels. The current MM-Buy entry then has its volume set to zero (meaning it is eliminated from open Inventory) and the MM-Sell entries which gave up all or portions of their volumes are also reduced in volume, or set to zero volume by giving up all of their Matching volume in compensating for the MM-Buy entry.

Thus, for "Long" inventory, we work from Lowest to Highest Price, matching EVERY MM-Buy volume unit, with corresponding MM-Sell volume at the next higher price. So, simplistically, an MM-Buy of 1 unit is compensated for by an MM-Sell entry of 2 units. The MM-Buy entry is eliminated from active Inventory (profit is taken) and the MM-Sell entry has 1 unit subtracted from its volume entry.

We work on every MM-Buy, matching MM-Sell volume until we have no more MM-Buy entries, or we run out of matching MM-Sell entries, of course. WHAT REMAINS are "pure" MM-Buy transactions which DO NOT YET HAVE matching MM-Sell volume at a higher price. This is PURE LONG INVENTORY, which has been bought from Retail Sellers, but which remains to be sold off at a higher price.

The Volume Weighted Average price of this "pure" MM-Buy inventory is the Cost Basis or "Price Break Even" for Open Inventory. (The inventory which disappeared during the matching process is Closed Inventory or profit-taking, and so it must be taken out of the remaining Open Inventory).

So the Current Market price, as compared with the Cost Basis for LONG Inventory positions, determines whether MM is making a profit or a loss on her current Open Inventory of "pure" Long Inventory items after this process of evaluation has taken place, over the specified timeframe we said 1 hour.

Obviously, you can evaluate this for ANY timeframe, and you'll find different results; or you can do them for a number of representative timeframes, at the same time, in order to have a "multi timeframe Inventory Status" which shows the Open Interest (Open Inventory), its Price Break Even (Cost Basis) and then calculates an estimate of what I call "Risk" which is Current Price versus Cost Basis. That, multiplied by Net Open Inventory volume, can give you a $$$ measure of just how much "Risk" is being experienced by Market Maker, on this timeframe, at this current time.

Tedious, yes. But this is roughly the way in which Inventory can be analyzed to yield useful results, over specific Timeframes, based on actual Trades over the Time and Sales.

Let's say MM has 10,000 contracts Long and would love to sell them off. Will MM then raise the Price in order to stimulate Retail Buyers, to whom she can sell these contracts??? Not necessarily. She has a Long position, sure, and it seems like a lot of contracts !!! But Market Maker operates at scale.

WHAT REALLY MATTERS is when those 10,000 net Long contracts' Cost Basis is 10 Ticks above the Current Market Price, so she is "losing money on paper" temporarily. Now, we know this is all "part of the game" and that these "Risks" are not really risky, provided that Market Maker can simply raise Price and get out of "Risk" and into "Profit" quite easily.

But RISK (losses on paper) are not a situation which MM prefers, so there is a strong motivation to reduce that RISK level or control it.

This is a DYNAMIC situation, as you can appreciate. There are several ways MM may be able to shift Cost Basis and control Risk, in addition to modifying the Inventory mix. This is why any simplistic Analysis is inadequate.

Hope this gives some idea of the calculations which could be done to evaluate Inventory and "Risk" meaningfully, so that we could use this "situational awareness" and factor it into our trade decisions. So, if we are at a "Support" level (is that a real concept?) then if we are strongly into "Long Risk" we predict that the Support may appear
to break, but it is far more likely to hold.

I'm sure you can work out the Short Inventory evaluation methodology, since it is just the opposite of Long inventory.

[EDIT] Imagine if you find that MM is in $100,000 Risk (small, unrealistic, but for example) so, dang, but consider that in your matching process (every Buy/Sell volume match generates revenue) and maybe that Revenue is $150,000 that has gone into her ample pocket !! So
this "dynamic" situation can be seen to be even slightly more dynamic, since Revenue has compensated for Risk losses on paper, at least at this point in time. She's making high Revenues, so maybe the Risks are not immediately a big deal... LOL Revenue could be characterized as $$ per minute of the entire Timeframe Interval, for example. $150k/60= rev. per minute? Rate of getting Rich for aggregated MM in this situation ! lol of course these are estimates...

[EDIT] So, I ask "Why are support and resistance price levels so important?" one reason is that they generate a trading battle, and generate... wait for it... MORE REVENUE to MM. She loves to linger there for a while ! LOL

[EDIT] At this time, it looks like ES is trading at around $25,000 per minute Revenue, but I didn't see how to post the image.

hyperscalper

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  #122 (permalink)
 fivewhy 
Fort Lauderdale, Florida, USA
 
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hyperscalper View Post
Regardless of whether a Retail player uses a Market Order or uses a Limit Order; to be "Retail" s/he is
suffering the Bid/Ask penalty. On some "unusual exchanges" so-called "retail" players are allowed
to place Bids and Offers on the Market Depth Book.
For our purposes, that converts these guys
into "mini Market Makers" (in a very limited way), but they are not the large entities to whom the term Market Maker largely applies.

Generally when a Retail player uses a Limit Order, that is converted to a Market order at the
moment of execution.
S/he does not "make the bid-ask" but is forced to "pay the bid-ask" penalty.

I came into this conversation late, maybe I am missing something; apologies if I am.

But what "unusual exchanges" are you referring to? Bc what you've described is precisely what a retail trader can do on the CME...place resting orders on the order book (referred to as limit orders) and not pay the spread. Now, some products have weird rules for order matching (e.g., pro rata, lead mm) but I believe stock index futures are pure unadulterated FIFO matching...someone correct me if I'm wrong. But that's beside the point anyway.

The point is, retail traders can place resting orders on the books at, for example, the CME and I would not call the CME an "unusual exchange." And limit orders are definitely not converted to market orders, even when the limit order is placed by a retail trader on the CME. This is precisely the reason futures trading is ideal for order flow daytrading.

I think your statements are correct only as applied to forex trading, not futures.

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 hyperscalper 
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fivewhy View Post
I came into this conversation late, maybe I am missing something; apologies if I am.

But what "unusual exchanges" are you referring to? Bc what you've described is precisely what a retail trader can do on the CME...place resting orders on the order book (referred to as limit orders) and not pay the spread. Now, some products have weird rules for order matching (e.g., pro rata, lead mm) but I believe stock index futures are pure unadulterated FIFO matching...someone correct me if I'm wrong. But that's beside the point anyway.

The point is, retail traders can place resting orders on the books at, for example, the CME and I would not call the CME an "unusual exchange." And limit orders are definitely not converted to market orders, even when the limit order is placed by a retail trader on the CME. This is precisely the reason futures trading is ideal for order flow daytrading.

I think your statements are correct only as applied to forex trading, not futures.

Hey, it's been a while since I've looked at Futures Order Execution and Placement, so I'll take your word for it. It's great that "ordinary traders" are able to be "makers" rather than "takers" and genuinely Bid or Offer on the Book with the same status as the dominant Market Makers. So they can make the Spread perhaps on at least one side of their round trip.

But I'd say that would have a negligible effect on the overall thrust of the Analysis, where Market Maker dominates and (almost) everyone else is a Retail player. Still, I take your point...

Why do you say that the ability to place Orders resting on the Book is what makes futures trading "ideal for order flow daytrading". How does that significantly improve the attractiveness or effectiveness of Order Flow based analysis, and... wait for it... what IS "Order Flow Daytrading" anyway? I ask this as a serious question.

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Kuuluud
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hyperscalper View Post
Hey, it's been a while since I've looked at Futures Order Execution and Placement, so I'll take your word for it. It's great that "ordinary traders" are able to be "makers" rather than "takers" and genuinely Bid or Offer on the Book with the same status as the dominant Market Makers. So they can make the Spread perhaps on at least one side of their round trip.

But I'd say that would have a negligible effect on the overall thrust of the Analysis, where Market Maker dominates and (almost) everyone else is a Retail player. Still, I take your point...

Why do you say that the ability to place Orders resting on the Book is what makes futures trading "ideal for order flow daytrading". How does that significantly improve the attractiveness or effectiveness of Order Flow based analysis, and... wait for it... what IS "Order Flow Daytrading" anyway? I ask this as a serious question.

hyperscalper

Take a look at article "From PIN to VPIN: An introduction to order flow toxicity" wrote by David Abad and Josť YagŁe. I think you will find it quite interesting.

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  #125 (permalink)
 fivewhy 
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hyperscalper View Post
Why do you say that the ability to place Orders resting on the Book is what makes futures trading "ideal for order flow daytrading". How does that significantly improve the attractiveness or effectiveness of Order Flow based analysis, and... wait for it... what IS "Order Flow Daytrading" anyway? I ask this as a serious question.

Well this is a deep question. Maybe check out threads on this forum and some YouTube vids that explain this better (e.g., jigsaw and no bs daytrading have some very old videos explaining the foundation underpinning order flow trading).

But here's my attempt:

I think futures markets are "ideal" for order flow trading because the liquidity and order flow (or what you referred to as trade flow, actual executed deals) is transparent and not hidden, and retail players have access to the full and complete order flow data. Because the data is full and complete, the order flow is relatively transparent. And I'm only talking about CME bc that's all I have experience with. Having said that, I do not mean the CME markets are perfectly transparent anymore than markets are perfectly efficient.

So, what do I mean by order flow trading? I mean watching passive and aggressive orders to see which side is gaining the upper hand within a given frame of context (context can be anything). There are infinite ways to measure order flow to try to suss out whether one side is outpacing the other. Futures products are traded on a centralized exchange and full "order flow" data (i.e., the passive and aggressive orders) is completely exposed to retail traders. I'm not saying big players don't have a data edge; I'm sure they do. But the retail trader is not knee-capped; he (or she) has access to full order flow data for a relatively cheap price.

Also, maybe check out this thread:

Meklon View Post
On a seriouse note...if you want REAL advice - here it is:

1. Introduce yourself to Market Profile (you don't need to become an expert)
2. Introduce yourself to Order Flow (you DO need to become an expert)
3. Learn to understand what moves market (hint - this is NOT news)
4. Understand market context and apply your understanding to recognize repeatable setups in the Order Flow (based on the context).
5. CONTROL your losses.

It WILL take time and you WILL need a mentor. But this is the ONLY way to become consistently profitable trader.


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 hyperscalper 
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fivewhy View Post
So, what do I mean by order flow trading? I mean watching passive and aggressive orders to see which side is gaining the upper hand within a given frame of context (context can be anything). There are infinite ways to measure order flow to try to suss out whether one side is outpacing the other. Futures products are traded on a centralized exchange and full "order flow" data (i.e., the passive and aggressive orders) is completely exposed to retail traders. I'm not saying big players don't have a data edge; I'm sure they do. But the retail trader is not knee-capped; he (or she) has access to full order flow data for a relatively cheap price.

I appreciate your attempt to explain Order Flow trading, but for my money, I want to calculate my odds in real time, and I'm a purely technical trader. I'm also cursed by developing my own indicators, and especially avoiding any indicator which is solely based on Price itself. So Price doesn't predict Price; although I'd concede that possibly "patterns of price" (whatever that means) could be predictive of future Price... 'nuff said.

For me, I want the data to "tell me" where the market is headed. And what I've called Inventory Analysis, which I tried to describe, is one piece of the puzzle; but it's more "situational awareness" than precisely telling me when/where a turn will happen; and what the dominant trend continues to be, even if Price isn't moving.

My only good candidate for continuous positive real time "Trend following" has got to be Analysis of the Market Depth in real time, or "the Book" as it's called. Here the Analysis is even more complex than I described for Inventory Analysis, since the DOM (Depth of Market) is an unbelievably dynamic critter.

I've done this a long time, and so I do have a feel for how it should be done. Without getting into too much detail, the DOM properly evaluated, will tell you where the Market is headed in the short term. That involves getting to grips with the concept of "spoofing" and understanding somewhat, that Market Maker on aggregate is in competition for favorable positioning on the FIFO execution queue. There is a disincentive for MM to pull a quote, given that she loses her place in the matching queue for that Price level. By being able to find a measurable correlate for this "reluctance" or "eagerness" to maintain a Quote, we can discern a "bias" which predicts short term market direction.

This is the kind of real time indicator I need, so DOM Bias combined with Inventory Analysis is my way of determining where the short term Market is moving. I allow the Market Makers to TELL ME where they're most eager to interact with the Retail players, and therefore, where they will be moving Price.

Most people, and I thought you did for a moment there, believe that Prices move because Retail players, Buyers or Sellers take control and cause it to move. I don't subscribe to that view; and believe that Market Maker moves prices, often on a predetermined plan; and of course uses Retail enthusiasm or liquidity to achieve her goals as Market Maker (on aggregate) always (by definition) trades against the entire Retail Market simultaneously.

Generally, her attitude is this: "Half of you Retail traders may get lucky and guess my medium to long term direction, so you can WIN; and the others will LOSE; but in the very short term, I will defeat the majority of you Retail traders, by denying you the Price movement you will need to profit, before I shake you out." ...or statements to that effect LOL For me, I have to "know" Market Maker's position; and then, of course, I seek to follow what I'd hope she can "tell me" by her behaviors, to predict the Price movement in the near future.

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 joe s 
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something to think about

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lightsun47
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Not sure if this has been discussed here before:

https://www.tradingschools.org/yet-another-futures-spoofer-is-busted/amp/

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 joe s 
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I like Trading Schools.Org website a lot of the company's on his site are selling product on the big webinars and are scammers
according to him

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 hyperscalper 
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hyperscalper View Post

For me, I want the data to "tell me" where the market is headed. And what I've called Inventory Analysis, which I tried to describe, is one piece of the puzzle; but it's more "situational awareness" than precisely telling me when/where a turn will happen; and what the dominant trend continues to be, even if Price isn't moving.

My only good candidate for continuous positive real time "Trend following" has got to be Analysis of the Market Depth in real time, or "the Book" as it's called. Here the Analysis is even more complex than I described for Inventory Analysis, since the DOM (Depth of Market) is an unbelievably dynamic critter.

I've done this a long time, and so I do have a feel for how it should be done. Without getting into too much detail, the DOM properly evaluated, will tell you where the Market is headed in the short term. That involves getting to grips with the concept of "spoofing" and understanding somewhat, that Market Maker on aggregate is in competition for favorable positioning on the FIFO execution queue. There is a disincentive for MM to pull a quote, given that she loses her place in the matching queue for that Price level. By being able to find a measurable correlate for this "reluctance" or "eagerness" to maintain a Quote, we can discern a "bias" which predicts short term market direction.

This is the kind of real time indicator I need, so DOM Bias combined with Inventory Analysis is my way of determining where the short term Market is moving. I allow the Market Makers to TELL ME where they're most eager to interact with the Retail players, and therefore, where they will be moving Price.

Most people, and I thought you did for a moment there, believe that Prices move because Retail players, Buyers or Sellers take control and cause it to move. I don't subscribe to that view; and believe that Market Maker moves prices, often on a predetermined plan; and of course uses Retail enthusiasm or liquidity to achieve her goals as Market Maker (on aggregate) always (by definition) trades against the entire Retail Market simultaneously.


hyperscalper

I'm quoting myself, and maybe just talking with myself. I've been away coding my little heart out; with both Inventory Analysis (an easy problem already solved) but, more importantly, as I've alluded to, Market Depth Trend analysis. I'm not offering out any code, so don't worry. I am happy to discuss the major Principles and techniques used in the analysis, for those happy coders who think they might approximate, or even improve my results.

Using the ATAS platform C# I coded a data capture (from the rithmic unfiltered feed) and local transfer via interprocess communication, to a monstrous Java analyzer. This captures the Futures Depth of Market 30 Ticks on both sides of the DOM, about 10 times per second. Intervening events (inside the 100 msecs) also examines any minimum observable sizes, and merges those sizes into the DOM snapshot, if any QuoteSize@Price is the minimum at that price. (Hint: detecting the minimum, over a window of time, at a Price, is a key part of the prediction.) We all have some idea of what Spoofing is.

So, we stream that into a Java based analyzer which focuses on ONE single symbol/security. We're doing ES, and NQ mainly.

What we find is that we can dynamically predict the turning points of the market; and also the sustained longer term trending. NQ is the real prize here, since it's got "moves like Jagger" and so being able to "surf scalp" NQ (or MNQ) would be the big money maker. ES, on the other hand, is more liquid, staid, but still quite well predicted.

Just to say again that Market Depth Analysis is possible; but it is a Herculean task, and requires a massive focus on the key principles being measured as predictors, and is an implementation problem requiring a high degree of skill in multi-threaded object oriented coding in C#, Java or similar language. ATAS has been used initially, but this could be implemented on Ninja Trader, although I don't have time to do that, so long as I can stick with ATAS for the time being.

[EDIT] I just want to make it clear I'm not selling or leasing the Java analysis code, but have discussed with a couple of you, some of the principles. So we have a data capture process on the ATAS side, and then a separate analyzer. I'm not trying to make a buck by selling software, since I hate supporting it. If you want a deep dive into the logic of the analysis, you might have to buy me a coffee, so to speak.

hyperscalper

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  #131 (permalink)
 Kiks 
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hyperscalper View Post
ORDER FLOW ANALYSIS, my experience.

[EDIT] An equally useful pairing with Inventory Analysis is Depth of Market (aka "Book") Analysis to determine Market Price direction. DOM Analysis and Inventory Analysis taken together can provide a day trader with useful information, so maybe we can discuss somewhere else how the DOM introduces concepts useful in prediction.

hyperscalper


Very clear. Great post. Thank you hyperscalper!

Now that we know, based on repetition of how far an MM would take her SHORT RISK or LONG RISK before reversing, how do we then use DOM Analysis to determine Market Price direction? Or, to always stay ahead of the MM, do we just exit at the established COST BASIS?

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 hyperscalper 
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Kiks View Post
Very clear. Great post. Thank you hyperscalper!

Now that we know, based on repetition of how far an MM would take her SHORT RISK or LONG RISK before reversing, how do we then use DOM Analysis to determine Market Price direction? Or, to always stay ahead of the MM, do we just exit at the established COST BASIS?

Well, despite how proud I am of this idea, it falls into the category of "situational awareness" in the sense that if you know that on a significant Inventory evaluation timeframe, say 2, 3, 4 hours, that MM is carrying an estimated shyteload of unresolved contracts and, what's more, that She is an estimated 20 ticks under her Long Price Break even on those significant timeframes; well, then we know that Support points will generally hold.

Being underwater with Inventory, either what I call "Long Risk" or "Short Risk" is a very important thing to understand. Although MM enthusiastically takes on Risk, and in some Markets, what we would consider to be Huge Risk levels, it is not generally the case that this tells you when the market will turn.

However, on shorter timeframes, with Inventory intervals of say, the last 5 minutes or so; in "choppy" markets, you can predict that they will alternate between Long Risk and Short Risk fairly predictably. But, in general, this is more of a situational awareness factor.

What really tells you where the market is going? Well, as I've said before, the Holy Grail of technical analysis is evaluating the "chaos" which is the "dynamic Depth of Market" (aka DOM) where Quotes are placed, and MM's participate among themselves to see which one will be at the front of the FIFO execution queue in the matching engine which is the exchange.

Here we are looking for correlates to concepts like 1) "MM's interest in interacting with the Retail Market", 2) the concept of "spoofing" to confuse DOM "readers" and 3) a strong or weak interest in maintaining size quoted at particular Price levels, and so on. How well you can develop measures of MM's "interest" in transacting with the Retail traders, is generally speaking, how determined MM is to maintain size which will "pull" the Market into that size, with MM being at the front of that Price's FIFO queue for maximum advantage.

There is competition amongst MM's and it's a real "cat fight". You might evaluate variability of sizes as a possible correlate of that competition; but your real and most basic measure is the "minimum" size which you are observing at a specific Price. Why the minimum? Because if MM really wants to interact with the Retail Traders, in competition with her Sisters, then she will get there early, and she will not pull her quotes, lest She lose her FIFO positioning advantage.

Find a great correlate or "proxy" to measure that Level of interest; and you will know the Market is coming in that direction. SHE'S WAITING FOR YOU. LOL

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 hyperscalper 
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DOM ANALYSIS requires some fast processing
Case in point, ES and some discussion of NQ futures

Just to give you a rough idea of how difficult Depth of Market Analysis can be,
from an implementation standpoint, on the ES contract, I'm seeing as high as
500 callback events PER SECOND coming in as Market Depth changes, in a
C# Indicator callback routine. So you got a couple of milliseconds on some of
the peak data rates to do something, anything to capture the data.

This is with an ATAS platform, and Rithmic feed and Order Routing; sitting on
a dedicated server in a data center. Just to give you an idea of the challenges
you would face. Basically, it's not achievable by traders, and I'd advise not
to even try; unless, of course, you are one of "those driven traders" who gets
his/her kicks out of trying to "tame the Beast". Just sayin'...

The Dynamic nature of the DOM should be apparent from just looking at it,
but in NQ in particular, the Spoofing activity reaches its peak to completely
confuse traders. I'd post a picture if I knew how... It's an eye-opener...

Entire sides of the DOM consist of "mega spoofing", the minimum values of which
are SINGLE CONTRACTS on the DOM. But, visually, you'd probably think there
was balanced size on both sides... don't be naive; of course you're not naive...

For me, the real prize as I've said before is to master NQ's "take no prisoners"
approach to Price movement. Quite insane, but certain fundamental aspects
of it are actually predictable. I just observed the "distant or far DOM bias" remain
elevated for 10 minutes prior to a 160 TICK Rally in NQ. So, as I said, and I
can't offer you software; but the concept involved maybe; if you can "tame the
DOM Beast" then there would be riches to be had... There's Gold in them thar Hills,
but to get it out may be near impossible, so don't take such a task lightly; and
in fact, don't even try it. Just sayin'... once again.

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lightsun47
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^That essay split into two line poems you wrote gave me a headache.

Anyways, I have been reading and following your comments here. What exactly are you trying to offer?

Any legit, concrete help or just loosely keep saying 'my code can do X,Y,Z', 'I am not sharing / selling secrets' and 'you guys should just stay away from being in reverse trends'.

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 hyperscalper 
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lightsun47 View Post
^That essay split into two line poems you wrote gave me a headache.

Anyways, I have been reading and following your comments here. What exactly are you trying to offer?

Any legit, concrete help or just loosely keep saying 'my code can do X,Y,Z', 'I am not sharing / selling secrets' and 'you guys should just stay away from being in reverse trends'.

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That would be possibly an uncharitable observation. These forums are full of speculation and
so I just got hooked in on a couple of topics near and dear to my heart, since I've researched
and coded for a long time in this area. The first was Order Flow which, to me, specifically
is Tape Analysis or Trade Flow; what I call Inventory Analysis.

The other is literally Order Flow, in the sense of unfilled Orders, Bids and Offers which appear
on the Level 2 or Depth of Market. I feel that Inventory Analysis is not very well understood
or supported by platforms; but it is certainly the case that Order Flow, specifically the
Depth of Market or Level 2 Analysis is an absolute mystery; so why do the platforms even
present that data to traders.

Platforms make a token, half-hearted attempt to characterize the Time and Sales in chunks,
maybe inside a candle interval, they'll display some cumulative size. But, to me, all of that
really misses the Big Picture that Market Maker is trading over Inventories which are many
hours in accumulation, and that unless you make a stab at evaluating MM's "estimated position"
or "stance" in the market relative to the Retail players; then you don't really have a hope
of understanding the very dynamic Inventory (Time and Sales) impact.

And, as I said before, the area of "eyeballing the Level 2" or the Book, or Market Depth; again
it seems nobody really has a handle on how to do that effectively.

So, just because I ain't selling my own "rats nest of hacked software" to clients, or appear
to be pontificating on the possibly valid principles of both these areas Inventory and DOM
Analysis; doesn't mean that in a forum like this, it won't stimulate some of you to look
deeper, and we can at least discuss.

Forums are about discussions of concepts, in part at least, and so why not my discussion
of 2 areas I've spent over a decade working on? I don't have anything to gain from it,
and it quickly becomes a waste of my time; but why not at least dive into some of the
ideas... ? That's my story, and I'll stick to it for now... lol

[edit] It just occurs to me that, to avoid confusion, let's call them 1) filled orders flow
(the Tape or Time and Sales, Trade Flow),
and 2) unfilled orders flow (Depth of Market, pure MM Orders) which might make it clearer.

hyperscalper

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lightsun47
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So when you say hours of accumulation, you mean those are iceberg orders?

Speaking of which, I have already asked about an iceberg order detector indicator in the other thread by Ninja Cators, but no one has experience with it yet it seems.

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successforum
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Orderflow is the heart of my trading strategy. I know some people dismiss it. It requires focus and learning. Once you learn how to read a chart correctly you can't unlearn it. However I understand that some traders find it confusing.

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 hyperscalper 
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successforum View Post
Orderflow is the heart of my trading strategy. I know some people dismiss it. It requires focus and learning. Once you learn how to read a chart correctly you can't unlearn it. However I understand that some traders find it confusing.

I'm a little confused. You can "once you learn how to read a chart" normally means looking at Price Action; unless you have a way of charting Order Flow.

And my main point above was to say that neither the Tape (Trade Flow) or The Book (Orders Flow) are able to be properly read by just looking at them...

I've been digging into it with the ATAS platform; hacking lots of C#. I found that with a Rithmic incoming feed, we could see 40 DOM levels both on the Offer side; and on the Bid side... Looking at "the near DOM" and the "far DOM" I think that market direction can be predicted.

Anyway, so ATAS turns out to be such an unsupported platform, and so I had to abandon it, in favor of Ninja Trader 8. It was a real nightmare to translate the Indicator code from ATAS' framework to NinjaTrader 8. Like 24 hours of constant hacking. But I did it.

Now I can push it further, and plan to stay with the Rithmic feed. We saw event frequencies (averaged over 1 minute) in the range of 500-800 DOM updates per second and, as I said, Rithmic provides at least 40 ticks of DOM tiers above, and also below the market.

Whereas ATAS was a constant guessing game with poor documentation; Ninja Trader has fabulous documentation, making things a whole lot easier.

I not only had to abandon the platform, but also the broker; in order to get Ninja Trader, which would be the only platform with any hope of hosting the C# code.

So, back on track again. Trading is a long, arduous journey with an uncertain destination

hyperscalper

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successforum
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I think we have all been on the same journey. I used to believe that simply trading moving average crossovers would make me money. Today, I use a combination of Volume, price, orderflow and market profile. My results are fairly consistent, always looking to improve. I do find trying to read the DOM totally confusing the numbers are moving so fast, its tough making sense of what really going on.

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successforum
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What would guys recommend for order-flow trading?

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 datahogg 
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hyperscalper View Post
OK, I'll try to explain this without going into code. So you are retaining a record of ALL trades which cross the Time and Sales, and you are of course able to categorize them from some original sequential trade list, into 2 lists, the MM-Buy list (Retail sales to the BID) and the MM-Sell list.

All of these items are, of couse, timestamped but in calculating Buy/Sell volume pairings, the time order is not important since you can clearly Buy, then Sell; or Sell, then Buy and so Inventory Evaluation is not done in time sequence. However, it is ALWAYS done with a particular Timeframe subset of the action, for example, all Trades for the past hour.

Once you have these 2 lists for the past Hour, all within the same time range, you'll need to make a determination whether there is more MM-Buy activity than Sell activity; and decide to call the Inventory "Net Long" or whether the opposite is true, so you call the Inventory "Net Short". Having made this determination, then...

...if "Net Long", then Sort both lists lowest to highest price; and if "Net Short", then Sort the lists highest to lowest price.

Then we have to do "matching" of any MM-Buy volume, and eliminate it, by finding MM-Sell volume at a higher Price. From the MM-Sell entries, most of the time, we'll be able to find enough Volume to match each MM-Buy volume entry, with 1 or more MM-Sell entries at the higher Price levels. The current MM-Buy entry then has its volume set to zero (meaning it is eliminated from open Inventory) and the MM-Sell entries which gave up all or portions of their volumes are also reduced in volume, or set to zero volume by giving up all of their Matching volume in compensating for the MM-Buy entry.

Thus, for "Long" inventory, we work from Lowest to Highest Price, matching EVERY MM-Buy volume unit, with corresponding MM-Sell volume at the next higher price. So, simplistically, an MM-Buy of 1 unit is compensated for by an MM-Sell entry of 2 units. The MM-Buy entry is eliminated from active Inventory (profit is taken) and the MM-Sell entry has 1 unit subtracted from its volume entry.

We work on every MM-Buy, matching MM-Sell volume until we have no more MM-Buy entries, or we run out of matching MM-Sell entries, of course. WHAT REMAINS are "pure" MM-Buy transactions which DO NOT YET HAVE matching MM-Sell volume at a higher price. This is PURE LONG INVENTORY, which has been bought from Retail Sellers, but which remains to be sold off at a higher price.

The Volume Weighted Average price of this "pure" MM-Buy inventory is the Cost Basis or "Price Break Even" for Open Inventory. (The inventory which disappeared during the matching process is Closed Inventory or profit-taking, and so it must be taken out of the remaining Open Inventory).

So the Current Market price, as compared with the Cost Basis for LONG Inventory positions, determines whether MM is making a profit or a loss on her current Open Inventory of "pure" Long Inventory items after this process of evaluation has taken place, over the specified timeframe we said 1 hour.

Obviously, you can evaluate this for ANY timeframe, and you'll find different results; or you can do them for a number of representative timeframes, at the same time, in order to have a "multi timeframe Inventory Status" which shows the Open Interest (Open Inventory), its Price Break Even (Cost Basis) and then calculates an estimate of what I call "Risk" which is Current Price versus Cost Basis. That, multiplied by Net Open Inventory volume, can give you a $$$ measure of just how much "Risk" is being experienced by Market Maker, on this timeframe, at this current time.

Tedious, yes. But this is roughly the way in which Inventory can be analyzed to yield useful results, over specific Timeframes, based on actual Trades over the Time and Sales.

Let's say MM has 10,000 contracts Long and would love to sell them off. Will MM then raise the Price in order to stimulate Retail Buyers, to whom she can sell these contracts??? Not necessarily. She has a Long position, sure, and it seems like a lot of contracts !!! But Market Maker operates at scale.

WHAT REALLY MATTERS is when those 10,000 net Long contracts' Cost Basis is 10 Ticks above the Current Market Price, so she is "losing money on paper" temporarily. Now, we know this is all "part of the game" and that these "Risks" are not really risky, provided that Market Maker can simply raise Price and get out of "Risk" and into "Profit" quite easily.

But RISK (losses on paper) are not a situation which MM prefers, so there is a strong motivation to reduce that RISK level or control it.

This is a DYNAMIC situation, as you can appreciate. There are several ways MM may be able to shift Cost Basis and control Risk, in addition to modifying the Inventory mix. This is why any simplistic Analysis is inadequate.

Hope this gives some idea of the calculations which could be done to evaluate Inventory and "Risk" meaningfully, so that we could use this "situational awareness" and factor it into our trade decisions. So, if we are at a "Support" level (is that a real concept?) then if we are strongly into "Long Risk" we predict that the Support may appear
to break, but it is far more likely to hold.

I'm sure you can work out the Short Inventory evaluation methodology, since it is just the opposite of Long inventory.

[EDIT] Imagine if you find that MM is in $100,000 Risk (small, unrealistic, but for example) so, dang, but consider that in your matching process (every Buy/Sell volume match generates revenue) and maybe that Revenue is $150,000 that has gone into her ample pocket !! So
this "dynamic" situation can be seen to be even slightly more dynamic, since Revenue has compensated for Risk losses on paper, at least at this point in time. She's making high Revenues, so maybe the Risks are not immediately a big deal... LOL Revenue could be characterized as $$ per minute of the entire Timeframe Interval, for example. $150k/60= rev. per minute? Rate of getting Rich for aggregated MM in this situation ! lol of course these are estimates...

[EDIT] So, I ask "Why are support and resistance price levels so important?" one reason is that they generate a trading battle, and generate... wait for it... MORE REVENUE to MM. She loves to linger there for a while ! LOL

[EDIT] At this time, it looks like ES is trading at around $25,000 per minute Revenue, but I didn't see how to post the image.

hyperscalper

If an answer gets to be very complicated, it is usually wrong. The simple answer is usually the correct one.

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 hyperscalper 
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datahogg View Post
If an answer gets to be very complicated, it is usually wrong. The simple answer is usually the correct one.


All due respect, Sir; but that is very wrong, although it may be comforting for you to think that simplicity is the answer.

hyperscalper

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 TropicalTrader 
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Here's how I define and utilize "order flow"




>"Footy" with the profile on the left chart & bid vs ask on the right. (Shows volume at price)

This view I call my lower timeframe and its very helpful. (I use 3 timeframes: daily market profiles + "my trading time frame": renko bricks + "LTF")

>Nuggets:

*The white line is the point of control (most volume in that footprint).

*The black lines are the highest volume, lighter color = less volume.

*Sometimes you can see absorption which is sometimes a temporary top or bottom. Using numbers footy you see price moving up then plateauing, there's a 0X300 bid/ask at 3361.25 for example, and then price goes down a few ticks, comes back up for another test and then it changes to a higher value like 0x500, somebody just absorbed 200 contracts.
(its not a guarantee price would go down in that situation, it could be getting absorbed for another move up, do a fakeout, etc . it supports trade ideas)

*Imbalance is when you see something like 200x600 , 487x163, (I set the pink dots for 300% on the bid or ask, some people prefer 200%)

So if you're looking for accumulation or distribution at a certain level, footy confirms if a lot of volume is transacting which could support your current hypothesis for the next move. Low Volume Nodes also provide valuable info to me as they can often be a resistance area.

>Other need to know -- This info works better for me on the ES and not as well in less liquid markets like NQ, YM, RTY, (less liquid because there isn't a high amount of orders at each price level). (Eurostoxx is also high liquidity). Perhaps my skill at reading the less liquidity markets will improve but for now I'll take the easier path.

I dont look at doms, no thankyou. Trading is my zen practice, I dont need all the flashing lights.

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 phantomtrader 
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hyperscalper View Post
DOM ANALYSIS requires some fast processing
Case in point, ES and some discussion of NQ futures

Just to give you a rough idea of how difficult Depth of Market Analysis can be,
from an implementation standpoint, on the ES contract, I'm seeing as high as
500 callback events PER SECOND coming in as Market Depth changes, in a
C# Indicator callback routine. So you got a couple of milliseconds on some of
the peak data rates to do something, anything to capture the data.

This is with an ATAS platform, and Rithmic feed and Order Routing; sitting on
a dedicated server in a data center. Just to give you an idea of the challenges
you would face. Basically, it's not achievable by traders, and I'd advise not
to even try; unless, of course, you are one of "those driven traders" who gets
his/her kicks out of trying to "tame the Beast". Just sayin'...

The Dynamic nature of the DOM should be apparent from just looking at it,
but in NQ in particular, the Spoofing activity reaches its peak to completely
confuse traders. I'd post a picture if I knew how... It's an eye-opener...

Entire sides of the DOM consist of "mega spoofing", the minimum values of which
are SINGLE CONTRACTS on the DOM. But, visually, you'd probably think there
was balanced size on both sides... don't be naive; of course you're not naive...

For me, the real prize as I've said before is to master NQ's "take no prisoners"
approach to Price movement. Quite insane, but certain fundamental aspects
of it are actually predictable. I just observed the "distant or far DOM bias" remain
elevated for 10 minutes prior to a 160 TICK Rally in NQ. So, as I said, and I
can't offer you software; but the concept involved maybe; if you can "tame the
DOM Beast" then there would be riches to be had... There's Gold in them thar Hills,
but to get it out may be near impossible, so don't take such a task lightly; and
in fact, don't even try it. Just sayin'... once again.

hyperscalper

I found your posts very interesting. I do a lot of research on the side. There's a lot of opportunity for a good developer to come up with a new platform that captures much of what you are talking about. I'm not nuts about Ninja but I use it along with Jigsaw, doing my own analytical work in Excel. Bookmap has some advantages but in the end, I preferred my own setups.

I don't trade the NQ but I've watched the order flow. I've never come to any other conclusion except that it's a complete fraud - spoofing, pulling/placing order, crap all over the DOM. Market profile not much better. I did find that Ninza's Volume Delta was helpful to identify impulse trades (actually you gave me a good idea to study - the 1 hour long or short using volume delta). Tried to do it in sim but in the end always gave it back.

Interesting stuff. Thanks for posting.

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phantomtrader View Post
I found your posts very interesting. I do a lot of research on the side. There's a lot of opportunity for a good developer to come up with a new platform that captures much of what you are talking about. I'm not nuts about Ninja but I use it along with Jigsaw, doing my own analytical work in Excel. Bookmap has some advantages but in the end, I preferred my own setups.

I've been doing quite a bit of programming work, and I'm coming to a similar place. I think to really do what I'd like I will need to plug into the Rithmic API directly. A lot of what has been discussed in this thread would benefit from MBO data.

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 hyperscalper 
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phantomtrader View Post
I found your posts very interesting. I do a lot of research on the side. There's a lot of opportunity for a good developer to come up with a new platform that captures much of what you are talking about. I'm not nuts about Ninja but I use it along with Jigsaw, doing my own analytical work in Excel. Bookmap has some advantages but in the end, I preferred my own setups.

I don't trade the NQ but I've watched the order flow. I've never come to any other conclusion except that it's a complete fraud - spoofing, pulling/placing order, crap all over the DOM. Market profile not much better. I did find that Ninza's Volume Delta was helpful to identify impulse trades (actually you gave me a good idea to study - the 1 hour long or short using volume delta). Tried to do it in sim but in the end always gave it back.

Interesting stuff. Thanks for posting.

Yes, you are correct when you suggest that the Depth of Market is a "dumpster fire with intent to deceive" or something like that. Spoofing is one of the Major techniques used, which prevents anyone from "eyeballing the DOM" and getting any useful information out of it.

So when you Analyze Quote Sizes on a specific Price; the very first thing you want to do is to defeat most of the Spoofing. Here's a Hint: If MM really wants to transact with the Retail population of traders; then MM will not "pull" quotes, but will maintain them in order to gain the "FIFO matching engine advantage". So, watching the MINIMUM sizes advertised (perhaps for only a few milliseconds) versus the AVERAGE or MAXIMUM values; is the key to getting a Proxy for the concept which estimates MM's "eagerness" to transact with the Retail Market.

By using these "size minima" you can then begin to look at the DISTRIBUTION of Quoted Size near the Market. You'll find that the Distribution of Volume Weighted Price, expressed in a snapshot as "delta ticks (tiers) from the inside market" will be CLOSER to the Market on the SIDE WHERE YOU WILL PREDICT THAT PRICE IS MOVING.

iN SIMPLISTIC TERMS: "When they really want to 'pull the inside market' to their Quote, then they will hold the Quote stable; and will Distribute their Quoted Sizes nearer to the Market". ...or something like that...

This stuff really works, but "the Devil is in the excruciating Details", as always.

hyperscalper

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 hyperscalper 
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TWDsje View Post
I've been doing quite a bit of programming work, and I'm coming to a similar place. I think to really do what I'd like I will need to plug into the Rithmic API directly. A lot of what has been discussed in this thread would benefit from MBO data.

Not sure what MBO means, but I think it means identifying the individual Market Makers which form the composite Size at each Market Depth Price level.

In my experience, YOU DO NOT NEED that level of DOM feed Analysis, in order to get Predictive information from the Depth of Market. At least, I've never had it; and haven't found it necessary.

I'm not denying that "more information could be better" but my guess is that such information would not improve prediction more than roughly 10% so it's a lot of work to do; with a low probability of significant utility.

Heck, with just a simple 10 wide DOM there's a huge amount of predictability; no need to get a super expensive feed, and try to extract even more information. I really doubt it would be fruitful... even if you could figure out how to interpret it.

[EDIT] I am using the Rithmic DOM which allows for 40 wide tiers on each side of the Market. But that's because I am also interested in "distant radar" which potentially exists in that data, having already mined just about all I can from the "near DOM" tiers. But I'm not going to be delving into the MBO information, even if it were available.

hyperscalper

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Not sure what MBO means, but I think it means identifying the individual Market Makers which form the composite Size at each Market Depth Price level.

In my experience, YOU DO NOT NEED that level of DOM feed Analysis, in order to get Predictive information from the Depth of Market. At least, I've never had it; and haven't found it necessary.

I'm not denying that "more information could be better" but my guess is that such information would not improve prediction more than roughly 10% so it's a lot of work to do; with a low probability of significant utility.

Heck, with just a simple 10 wide DOM there's a huge amount of predictability; no need to get a super expensive feed, and try to extract even more information. I really doubt it would be fruitful... even if you could figure out how to interpret it.

[EDIT] I am using the Rithmic DOM which allows for 40 wide tiers on each side of the Market. But that's because I am also interested in "distant radar" which potentially exists in that data, having already mined just about all I can from the "near DOM" tiers. But I'm not going to be delving into the MBO information, even if it were available.

hyperscalper

The big advantage I'm primarily concerned with is the ability to determine if a market order that has hit the market was generated from a stop or not. That can be factored into the calculations to determine when losses are being taken, and could give a more accurate reading of market maker positioning. I'm also trying to study the orders in the queues themselves to see if I can get indications from them of when a trend is attracting new participants to the market.

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 hyperscalper 
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TWDsje View Post
Ok that makes sense and answers one part of my question. The second part had to deal with how do you match orders up. If you are just adding and subtracting all the orders that hit then you basically get cumulative delta. But it sounds like you're looking for the lot size to match up exactly? So if mm bought 10 at one level and sold two 5's at another level since the size didn't match up you'd still say there's 10 net long and 10 net short?

If I told you, I might be asked to kill you... Just kidding.

So, the basics apply here. MM-Buy transactions are (by my definition) Trades which take place at the BID;
and MM-Sell transactions at the ASK/OFFER Price.

Any time MM can Buy from a Retail Seller at the BID price, and then Sell that same quantity higher up
in price (even if it's only 1 minimum Tick) then that is MM profit, and that Size is eliminated from the "open inventory".

So, to answer your question, when being evaluated for LONG Inventory,
if MM Buys 10 and then ANY MM Sell at A HIGHER PRICE, like your 2 Trades of 5 each occurs,
then that Inventory is neutralized, profit is taken and it is no longer MM Open Inventory.

Let's say MM buys 10, and there's a higher price trade with size 15; then the 10 contracts are
eliminated (neutralized) and that higher Priced Trade (for purposes of the analysis scan)
is set to 5 remaining, since 10 was used to match the MM-Buy.

For a LONG Inventory scan; using the term "Long" loosely, but meaning MM has more BUY
transactions in Inventory than Sell transactions, remembering that we SORT/ORDER the Buy
list and the Sell lists. So these lists would be sorted in ASCENDING order; and then you might
think we could start with the LOWEST BUY Transaction, and then "borrow volume" from any
just higher SELL transactions (eliminating that BUY from Inventory, as closed profit)
proceeding up the BUY Orders, and eliminating them, when their Size can be "borrowed"
from higher Priced Sell Orders.

You might think that would be the way to do the Matching. HOWEVER, I prefer to start with
the HIGHEST BUY transaction and proceed downwards in Price, finding any higher priced SELL
transaction whose volume can be "borrowed or matched" with the BUY transaction, in order
to eliminate it from inventory. BUT WHY?

In this way, I will attempt to eliminate HIGHEST priced BUY orders (remember, we are evaluating
here for a "LONG" MM Net Position) and then LOWER priced BUY orders may remain
unmatched. THIS ALLOWS ME TO UNDER-ESTIMATE MM'S COST BASIS.

I WANT TO UNDER-ESTIMATE MM'S COST BASIS because if Market Price is below that
under-estimation; it is MORE LIKELY that MM is "in risk" or "losing money" on the
Net Open Inventory estimate. So I am more confident when I say "MM is in Long Risk"
and is less likely to want to lower the price further. If I had a higher estimate of
MM's Cost Basis, then I'd be less confident that MM was "in Risk" than if I use an
algorithm which under-estimates (estimates a lower price) for MM's Cost Basis. Savvy?

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 phantomtrader 
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TWDsje View Post
I've been doing quite a bit of programming work, and I'm coming to a similar place. I think to really do what I'd like I will need to plug into the Rithmic API directly. A lot of what has been discussed in this thread would benefit from MBO data.

You can get MBO data with Bookmap. I looked at it, didn't spend a lot of time on it so not sure what the true value is. Might be interesting to start a thread where traders who are using MBO can contribute.

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 phantomtrader 
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Yes, you are correct when you suggest that the Depth of Market is a "dumpster fire with intent to deceive" or something like that. Spoofing is one of the Major techniques used, which prevents anyone from "eyeballing the DOM" and getting any useful information out of it.

So when you Analyze Quote Sizes on a specific Price; the very first thing you want to do is to defeat most of the Spoofing. Here's a Hint: If MM really wants to transact with the Retail population of traders; then MM will not "pull" quotes, but will maintain them in order to gain the "FIFO matching engine advantage". So, watching the MINIMUM sizes advertised (perhaps for only a few milliseconds) versus the AVERAGE or MAXIMUM values; is the key to getting a Proxy for the concept which estimates MM's "eagerness" to transact with the Retail Market.

By using these "size minima" you can then begin to look at the DISTRIBUTION of Quoted Size near the Market. You'll find that the Distribution of Volume Weighted Price, expressed in a snapshot as "delta ticks (tiers) from the inside market" will be CLOSER to the Market on the SIDE WHERE YOU WILL PREDICT THAT PRICE IS MOVING.

iN SIMPLISTIC TERMS: "When they really want to 'pull the inside market' to their Quote, then they will hold the Quote stable; and will Distribute their Quoted Sizes nearer to the Market". ...or something like that...

This stuff really works, but "the Devil is in the excruciating Details", as always.

hyperscalper

"delta ticks (tiers) from the inside market" - not sure what this is - is it the difference in ticks in the spread?

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If I told you, I might be asked to kill you... Just kidding.

So, the basics apply here. MM-Buy transactions are (by my definition) Trades which take place at the BID;
and MM-Sell transactions at the ASK/OFFER Price.

Any time MM can Buy from a Retail Seller at the BID price, and then Sell that same quantity higher up
in price (even if it's only 1 minimum Tick) then that is MM profit, and that Size is eliminated from the "open inventory".

So, to answer your question, when being evaluated for LONG Inventory,
if MM Buys 10 and then ANY MM Sell at A HIGHER PRICE, like your 2 Trades of 5 each occurs,
then that Inventory is neutralized, profit is taken and it is no longer MM Open Inventory.

Let's say MM buys 10, and there's a higher price trade with size 15; then the 10 contracts are
eliminated (neutralized) and that higher Priced Trade (for purposes of the analysis scan)
is set to 5 remaining, since 10 was used to match the MM-Buy.

For a LONG Inventory scan; using the term "Long" loosely, but meaning MM has more BUY
transactions in Inventory than Sell transactions, remembering that we SORT/ORDER the Buy
list and the Sell lists. So these lists would be sorted in ASCENDING order; and then you might
think we could start with the LOWEST BUY Transaction, and then "borrow volume" from any
just higher SELL transactions (eliminating that BUY from Inventory, as closed profit)
proceeding up the BUY Orders, and eliminating them, when their Size can be "borrowed"
from higher Priced Sell Orders.

You might think that would be the way to do the Matching. HOWEVER, I prefer to start with
the HIGHEST BUY transaction and proceed downwards in Price, finding any higher priced SELL
transaction whose volume can be "borrowed or matched" with the BUY transaction, in order
to eliminate it from inventory. BUT WHY?

In this way, I will attempt to eliminate HIGHEST priced BUY orders (remember, we are evaluating
here for a "LONG" MM Net Position) and then LOWER priced BUY orders may remain
unmatched. THIS ALLOWS ME TO UNDER-ESTIMATE MM'S COST BASIS.

I WANT TO UNDER-ESTIMATE MM'S COST BASIS because if Market Price is below that
under-estimation; it is MORE LIKELY that MM is "in risk" or "losing money" on the
Net Open Inventory estimate. So I am more confident when I say "MM is in Long Risk"
and is less likely to want to lower the price further. If I had a higher estimate of
MM's Cost Basis, then I'd be less confident that MM was "in Risk" than if I use an
algorithm which under-estimates (estimates a lower price) for MM's Cost Basis. Savvy?

hyperscalper

I think I understood that part. Why even bothering to calculate which side is winning? Just always calculate it both ways and show two lines.

What I'm getting at though is that the system doesn't account for losses. So say we're getting a strong down move with lots of traders getting stopped out over and over. Like the trend down move in treasuries today. You get trapped volume up above you that never gets canceled out. It gets stuck because the volume came out as stops instead of limit orders. So your cost basis estimate ends up being higher than it should.

The easy solution as per your earlier explanations is to just adjust the timeframe you're looking at. View on a 30 minute basis or a 5 minute basis. Then that old volume gets rolled off. But if you factor stop orders in as well then you can safely eliminate some of those trapped traders from the calculation and get a more accurate reading without having to reset.

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 hyperscalper 
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phantomtrader View Post
"delta ticks (tiers) from the inside market" - not sure what this is - is it the difference in ticks in the spread?

A "tick" is the minimum integral unit of price change possible. Sure, multiple tick levels when averaged would
fall "in between" allowed price tick levels, but I digress.

When we do Market Depth Analysis, we capture data at PRICE-SPECIFIC LEVELS. So we allocate analyzers,
using a HashMap or Dictionary approach, where each POSSIBLE Price level (as enforced by the idea of a
"tick") is associated with an "Analyzer" which captures Quotes at that specific price for each Analyzer.

However, when we wish to take a "Snapshot" of the Market Bias, for purposes of predicting Market direction,
it is at this moment when we use the BID price (and lower prices) and the ASK/OFFER price (and higher prices)
to fetch the reports from the Analyzers, and we then represent them as "Tier Specific Offsets" from the
Inside Market (the current inside BID and ASK prices).

It ain't that easy LOL but, as I've said elsewhere, "Thar's Gold in Them Thar Hillz" if you can evaluate the
Market Depth (aka "The Live Book") correctly.

And IT MAKES SENSE, DOESN'T IT? that Market Makers advertise their intentions in the critical placements
of their BIDs and OFFERs in the "Markets that they Make; ya know, Market Makers is what they are"...

hyperscalper

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 TWDsje   is a Vendor
 
 
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phantomtrader View Post
You can get MBO data with Bookmap. I looked at it, didn't spend a lot of time on it so not sure what the true value is. Might be interesting to start a thread where traders who are using MBO can contribute.

I think I could write it in bookmap. I'm just not really in a spot to invest in a new platform, and there's some execution based edges that I don't think I can get over there. If there's a way to get around that I'd be interested in helping write it in Bookmap. Maybe though I'm just enamoured with the idea of writing something that touches the API directly? We're talking about some things that are fairly calculation and memory intense. It would probably be better to have such analysis in a different application from the application you are using to execute from. The Ninjatrader 8 - Jigsaw combination is perfect for it. Too bad ninjatrader doesn't have MBO data.

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 phantomtrader 
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TWDsje View Post
I think I could write it in bookmap. I'm just not really in a spot to invest in a new platform, and there's some execution based edges that I don't think I can get over there. If there's a way to get around that I'd be interested in helping write it in Bookmap. Maybe though I'm just enamoured with the idea of writing something that touches the API directly? We're talking about some things that are fairly calculation and memory intense. It would probably be better to have such analysis in a different application from the application you are using to execute from. The Ninjatrader 8 - Jigsaw combination is perfect for it. Too bad ninjatrader doesn't have MBO data.

Can't you get it from Rithmic and funnel it through Ninja 8? I thought there were options for different datafeeds.

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  #156 (permalink)
 hyperscalper 
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phantomtrader View Post
Can't you get it from Rithmic and funnel it through Ninja 8? I thought there were options for different datafeeds.

Unfortunately, I learned "the hard way" that Ninja does not have a setup for a Rithmic Data Feed. You must take the entire Rithmic Order Routing and Data Feed package, and that invalidates your usage of their CQG broker.

Of course, nothing stops you from coding your own C# to the Rithmic API and feeding that data into your Indicator(s) but it would not be "natural" through the Ninja Framework for datafeed only.

Yes, they market their Kinetick feed as a "feed only" option. But that's a "business decision" and they have no such feed only arrangement with Rithmic.

By using the Rithmic API, no doubt you could get "deeper" into things like MBO (whatever that is...) but unfortunately that could not be integrated as an "officially supported" NinjaTrader Connection adapter; as they simply do not support such a thing; and you'd have to Beg, Borrow, Bribe or Steal the code which could be used to write a proper Connection "snap in" to NinjaTrader 8... <speculation>

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 phantomtrader 
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hyperscalper View Post
Unfortunately, I learned "the hard way" that Ninja does not have a setup for a Rithmic Data Feed. You must take the entire Rithmic Order Routing and Data Feed package, and that invalidates your usage of their CQG broker.

Of course, nothing stops you from coding your own C# to the Rithmic API and feeding that data into your Indicator(s) but it would not be "natural" through the Ninja Framework for datafeed only.

Yes, they market their Kinetick feed as a "feed only" option. But that's a "business decision" and they have no such feed only arrangement with Rithmic.

By using the Rithmic API, no doubt you could get "deeper" into things like MBO (whatever that is...) but unfortunately that could not be integrated as an "officially supported" NinjaTrader Connection adapter; as they simply do not support such a thing; and you'd have to Beg, Borrow, Bribe or Steal the code which could be used to write a proper Connection "snap in" to NinjaTrader 8... <speculation>

hyperscalper

Time for a new platform!

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  #158 (permalink)
 hadamkov 
Prague Czech Republic
 
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Do not want to pollute the thread but for the sake of explanation of MBO, you can find it here:


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 phantomtrader 
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hadamkov View Post
Do not want to pollute the thread but for the sake of explanation of MBO, you can find it here:


Thanks for the link.

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 hyperscalper 
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phantomtrader View Post
Time for a new platform!

I started my journey of return to Futures with the ATAS fully programmable platform
that allows for unrestricted C# usage. (I am a Java programmer with some C#
experience, and I can quickly adapt my code).

ATAS is a great concept, but it is poorly supported; and was simply frustratingly
unable to hold on to the Rithmic feed and Orders connection; and this is from
a dedicated system hosted in a data center, so...

I had to move; and my buddy is fairly non-technical but really saw the potential
of the Ninja platform; so the only platform I could find with any hope of being
able to host (adapted versions of) my C# code... was NinjaTrader.

Since using NinjaTrader 8 for a while; and especially after the nearly unsupported
ATAS platform (sorry to say) I am also a NinjaTrader ADMIRER !!!

So I adapted, and hosted evernthing in C# in Ninja; and will be writing "Unmanaged"
multi-threaded Order control panels, etc.

SO, THERE IS NO BETTER PLATFORM THAN NINJATRADER 8 (or maybe 7) and
so there's nowhere to go Why would I want to leave such a powerful
platform; over a minor issue like this Rithmic feed issue; especially when there
is a resolution to my issues, even though it's slightly different from what I
was planning? NO REASON.

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 hyperscalper 
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TWDsje View Post
I think I understood that part. Why even bothering to calculate which side is winning? Just always calculate it both ways and show two lines.

What I'm getting at though is that the system doesn't account for losses. So say we're getting a strong down move with lots of traders getting stopped out over and over. Like the trend down move in treasuries today. You get trapped volume up above you that never gets canceled out. It gets stuck because the volume came out as stops instead of limit orders. So your cost basis estimate ends up being higher than it should.

The easy solution as per your earlier explanations is to just adjust the timeframe you're looking at. View on a 30 minute basis or a 5 minute basis. Then that old volume gets rolled off. But if you factor stop orders in as well then you can safely eliminate some of those trapped traders from the calculation and get a more accurate reading without having to reset.

I am a bit confused. Inventory (Time and Sales) Analysis is concerned ONLY with Transactions; not with outstanding unfilled orders.
So it is "Trade Flow". Whereas analysis of Market Depth, as these are Unfilled Market Maker "orders", would be more precisely called "Order Flow". Just sayin'... So a "stop order" is not an executed transaction which would appear on Time and Sales; and so I don't know why you say "if you factor stop orders in as well". That makes no sense to me.
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  #162 (permalink)
 datahogg 
Knoxville Tennessee USA
 
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hyperscalper View Post
All due respect, Sir; but that is very wrong, although it may be comforting for you to think that simplicity is the answer.

hyperscalper

Neither you or I thoroughly understand the problem.

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 TWDsje   is a Vendor
 
 
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hyperscalper View Post
I am a bit confused. Inventory (Time and Sales) Analysis is concerned ONLY with Transactions; not with outstanding unfilled orders.
So it is "Trade Flow". Whereas analysis of Market Depth, as these are Unfilled Market Maker "orders", would be more precisely called "Order Flow". Just sayin'... So a "stop order" is not an executed transaction which would appear on Time and Sales; and so I don't know why you say "if you factor stop orders in as well". That makes no sense to me.
hyperscalper

Stop orders are orders that trigger market orders under certain circumstances. My understanding is that rithmic's MBO data allows you to detect if a market order was created by an exchange side stop. Just as we make assumptions about how limit orders are opening positions and taking profits we can make assumptions about the market orders generated from stops being market makers taking losses.

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 hyperscalper 
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datahogg View Post
Neither you or I thoroughly understand the problem.

Just ran an "alpha" demonstration on ES Futures this morning; takes so long to get everything in place !!

I was blown away by how predictable the market is; especially since I've been talking about how difficult
it is to deal with "The Beast" which is the Depth of Market. So we're using Rithmic's feed into NinjaTrader.
Had to go with Rithmic's routing also, as I explained elsewhere; but that's good because of the speed of
execution, even though higher margins.

Anyway... I can give myself a slap on the back, so we'll be ready next week to trade this stuff.

So I feel like I've come a long way in "understanding the problem"...

I'm just saying, in general, that "Trade Flow" analysis, which I call "Inventory" analysis, is certainly an interesting
area; where we estimate MM's "position" against the Retail Market. But the real determinant of market
direction is Analysis of "The Book" and that's an extremely difficult beast, as I said, to grapple with.
The Devil's always in the details when you attempt something like that.

I'm not doing the analysis inside of NinjaTrader, but in a separate process on the same system through a local
socket; and that's Java, where the real logic resides in this current implementation. Very focused on just
a couple of contracts, ES and what I like to call "the real Prize" which is NQ are the targets.

[edit] so this is a complex indicator; which could be done "in process" by spawning a Java VM,
but we just extended it into a separate process on the local machine to get an implementation
sooner.

hyperscalper

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 hyperscalper 
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hyperscalper View Post
I was blown away by how predictable the market is; especially since I've been talking about how difficult
it is to deal with "The Beast" which is the Depth of Market. So we're using Rithmic's feed into NinjaTrader.
Had to go with Rithmic's routing also, as I explained elsewhere; but that's good because of the speed of
execution, even though higher margins.

SPOOFING or VARIABILITY on The Book.

One thing that's emerged as a great trend continuation indicator is to examine the variability of Quotes
as they appear at each specific Price. I have mentionned that in seeking "the true size' one key aspect
is to observe the Minimum Size which appears over a suitable rolling time window in your Price-specific
analyzers. The key here is for your "data capture" to be absolutely Price-specific. And, as I've already
mentioned; when we evaluate a "bias" between Bid-Side and Ask/Offer-Side of the Market in an attempt
to predict direction; it is only then that we take the Price-specific information, and convert it to a
"Tier-specific" representation. That is, we compare like Tiers, such as Bid minus 10 ticks against the
corresponding Ask/Offer plus 10 ticks; of course we do a range of these when developing a bias
estimate.

But back to Spoofing. Spoofing is intimately tied to the concept of Variability. In Spoofing, sizes are
advertised on the DOM which give "the visual impression" of strong quotes; but the micro-structure
shows that larger so-called "spoofing" size may be shown 95% of the time; but a smaller but more
Persistent size is shown during a brief interval maybe 5% of the time; or even for only a few
milliseconds. This smaller size; or the Minimum Observed Quote Size, is closer to "the true size"
which you should take as the basis of your comparisons.

So if we measure Variability; which is a necessary feature of this "eyeball spoofing technique" then we
will see that Variability is significantly increased, but On WHICH side of the DOM? If course, it is on the
OPPOSITE side of the DOM than Price will be moving. Much lower variabilities are seen in the direction
where Price will be moving.

Implementations of these basic ideas are difficult to achieve; given the dynamic nature of "the Beast"
which is the Depth of Market. BUT, this is TRUE ORDER FLOW analysis, because it looks at the Quote
behavior of Market Makers; and does not consider Time and Sales or "Transaction or Trade Flow" which
is another topic entirely.

[EDIT] Remember that "Price moves to Size on the DOM" so when MM is "more eagerly" placing Quote Size near the market; then the market inside Price will be "pulled or attracted" to that Size, since Market Makers "want to interact" with the Retail players on that side of the Market. Specifically how this is measured, does have some latitude, and some challenges for algorithms.

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 joe s 
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I like to watch time and Sales actual trades

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 hyperscalper 
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UPDATE. Coming up for air after a lot of coding... with regard to
"Order Flow" which I break up into Trade Flow (Time and Sales analysis)
or Inventory Analysis, and Depth of Market (unfilled orders on the Book),
both of which contain predictive information to be extracted.

As I mentionned earlier, for me, the NQ futures contract is the prize, but there
are some significant challenges processing the data.

INVENTORY. With an overwhelming number of Time and Sales entries being
SINGLE CONTRACT trades, there is a huge stream of events to integrate
into an Inventory Analysis. The entire "chain of custody" of the data in
the pipeline needs to be properly double-buffered, with the ability to discard
data as necessary during "bursts".

DEPTH OF MARKET. I'm using the Rithmic incoming feed, which allows for
at least 40 Tiers above the Offer/Ask and 40 Tiers below the market. Data
rates averaged over a minute show as much as 1200 average events PER SECOND,
with burst rates probably much higher.

This is with a C# implementation in NinjaTrader using the Rithmic data feed,
so I'd just say that it's a significant implementation challenge both to just
capture the relevant data, and then turn it into meaningful predictions.

I have to say that NinjaTrader is definitely "the bomb" for this type of
very fast and complex analysis, so that's my enthusiastic recommendation !
I did have an issue getting Rithmic as the feed; since I was forced to take
Rithmic Order routing and broker (managed through NinjaTrader brokerage)
which has much higher margins than Ninja's normal data feeds and routing.

However, that being said, it's ultimately the right solution for me, so predicting
the volatile NQ market is still "the prize" for all the work involved. The next
challenge is to write an Order Entry strategy which is up to the challenge.

[edit] So, the approach is to analyze the NQ contract for all that information,
but then to execute on the micro contract MNQ using a multiple price level
cost basis approach with partial profit-taking of an overall aggregate set
of trades. 10 MNQ contracts is approximately the same as 1 NQ...

hyperscalper

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 NoSquigglyLines 
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Any interest in this discussion still and/or has it moved elsewhere?

I see that Sierra chart also offers MBO data through their Denali feed so there are multiple options now. I've been inactive but am thinking about doing some investigation into order flow across different markets, by which I mean filled/traded orders.

I'm sure there are some really useful things to be gleaned from the limit order book but (to some of the earlier points in this thread) that feels like a game for well capitalised companies with dedicated teams and the low latency infrastructure to execute on it. I don't think we can beat them at their own game ... but maybe that size causes other issues and also leaves a trace, meaning that we could win if we play a different game.

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 joe s 
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no post lately

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 hyperscalper 
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joe s View Post
no post lately

I may have been responsible for revitalizing the issues around Order Flow, and
in my work, I've certainly done a lot of it. But let me just re-clarify what I
understand Order Flow to mean.

WHAT IS "ORDER FLOW"?

Most people, including me, for a while; define Order Flow as "Trade Flow"
or Analysis of the Time and Sales for Buying versus Selling; and thus
calculating some concept reflecting an "imbalance" of the Market Makers'
"net buying or selling" behavior.

So, if the Time and Sales shows only Selling, which would mean that the
transactions occurred at or very near the BID price; then Market Makers
would be accumulating "long" or an excess of Buying, and be motivated
to move the Market Price upwards, to sell off what was purchased from
Retail Sellers, then to Retail Buyers at a Higher Price.

This can be useful, but I've described it more as a "situational awareness"
that "Yes, Market Makers on aggregate have absorbed a lot of Selling,
so they may be motivated to Support the Price, and lift the Price as
a result". It cannot tell you the instant that a down trend, becomes an
up trend, with any precision at all.

All of that is a very natural and logical way of approaching Time and Sales,
and many people consider that to be Order Flow Analysis. In a sense,
Orders on the Book are "Flowing" to Retail players as transactions take
place.

BUT THERE IS A SECOND AND MORE USEFUL MEANING, WHICH IS
ANALYSIS OF THE LEVEL 2 OR "THE ORDER BOOK" which exhibits Market
Maker Orders (and some Retail players limit orders) which exist at
varying Price distances from the Inside Market; BUT WHICH HAVE
NOT generated any Time and Sales transactions; they are merely
Orders.

The "Flow" of these Orders, or the "discoverable patterns" which do
exist in the various "Tiers" on the Order Book are an order of magnitude
MORE DIFFICULT to evaluate, in order to generate Trading Signals
which predict which way the Market may move in the near future.

WHAT ARE THE FACTORS THAT LIMIT "DEPTH OF MARKET ANALYSIS"?

Firstly, many cheaper brokerages offer only a limited number of Tiers
on the Level 2, and anyway, ordinary traders don't know what to
do with a fluctuating Depth of Market (aka "The Order Book"). If
you are given only 10 possible Tiers either side of the Market, then
you will be limited in perhaps what information you could extract
from that presentation.

Secondly, normal traders do not have the ability to apply algorithmic
real time analysis to the Depth of Market (the DOM) and, even if
they did, that analysis might not be useful in their trading, so
perhaps they are 1) unwilling to pay extra for Market Depth, and
2) the data volume or "bandwidth" to the local trading platform
is generally kept at a minimum for most traders, thus not
requiring much infrastructure to deliver.

Thirdly, Premium costs may be incurred for a Full Market Depth
which is "not aggregated" and which might offer 50 Tiers of
information on each side of the Market, and the data rates
of such feeds (such as Rithmic's Depth of Market or other
"premium" providers) may be prohibitive for retail platforms.
For example, the Rithmic Market Depth (not aggregated)
could generate up to 1000 or more UPDATES PER SECOND.

The potential to use this information is questionable; and the
retail demand is generally low; so why would it even be
interesting at all; given the high cost, and the inability to
UNDERSTAND the meaning of any patterns which exist in
the Depth of Market.

BUT HERE'S THE TRUTH. ANALYSIS OF THE MARKET DEPTH
is one of the strongest "edges" that a highly technical
trader can have. Notwithstanding those people who say
they can trade successfully with nothing but Level 1
pricing; and who claim that Level 2 never gave them an edge.

THE PROBLEM IS PROCESSING THE INFORMATION, and then
being able to predict where a market will move based on that
information, which is a highly specialized and relatively expensive
proposition.

You cannot just "eyeball" such information and expect to
extract anything useful. It is a highly technical algorithmic
problem to determine Market Trend from analysis of the
DOM (the Depth of Market) and you are likely to need a
"premium" non-aggregate feed (such as Rithmic's feed, and
probably some others) in order to do that.

SO I HOPE THIS CLARIFIES the differences between Time and
Sales Analysis, versus Depth of Market or "The Book" as
a source of Signals for trading. Both are perhaps confusingly
lumped into the category of Order Flow Analysis.

hyperscalper

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 SBtrader82 
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hyperscalper View Post
I may have been responsible for revitalizing the issues around Order Flow, and
in my work, I've certainly done a lot of it. But let me just re-clarify what I
understand Order Flow to mean.

WHAT IS "ORDER FLOW"?

Most people, including me, for a while; define Order Flow as "Trade Flow"
or Analysis of the Time and Sales for Buying versus Selling; and thus
calculating some concept reflecting an "imbalance" of the Market Makers'
"net buying or selling" behavior.

So, if the Time and Sales shows only Selling, which would mean that the
transactions occurred at or very near the BID price; then Market Makers
would be accumulating "long" or an excess of Buying, and be motivated
to move the Market Price upwards, to sell off what was purchased from
Retail Sellers, then to Retail Buyers at a Higher Price.

This can be useful, but I've described it more as a "situational awareness"
that "Yes, Market Makers on aggregate have absorbed a lot of Selling,
so they may be motivated to Support the Price, and lift the Price as
a result". It cannot tell you the instant that a down trend, becomes an
up trend, with any precision at all.

All of that is a very natural and logical way of approaching Time and Sales,
and many people consider that to be Order Flow Analysis. In a sense,
Orders on the Book are "Flowing" to Retail players as transactions take
place.

BUT THERE IS A SECOND AND MORE USEFUL MEANING, WHICH IS
ANALYSIS OF THE LEVEL 2 OR "THE ORDER BOOK" which exhibits Market
Maker Orders (and some Retail players limit orders) which exist at
varying Price distances from the Inside Market; BUT WHICH HAVE
NOT generated any Time and Sales transactions; they are merely
Orders.

The "Flow" of these Orders, or the "discoverable patterns" which do
exist in the various "Tiers" on the Order Book are an order of magnitude
MORE DIFFICULT to evaluate, in order to generate Trading Signals
which predict which way the Market may move in the near future.

WHAT ARE THE FACTORS THAT LIMIT "DEPTH OF MARKET ANALYSIS"?

Firstly, many cheaper brokerages offer only a limited number of Tiers
on the Level 2, and anyway, ordinary traders don't know what to
do with a fluctuating Depth of Market (aka "The Order Book"). If
you are given only 10 possible Tiers either side of the Market, then
you will be limited in perhaps what information you could extract
from that presentation.

Secondly, normal traders do not have the ability to apply algorithmic
real time analysis to the Depth of Market (the DOM) and, even if
they did, that analysis might not be useful in their trading, so
perhaps they are 1) unwilling to pay extra for Market Depth, and
2) the data volume or "bandwidth" to the local trading platform
is generally kept at a minimum for most traders, thus not
requiring much infrastructure to deliver.

Thirdly, Premium costs may be incurred for a Full Market Depth
which is "not aggregated" and which might offer 50 Tiers of
information on each side of the Market, and the data rates
of such feeds (such as Rithmic's Depth of Market or other
"premium" providers) may be prohibitive for retail platforms.
For example, the Rithmic Market Depth (not aggregated)
could generate up to 1000 or more UPDATES PER SECOND.

The potential to use this information is questionable; and the
retail demand is generally low; so why would it even be
interesting at all; given the high cost, and the inability to
UNDERSTAND the meaning of any patterns which exist in
the Depth of Market.

BUT HERE'S THE TRUTH. ANALYSIS OF THE MARKET DEPTH
is one of the strongest "edges" that a highly technical
trader can have. Notwithstanding those people who say
they can trade successfully with nothing but Level 1
pricing; and who claim that Level 2 never gave them an edge.

THE PROBLEM IS PROCESSING THE INFORMATION, and then
being able to predict where a market will move based on that
information, which is a highly specialized and relatively expensive
proposition.

You cannot just "eyeball" such information and expect to
extract anything useful. It is a highly technical algorithmic
problem to determine Market Trend from analysis of the
DOM (the Depth of Market) and you are likely to need a
"premium" non-aggregate feed (such as Rithmic's feed, and
probably some others) in order to do that.

SO I HOPE THIS CLARIFIES the differences between Time and
Sales Analysis, versus Depth of Market or "The Book" as
a source of Signals for trading. Both are perhaps confusingly
lumped into the category of Order Flow Analysis.

hyperscalper

that's what I believed years ago: that DOM could offer some type of advantage. Now I think reading DOM is very confusing, basically all the tricks that used to work years ago are now useless because everyone knows them, also there are robots that can read the full LAdder (by the way I used 300+ levels, not 50), in matter of micro seconds, and take decisions faster than you.
I think most of the people lose money because they are so focused on the ladder. They think they understand the market because the see a big order and they scream "that is spoofing" or when it gets hit they say "market is strong because..." etc... the result is that they always have a justification for what is happening.
These people take peanuts out of the market, when they make 200 USD per contract, smart traders make 1000USD with lower risk.

That's only my opinion, but check around in the website and you will see that 99% of the losing traders are huge fan of the DOM.

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geistflow
Toronto Canada
 
 
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I remember this trader Christian Anthony who seems to take trades almost entirely based off the DOM, and he seemed to be successful at it: [yt]https://www.youtube.com/channel/UCrBE3T_vQzZgevVycQIROEg/videos[/yt] (No relation to him). It's a bit too hectic for me, as I prefer time based footprint/bid-ask charts as a representation of the order flow.

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 hyperscalper 
boise idaho
 
Experience: Advanced
Platform: NinjaTrader adv C#/Java
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SBtrader82 View Post
that's what I believed years ago: that DOM could offer some type of advantage. Now I think reading DOM is very confusing, basically all the tricks that used to work years ago are now useless because everyone knows them, also there are robots that can read the full LAdder (by the way I used 300+ levels, not 50), in matter of micro seconds, and take decisions faster than you.
I think most of the people lose money because they are so focused on the ladder. They think they understand the market because the see a big order and they scream "that is spoofing" or when it gets hit they say "market is strong because..." etc... the result is that they always have a justification for what is happening.
These people take peanuts out of the market, when they make 200 USD per contract, smart traders make 1000USD with lower risk.

That's only my opinion, but check around in the website and you will see that 99% of the losing traders are huge fan of the DOM.

The key is to know exactly how the DOM gives you meaningful market direction signals.

Now, my focus is on Nasdaq Micro Scalping; and essentially when the Price is about to Rise, then Ask tier size
will decrease (and Bid tier size may also increase) very quickly. It's only necessary to see maybe 20-30 tiers
to get that effect fairly strongly. And you need to use smoothing judiciously, so as to get just about
the right level of "noise reduction". But, because there may also be a Persistent Bias between size levels on the
Bid versus Size levels on the Offer, you'll need to establish a slow Reference size level on each of these sides,
in order to detect the Delta change in volumes that I'm speaking of. Maybe the ratio of the Slow to Fast would
be 10:1 or as much as 20:1 .

In such delicate (but very fast) measurements, "the Devil is in the exact details" so that you can detect the
signals you are looking for... And, then, you may have the challenge of actually triggering your Order Entry
on some of those potentially very fast signals as well... so, in my case, I have Analytics through to Order
Control as part of a semi-automatic integrated setup; and all the code's custom.

My focus is laser sharp, on just the Nasdaq NQ and MNQ contracts. Oddly enough, the MNQ micro contract may
divulge more "secrets" than the NQ. So I analyze the MNQ, but execute on either MNQ or NQ.

Trading is about finding a niche, and then exploiting that through extreme methods; in my opinion. Not everybody
is able to do this; so "your mileage may vary a lot"...

[EDIT] I should add that "spoofing" is a real issue; which is intended to make both
sides of the DOM appear the same to the naked human eye; but a computer can
be used to measure the "persistence" of sizes on the DOM by noting the minimum
values seen on a Price level over a window of time. This minimum is more of a
proxy for a "true" level of interest at that Price. And there are many other issues,
such as whether measurements should be Price specific, versus Tier specific,
given that as market moves up and down; it traverses a range of actual
Prices.... so it's a complex problem to solve to get a good prediction you could use.

hyperscalper

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Azul1
Sydney, NSW, Australia
 
 
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TradeTheTrade View Post
Hello guys, I am an aspiring trader and just recently learned about order flow and all these concepts. I was thinking about getting into NoBsDaytrading and learning about DOM scalping then I came across a reddit comment from someone who claims to be a STIR trader and claims that orderflow is the modern day technical analysis.

I will copy paste the comment here:

"I'd put it this way:

The way orderflow is used by retail is completely different than it is used by professionals.

All those concepts like delta, footprints, absorbtion are part of a snake oil sales armada just like the technical analysis hype fuelled the retail software industry 10-20 years ago.

"Orderflow" was more or less taught in prop shops (especially bond and STIR desks) and it worked because markets were much more isolated back then.

When you were able to spot a refreshing bid you could really identify what was going on since it most likely was one guy or one firm executing. Now it's old prop traders who ran out of edge who teach the concepts to the public.

Today all markets are correlated, so a refreshing bid could mean an algo that trades a weighted portfolio of 12 different assets, which is pricing your bid off of 11 other markets. He's refreshing at 20 now until one of his markets ticks down, then he's refreshing at 19.

There is so much cross flow between markets that it is nearly impossible to identify a trading opportunity aka. a price to lean on. Also, the big volume has moved from the lit market back to OTC since they are sick of getting robbed.

No as far as the professional users of flow goes, they are just screening the markets for stale orders to lean on, they have access to OTC venues to get an indication which direction the paper is trading and they monitor changes in correlations.

They also look into microstructure but opposed to the flimsy stuff Jigsaw, ATAS or Bookmap provides, they are modeling the FIFO queue in order to find out weither an order should stay for the 0+ trade or cancel/replaced.

Do they use delta or bids vs offers hit? Yes, some do, but it is just a miniscule part of the trading. More important, they monitor the trading of hundreds or thousands of instruments to get an idea which asset is out of whack. As others already mentioned, the data and creditlines necessary to trade on that level is so expensive that it is just not worth exploring for retail.

If you do not have a specific edge to exploit with your "orderflow" concepts, just don't bother programming an algo around it. Most of it is BS to be honest.


Good Luck
"



I would like to hear your opinions about what he said. I dont want to waste my time if what NoBsDaytrading used to work and now doesn't anymore.
I know I sound like a newbie because I am. I am trying to learn about the nature of the markets and how they work but after reading this I became skeptical of everything for some reason

Thanks

Hi, what you present is certainly interesting. I always thought of "Orderflow" as a discretionary tool. There's no magical solution to profit in trading, you have to develop your own edge and be consistent at it. Whether it's moving averages, raw price action, delta, foot print, fundamental analysis etc... no one knows with certainty what the market will do next. Find something that makes sense to you that will help you "rationalise" the market, give you the confidence to pull the trigger on a trade, and remain consistent in the long run. Good luck!

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  #175 (permalink)
 joe s 
sacramento ca us
 
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you can get some useful info from a lot of different techniques for trading even if you don't trade that way

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 hyperscalper 
boise idaho
 
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Azul1 View Post
Hi, what you present is certainly interesting. I always thought of "Orderflow" as a discretionary tool. There's no magical solution to profit in trading, you have to develop your own edge and be consistent at it. Whether it's moving averages, raw price action, delta, foot print, fundamental analysis etc... no one knows with certainty what the market will do next. Find something that makes sense to you that will help you "rationalise" the market, give you the confidence to pull the trigger on a trade, and remain consistent in the long run. Good luck!

Sent using the futures.io mobile app

OK, I'd like to make some comments that could help. But I am biased toward an extreme degree
of specialization; and also to custom coding of high performance algorithms; and toward the
higher cost data feeds which may contain the hidden signals to give you Real Signals for
Market direction.

My work is solely focussed on Futures day trading, or Scalping; using NinjaTrader 8 with
fully custom algorithmic indicators (nothing off the shelf is really good enough) and also the
use of a dedicated server, situated fairly near to the Chicago area, which also presupposes
that you either can system-manage, or you know somebody who can...

Given these constraints, and the nearly impossible goal of predicting with high probability
which direction the market will move in the near future.... given all of this, the only way
I can help is by giving general advice on the setup which is needed to achieve
consistent success. CONSISTENT success is the goal; so that, on a daily basis, you
are profitable; and your Account Equity is not wildly gyrating from day to day, and you
are not overly leveraging your buying power, thus putting your survival at risk...

I am a Technical Trader, relying upon Real Time Technical Analysis. I don't do Swing Trades,
and I might be involved in many hundreds of individual trades, which form part of a
"Meta Trade" involving many Micro contract positions, all working together to allow me
to be successful by controlling a couple of KEY FACTORS.

1) RISK CONTROL involves using multiple Low Risk positions, as a Group, so that both
Cost Basis (your Trade Break Even price) and Risk Levels can be "modulated" as the
trading action proceeds.

1a) ...essential to Risk Control is that you NOT be overly-leveraged; so you can add
to your position size, or reduce your position size; without fully Stopping Out during
Price Adversity, nor having to be All In with a position size that puts you at high
risk. This may involve working with the Micro contracts (which are 1/10th the size
of the Mini contracts) instead of the Mini contracts. By "spreading out" your Entry
Price levels, your Cost Basis is the Volume Weighted Average Position Price; and
also your Risk Level is your current number of outstanding positions which form a
Macro Position.

2) LIFO Accounting for Partial Profits as the Macro Position proceeds. Most brokerages
use a FIFO accounting method; but this is not desirable in helping you to know how
much your Profit Taking is contributing to your Open Losses. A FIFO technique helps
you to say "OK, My Macro position is losing $100; but I've taken $75 already in partial
profits, so I'm really losing only $25 as I continue to 'work' the Trade".

3) You'll want to anticipate tolerating Price Adversity which may be in the range of
50 market ticks or so; in the normal course of your trading. You may reduce a
portion of your position, but you must be ready to increase your aggregate position
size whenever possible; and that will be directed by your Trend Direction analysis.

The above observations are off-topic and don't address the usage of Time and Sales
Analysis, nor Depth of Market Analysis; I realize that. I've already said that although
Time and Sales (what I call "Inventory" Analysis) is valuable; it doesn't help you
Pin-Point precisely when Trending is favorable to you.

So we are left with what I regard as the best way to Identify "true trending" through usage
of the Depth of Market, and developing a "bias" Indicator which will tell you when trend
is favorable to your position (so that you can add to your position) and when you
should possibly reduce your position size, or take individual Partial Profits to contribute
to your "in pocket" cash, which offsets your open losses as the aggregate position
proceeds.

You'll need a platform which is programmable, such as NinjaTrader 8 which uses compiled
very high performance C# code to develop Indicators. Also, you'll need access to a
Market Depth feed, which is likely to be Rithmic at NinjaTrader brokerage. If you have
a substantial account size, then you can tolerate the fact that your margin requirements
could be very much worse, than with the normal data feeds; but you'll need that Market
Depth from Rithmic to do analysis.

Using the LeeLoo proprietary trading service, you will have access to Rithmic Data, and you
may be able to qualify for paying performance accounts in that way.

IN ANY TRADING, you simply cannot "flip a coin" and determine which direction to trade,
either "long" or "short" as they say; and have any hope at all of surviving. ANALYTICS
which are predictive of Market direction MUST BE the starting point for everything further
down the chain, where Execution is the least important.

Consider that Market Makers are NOT driven by "Retail Buying and Selling pressure" but are,
instead, the prime drivers of all Market direction; where Retail players are simply followers.
You'll constantly be told things like "Buyers are in control of the market today, which is
why the price is rising." as though the Retail participants control Market direction. At least
in Futures markets, this is Absolutely NOT True. It is what I'd call a "Convenient Fiction".

Can you tell that I'm not going to give you a specific solution here, but simply to get you
thinking about where the Holy Grail may exist? lol

IF there is a Holy Grail for shorter term trading; or scalping day trading.... then that Holy
Grail is to be found in the analysis of The Order Book, or Depth of Market, abbreviated
as the DOM. Analysis of the DOM will tell you where the market is moving on a short
term basis.

WHY? ...and here I'm just giving you some food for thought. Let's agree to stipulate one
assumption, for the purposes of argument. "Market Makers know where they want to move
the market; meaning that they have a Plan on any given day; and they use their own Bids
and Offers distributed on a constantly changing DOM, in order to maximiz(s)e their Profits,
as they use Retail Players to achieve their objectives."

When Market Maker wants to lift the Market Price, she simply removes her Offers, and also
then begins pushing her Bids, to simply "over-power, overwhelm" the Retail players'
buying and selling tendencies. When Prices rise, Retail players become Buyers; and when
the Price falls, Retail players become Sellers. Retail players are "followers" and Market
Maker is the Prime motive force for Price movement.

1) Time and Sales analysis. Here we see a Limited Value in looking at Buying and Selling
transactions. We can understand why all Markets move in a "sawtooth" fashion. It is because
Retail players BUY (from Market Maker) as the Price rises, and Retail players SELL (to Market
Maker) as the Price falls. Thus, some "Inventory Analysis" which involves tallying shorter term
"Net Market Maker estimated position against the Retail action" can help you to identify
the tops and the bottoms of the sawtooth movements. At the top, Retail players have been
(for the most part) Buying; so Market Maker has been selling to them; and thus Market Maker
becomes relatively "short"; and at the bottom, Market Maker has been buying from Selling Retail
players, and so has been shifted relatively "long" in Inventory.

SO TIME AND SALES ANALYSIS has a value in helping to provide what I would call a
"situational awareness" which may help us to measure a process responsible for the tops
and bottoms of the "sawtooth" micro movements in a Market.

....I'd better continue in another segment...

hyperscalper

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  #177 (permalink)
 joe s 
sacramento ca us
 
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Thanks hyperscalper good info

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 SBtrader82 
Rovigo (ITALY)
 
Experience: Intermediate
Platform: SierraChart, MotiveWave
Broker: Rithmic, Dorman, Interactive Brokers
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hyperscalper View Post
OK, I'd like to make some comments that could help. But I am biased toward an extreme degree
of specialization; and also to custom coding of high performance algorithms; and toward the
higher cost data feeds which may contain the hidden signals to give you Real Signals for
Market direction.

My work is solely focussed on Futures day trading, or Scalping; using NinjaTrader 8 with
fully custom algorithmic indicators (nothing off the shelf is really good enough) and also the
use of a dedicated server, situated fairly near to the Chicago area, which also presupposes
that you either can system-manage, or you know somebody who can...

Given these constraints, and the nearly impossible goal of predicting with high probability
which direction the market will move in the near future.... given all of this, the only way
I can help is by giving general advice on the setup which is needed to achieve
consistent success. CONSISTENT success is the goal; so that, on a daily basis, you
are profitable; and your Account Equity is not wildly gyrating from day to day, and you
are not overly leveraging your buying power, thus putting your survival at risk...

I am a Technical Trader, relying upon Real Time Technical Analysis. I don't do Swing Trades,
and I might be involved in many hundreds of individual trades, which form part of a
"Meta Trade" involving many Micro contract positions, all working together to allow me
to be successful by controlling a couple of KEY FACTORS.

1) RISK CONTROL involves using multiple Low Risk positions, as a Group, so that both
Cost Basis (your Trade Break Even price) and Risk Levels can be "modulated" as the
trading action proceeds.

1a) ...essential to Risk Control is that you NOT be overly-leveraged; so you can add
to your position size, or reduce your position size; without fully Stopping Out during
Price Adversity, nor having to be All In with a position size that puts you at high
risk. This may involve working with the Micro contracts (which are 1/10th the size
of the Mini contracts) instead of the Mini contracts. By "spreading out" your Entry
Price levels, your Cost Basis is the Volume Weighted Average Position Price; and
also your Risk Level is your current number of outstanding positions which form a
Macro Position.

2) LIFO Accounting for Partial Profits as the Macro Position proceeds. Most brokerages
use a FIFO accounting method; but this is not desirable in helping you to know how
much your Profit Taking is contributing to your Open Losses. A FIFO technique helps
you to say "OK, My Macro position is losing $100; but I've taken $75 already in partial
profits, so I'm really losing only $25 as I continue to 'work' the Trade".

3) You'll want to anticipate tolerating Price Adversity which may be in the range of
50 market ticks or so; in the normal course of your trading. You may reduce a
portion of your position, but you must be ready to increase your aggregate position
size whenever possible; and that will be directed by your Trend Direction analysis.

The above observations are off-topic and don't address the usage of Time and Sales
Analysis, nor Depth of Market Analysis; I realize that. I've already said that although
Time and Sales (what I call "Inventory" Analysis) is valuable; it doesn't help you
Pin-Point precisely when Trending is favorable to you.

So we are left with what I regard as the best way to Identify "true trending" through usage
of the Depth of Market, and developing a "bias" Indicator which will tell you when trend
is favorable to your position (so that you can add to your position) and when you
should possibly reduce your position size, or take individual Partial Profits to contribute
to your "in pocket" cash, which offsets your open losses as the aggregate position
proceeds.

You'll need a platform which is programmable, such as NinjaTrader 8 which uses compiled
very high performance C# code to develop Indicators. Also, you'll need access to a
Market Depth feed, which is likely to be Rithmic at NinjaTrader brokerage. If you have
a substantial account size, then you can tolerate the fact that your margin requirements
could be very much worse, than with the normal data feeds; but you'll need that Market
Depth from Rithmic to do analysis.

Using the LeeLoo proprietary trading service, you will have access to Rithmic Data, and you
may be able to qualify for paying performance accounts in that way.

IN ANY TRADING, you simply cannot "flip a coin" and determine which direction to trade,
either "long" or "short" as they say; and have any hope at all of surviving. ANALYTICS
which are predictive of Market direction MUST BE the starting point for everything further
down the chain, where Execution is the least important.

Consider that Market Makers are NOT driven by "Retail Buying and Selling pressure" but are,
instead, the prime drivers of all Market direction; where Retail players are simply followers.
You'll constantly be told things like "Buyers are in control of the market today, which is
why the price is rising." as though the Retail participants control Market direction. At least
in Futures markets, this is Absolutely NOT True. It is what I'd call a "Convenient Fiction".

Can you tell that I'm not going to give you a specific solution here, but simply to get you
thinking about where the Holy Grail may exist? lol

IF there is a Holy Grail for shorter term trading; or scalping day trading.... then that Holy
Grail is to be found in the analysis of The Order Book, or Depth of Market, abbreviated
as the DOM. Analysis of the DOM will tell you where the market is moving on a short
term basis.

WHY? ...and here I'm just giving you some food for thought. Let's agree to stipulate one
assumption, for the purposes of argument. "Market Makers know where they want to move
the market; meaning that they have a Plan on any given day; and they use their own Bids
and Offers distributed on a constantly changing DOM, in order to maximiz(s)e their Profits,
as they use Retail Players to achieve their objectives."

When Market Maker wants to lift the Market Price, she simply removes her Offers, and also
then begins pushing her Bids, to simply "over-power, overwhelm" the Retail players'
buying and selling tendencies. When Prices rise, Retail players become Buyers; and when
the Price falls, Retail players become Sellers. Retail players are "followers" and Market
Maker is the Prime motive force for Price movement.

1) Time and Sales analysis. Here we see a Limited Value in looking at Buying and Selling
transactions. We can understand why all Markets move in a "sawtooth" fashion. It is because
Retail players BUY (from Market Maker) as the Price rises, and Retail players SELL (to Market
Maker) as the Price falls. Thus, some "Inventory Analysis" which involves tallying shorter term
"Net Market Maker estimated position against the Retail action" can help you to identify
the tops and the bottoms of the sawtooth movements. At the top, Retail players have been
(for the most part) Buying; so Market Maker has been selling to them; and thus Market Maker
becomes relatively "short"; and at the bottom, Market Maker has been buying from Selling Retail
players, and so has been shifted relatively "long" in Inventory.

SO TIME AND SALES ANALYSIS has a value in helping to provide what I would call a
"situational awareness" which may help us to measure a process responsible for the tops
and bottoms of the "sawtooth" micro movements in a Market.

....I'd better continue in another segment...

hyperscalper

that's very interesting, I can see that you have some very deep knowledge of the market. Can I ask if trading is trade full time? if so do you trade your own capital or for a prop firm? just curious... I am just wondering if this level of details is achievable for a retail trader who is not trading full time.

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  #179 (permalink)
 hyperscalper 
boise idaho
 
Experience: Advanced
Platform: NinjaTrader adv C#/Java
Broker: NinjaTrader with LeeLoo
Trading: NinjaTrader 8 advanced Strategies and Indicators
 
Posts: 69 since Apr 2020
Thanks: 5 given, 83 received


SBtrader82 View Post
that's very interesting, I can see that you have some very deep knowledge of the market. Can I ask if trading is trade full time? if so do you trade your own capital or for a prop firm? just curious... I am just wondering if this level of details is achievable for a retail trader who is not trading full time.

If you are able to trade the U.S. morning session for a couple of hours, perhaps.

But there are many technical hurdles in achieving a level of precision that I was suggesting.

If you can code C# within NinjaTrader 8; or you dive in; then there is a chance you could
begin to do it...

Buying "off the shelf" indicators, for me at least, is just not valuable at all. You really need
to "dig" into the data to find the appropriate clues.

There are MANY alternative methods in trading; but they're just not for me.

Currently, my approach is to get a LeeLoo performance account with huge buying power
and suffer an 80/20 profit share; until I have the personal equity to switch over.
That's my "prop firm" plan; and there's probably no better than LeeLoo for Futures
trading, I'd say; but "your mileage will vary"

That's gonna work for me; but I refuse to trade without high certainty of Consistency
in the daily outcomes; since I am a highly technical scalper.

So.... it depends on your level of commitment and lifestyle; keeping in mind that
my personal journey won't be the same as yours... [EDIT] You could just
decide to commit ONE YEAR, EVERY DAY to the learning curve; and then
evaluate your situation then; you'd be surprised how much you could
achieve !!

Just find a "niche" and exploit that specialization... best advice there is.

hyperscalper

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  #180 (permalink)
 joe s 
sacramento ca us
 
Experience: Intermediate
Platform: Ninja Trader,Trade Station
Trading: es
 
Posts: 117 since Aug 2015
Thanks: 96 given, 75 received

hyperscalper are you using a server at the exchange to trade if so what is the cost I have seen a wide price difference not sure if its worth it
I just started to look into that thanks

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