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Is Orderflow An Outdated Concept?


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Is Orderflow An Outdated Concept?

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  #41 (permalink)
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The reddit post seems to be from a trader going way beyond the retail level. Isn't the retail level all about getting the dropped fruit as opposed to chopping down and carrying out the trees? I'm content trying to capture movements riding on the big guys backs. Wouldn't this mean the reddit comment need not make a retail trader so skeptical?

Is there any theoretical and profitable truth that riding on the backs of the big guys works?

Just like TA assumes crowd behavior yields patterns, couldn't the same be said for orderflow?

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  #42 (permalink)
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i would have to agree with the author ! i would love to have the millions spent on this bull shit order flow software and the money lost by the suckers that bought into there concepts . may be one day mike will require these order flow experts to show a couple years worth of the brokerage statements ,so we can see how much money they have made eating there own cooking ... hint ... they can not really trade. they just sell trader stuff

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  #43 (permalink)
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josh View Post
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.

Great definition. I recommend for every new trader to print this out and save it.

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  #44 (permalink)
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Oh boy! Good old orderflow! What can we do without it (or I believe I should be saying `what can we do with it`.)

I have had the orderflow idea sold to me by the same vendors that have already been mentioned in some of the postings made already on the thread as well as some not mentioned here at all. So I do not wish to mention the name of any vendor- I virtually passed through the lot.

Orderflow is presented as an 'undeclared holy grail' of trading. In my opinion the reason they do not out-rightly declare it a holy grail is (I guess) it is now an accepted saying in the trading community that there isn't one. Having said this all you have to do is take a peek at the way the vendors present it and you will obviously reach a conclusion.

So just like any other gullible member of the retail trading community I fell for it and did their courses and/or paid for their software. The temptation to mention the names of these orderflow software vendors and teachers/courses is great but i choose not to. However suffice it to say that some of the vendors/teachers are better informed in the orderflow concept than others.

The DOM: Some of the vendors advise that you should learn to make trade decisions off the DOM alone initially. One of the softwares I used even had the provision for you to make annotations as well as draw lines on the DOM. I tried it. But no matter how hard I did (in keeping with the dictates of the course) it was not practicable. If you would like to position yourself for the day (as a day trader) using the DOM alone, then that would obviously qualify as a Sisyphean task to say the least. IMO even scalping off the DOM alone would fairly be described as a difficult task depending on your scalping targets.

The Footprint Chart: is sold to would be disciples as the place where proceedings on the DOM are translated into actual and visible transactions between buyers and sellers. I must say true to words, it is. It probably represents the only part of the orderflow phenomenon that is practically useful again IMO; but how useful? In isolation, not very. In a chart with well marked out demand/supply (or support/resistance if you would) areas, yes very useful. And that is how I use orderflow. In summary I only use the footprint chart while I have a regular candlestick chart with supply/demand zones well plotted on the chart. So as you can already imagine, the demand/supply zones already tell you where to start expecting those reversible features you are suppose to see in Delta, Single Print, Trapped traders, Point of control, Imbalances (stacked or not) etc etc.

The Heatmap: of all the components of orderflow perplexes me the most. I tend to think that anyone who uses it to make a trading decision must have made the `leap of faith`before sitting down at his trading desk. I could be wrong and I hope I am; I do not want to draw the ire or indignation of traders who use the heatmap. Suffice it to say those who use this resource must be outstanding.

I summary as a simple level headed trader, do I write off orderflow trading? Obviously not. Will I recommend it as a standalone method of trading? Again obviously not. I just admitted I use the footprint chart which (roughly) about sixty percent of the time helps me make a good decision. Now here is the big question; could I have made those good decisions without the footprint chart? The candid answer would be a thoughtful yes. In using the footprint chart alone would I consider myself an orderflow trader? I believe the answer is a resounding no!
Between the footprint chart and my traditional candlestick chart which is more important to me? Of course my candle stick chart.
Is there some use in orderflow trading for traders. Yes. Do I think orderflow should be used in exclusivity? No.

Here is the heart warming aspect of things. I am beginning to see components of orderflow being developed by programmers and coders; for example, I have seen a footprint chart indicator on the futures.io website. I have also seen gamma indicators in a host of other sites for sale. Perhaps other components of orderflow trading also abound. I believe taking the bits and pieces you need here and there might save you the exorbitant costs charged by orderflow software vendors if you don't need all the components.

In summary I would be hesitant to promote orderflow trading in isolation to any retail trader (most especially a newbie) trading in the present dispensation.

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  #45 (permalink)
munich bavaria germany
 
 
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@TradeTheTrade:

I feel like you should read another reply from this dude:

"I'm not saying it is not possible, I'm just saying that it is not worth it.

Trading is very simple, there are just three ways of making money: You are faster (HFT, gaming the queue), you are smarter (you have a research edge, better data, man power) or you cheat. Note that it is always about the relative advantage.



So yes, you have computing power...but your competition has more computing power. You may be very smart, but the competition employs ten guys like you.



Do you actually know how much effort it is to build and maintain a database for accurate realtime tick data over multiple instuments? It is usually a 2-3 man effort just for the data. No way you can replicate this on your own.



The only way for retail to make money is to find a market that nobody knows, nobody cares about or the big guys are not allowed to trade due to regulations or size constraints.



If you trade the mature markets you go head to head with the best of the best, which is absolutely not necessary to make a very decent living as a trader. Look for the low hanging fruit, don't battle for the high hanging ones with the top 1% of the competition.



I was a STIR trader for a long time and I employed all those "orderflow" concepts that are now sold by NoBSDaytrading, Jigsaw et al. ...and they work, of course they do. But in my days you used to have dozends of trades a day and it was rather easy to make a living. Today there is no way you could trade like this in the major markets and only those, who are doing it for 20 years already have enough experience to still pull the trigger on the few trades that remain."


I think it pretty much sums up everything.
Trade a market that you understand and have edge over other guys. You have no mentor so you've gotta take what you already have and transfer that to your desired skill set.
If you work in the service industry trade small cap service stocks. All those "orderflow" guys never talk about context which is probably 80% of any trade. But in order to understand context, you need to understand the market you are trading.

Do you know who trades treasuries? Why and how? What are the goal of a spreader and what are his triggers? In which way are treasuries linked to Eurodollars, FED funds, FX Forwards and why?
You have no idea, the only thing you have is the DOM and that "setup" you see...and that's why you have no confidence to hold winners.

If you try to get a hold on trading, there is the niche route which I already described and it will probably take you 5 years to become profitable, asumed that you do this besides your job.
If you have cash to spare and want to cut time, see what Gary Norden can do for you. He's a former market maker and offers paid mentorships. I have no first hand experience, but read his book and his experiences and tips are pretty much in line with how I trade today.

Good Luck

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  #46 (permalink)
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Ah yeah, btw if anyone is interested what this guy ment with modelling queue position:

http://market-microstructure.institutlouisbachelier.org/uploads/91_7%20MOALLEMI%202014-12-paris-mm-queue-value.pdf

This is what you orderflow guys are up against and this even is the simple entry level stuff. In other words

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  #47 (permalink)
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CannonTrading View Post
Asked my fellow broker, Joe Easton, whom I like his market read what he thinks and he shared the following:

Good job doing your homework and asking the right questions. Part of being a good trader is to think rationally and independently. It is correct to search for information and be skeptical of the answers and test to see if they work in your experience. Every trader will have slightly different opinions and experiences and that is what makes a market.
To me orderflow is an outdated concept. Since it is a fact traders can hide order sizes and cancel bid or asks at anytime already pokes holes in the idea that this information could be helpful. I realize there are some successful traders that use orderflow but in my experience I do not find it helpful. I personally believe in technical analysis because you are using information that is a fact…prices traded. You cannot cancel a position already filled and printed on the chart. Using information that has already happened to me is more useful than using information that may or may not happen.

I would like to expend on what you have said here because I don't think your statement above is correct (or partially incorrect):

Main problem with 99% of new (aspiring) traders is that they not only looking for a single "tool" (i.e. OF) to help them uncover the secret agenda of Mr. Market, but also missing on the fundamental understanding of how the market works. Specifically, the auction process of the market itself and what makes it tick (no pun intended). I find this alarming that the vast majority of intra-day traders (especially those who claim to use OF) don’t realize that there are TWO types of participant (sellers and buyers) in the market – passive and aggressive. The OF concept in general should be divided into two segments: one for analyzing the traded volume (orders that already happened and what the Foot Print is designed to organize, show and highlight) and the second part for analyzing the orders that MAY happen (this is, essentially, the orders you see on the DOM and on the Heat Map, which is nothing more than an enhanced representation of the DOM using graphical interface and history).

Understanding the dynamics between both of these components (passive and aggressive traders) are crucial for proper utilization of the Order Flow.

Still, OF alone in my humble opinion is only one side of the puzzle and cannot be successfully used for trading without being combined with market context, awareness of pollical / financial events that may render any support / resistant or the OF pattern useless. Of course, proper design of the trading strategy (risk, size, rules for entering and exiting the trade, targets) are vital as well.

Hope this helps.

Mek.

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  #48 (permalink)
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Have not been able to use as the inventors claim. Maybe it is of some value, but not to my trading.

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  #49 (permalink)
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Meklon View Post
I would like to expend on what you have said here because I don't think your statement above is correct (or partially incorrect):

Main problem with 99% of new (aspiring) traders is that they not only looking for a single "tool" (i.e. OF) to help them uncover the secret agenda of Mr. Market, but also missing on the fundamental understanding of how the market works. Specifically, the auction process of the market itself and what makes it tick (no pun intended). I find this alarming that the vast majority of intra-day traders (especially those who claim to use OF) don’t realize that there are TWO types of participant (sellers and buyers) in the market – passive and aggressive. The OF concept in general should be divided into two segments: one for analyzing the traded volume (orders that already happened and what the Foot Print is designed to organize, show and highlight) and the second part for analyzing the orders that MAY happen (this is, essentially, the orders you see on the DOM and on the Heat Map, which is nothing more than an enhanced representation of the DOM using graphical interface and history).

Understanding the dynamics between both of these components (passive and aggressive traders) are crucial for proper utilization of the Order Flow.

Still, OF alone in my humble opinion is only one side of the puzzle and cannot be successfully used for trading without being combined with market context, awareness of pollical / financial events that may render any support / resistant or the OF pattern useless. Of course, proper design of the trading strategy (risk, size, rules for entering and exiting the trade, targets) are vital as well.

Hope this helps.

Mek.

Good point. At first, no one knows anything. We (me included) came into this looking for a magical indicator. Coming from the programming background, I dreamt of writing a piece of code that would run on a co-located server and just cha-ching all day (visualize donald duck with $ symbols in his eyes). Then after a while, it dawns on you that for every buy there is a sell and then you spend the next few months scratching your head trying to figure out what people mean when they say they see buying or selling in the flow.

Aggressive vs passive orders is one of the most important concepts to understand. It is not always possible or easy to determine the aggressor. If a product spans multiple exchanges (like WTI, Brent etc. that trade on both Nymex and ICE), you will need to have your own calculations in place rather than rely on what the exchange disseminates. Understanding implied orders becomes really important if you truly want to determine the aggressor in this case.

For anyone interested, see the CME documentation: https://www.cmegroup.com/confluence/display/EPICSANDBOX/MDP+3.0+-+Trade+Summary+Order+Level+Detail


Quoting 
Trades with a Defined Aggressor
  • An aggressor is defined as any customer order that triggers a trade immediately upon entering the book.

Trade without a Defined Aggressor
  • There are two scenarios where a trade may not have a defined aggressor (tag 5797-AggressorSide=0).
  • When an aggressing customer order trades against implied orders, at least one Summary Level will not have a defined aggressor.
    • The Summary Level with an undefined aggressor type represents the customer orders that created the executed implied orders. Order Details are only sent for the customer orders. Any unreported quantity represents the participating implied orders. Side (buy and/or sell) are not defined.
  • Market Open or Re-Open after a Velocity Logic Event


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  #50 (permalink)
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To the Original poster I feel for you. You asked what you believed was a simple question and instead you opened up the trading version of Pandora's Box.


I've used order flow in my trading for about 2 year. I own both Jigsaw and Bookmap. I even own the first NoBSdaytrading course. Here are some things I've learned. I cannot trade orderflow and I definitely can't do it from a standalone DOM. The numbers moved to fast to remember what they did at which price. I use Bookmap like a hunter uses a scope. You don't lay out in a field all day with your eye glued to a scope. I use it to try and refine my entry on an area that I was interested in trading. I found that if I stare at Bookmap all day I will make up trades.

I will share with you what saved me. Understanding risk management and position sizing. Risk management has a few heads to it but I believe the most important is understanding that no single trade deserves enough of your account to kill you.(search my name and you will find my crack spread gone wrong). The very close second is not taking trades outside of your trading plan. If the volatility is too great and I cannot pare down my size enough to keep my loss per trade below my limit of about 1% of my account then I don't trade. Oh and journaling. Especially in the beginning. To me if you don't at the minimum track your trades to see what happened before and during the trade how will you know if you are following the setup you tested and what adjustments to make at the end of a sample set.

Remember there are a lot of ways to trade. Some work, most don't. Some curve traders here don't even use charts in the traditional sense. But that's a different rabbit hole. This thing called trading you've decided to do is a lot of hard work. It's a lot harder when don't have someone that is doing it successfully who is willing to hold your hand.

Jason

P.S. @Hulk what part of Texas are you from?

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