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Order Flow Tools? Really?


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Order Flow Tools? Really?

  #1 (permalink)
Leep
Chicago, IL
 
Posts: 1 since Apr 2021
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First time post... Over 35 years in the industry but I have been completely gone the last 12 years with a disability in the family. I have a renewed interest in micro-futures.

I literally have not looked at a chart in about 10 years. Was short and made some money in 2008, but never bought back in. Ugh! Before, I had jobs selling most of the popular software we all used back then with few surviving well if at all. NT and Sierra survived fairly well.

Anyway.. --> -->WHAT HAPPENED??? <-- >-- The trading screens these days are a clustered mess!!

Did I miss something the last 10-12 years? I don't remember order flow tools for retail/independent day traders being as popular as they are today for futures. It was pretty well known then that the bids/asks were constantly being spoofed and the big institutional orders were well hidden by complicated algorithms.

It didn't work well back then is it really working now or has it just become an easy "sell" tool for IB's and Brokers?

Tell me I am wrong and I will dig in..........

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  #2 (permalink)
 doyalalexander 
Dallas tx
 
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IMO.... It's neat to see the order flow. You are able to see orders stacked in the DOM and watch Time & Sales to see what really went through the tape... did the iceberg get eaten, or did it jump out of the way... It's just another arrow in the quiver.

For me... Trend lines, Fibs, and price action rule my chart and decisions..

Also.... I really enjoy trading micro futures... very low stress easy way to sell into strength and buy into weakness

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  #3 (permalink)
 Mook 
Northbrook, IL
 
Experience: Intermediate
Posts: 9 since Jan 2010
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I have a somewhat similar story, but have been out for approx. 5 years. Trying to find my way again and have been looking into order flow using Bookmap. It is a platform which seems to be built around order flow. I haven't actually used it and cannot recommend or provide any great insight, but there is a webinar this week that you can check out.

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  #4 (permalink)
 Carnac 
Chicago, Illinois
 
Experience: Master
Platform: NinjaTrader, Sierra Chart
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"Order Flow" can be defined in many different ways.

Resting orders are important so that one can see icebergs and yes there are complex ways that algo traders hide their large trades (a separate algorithm slices up big size) but what does get filled cannot be hidden. I like to track & focus on what cannot be hidden.
Order Flow

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  #5 (permalink)
 Gianni78bari 
Bari, Italy
 
Experience: Beginner
Platform: NinjaTrader
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Leep View Post
First time post... Over 35 years in the industry but I have been completely gone the last 12 years with a disability in the family. I have a renewed interest in micro-futures.

I literally have not looked at a chart in about 10 years. Was short and made some money in 2008, but never bought back in. Ugh! Before, I had jobs selling most of the popular software we all used back then with few surviving well if at all. NT and Sierra survived fairly well.

Anyway.. --> -->WHAT HAPPENED??? <-- >-- The trading screens these days are a clustered mess!!

Did I miss something the last 10-12 years? I don't remember order flow tools for retail/independent day traders being as popular as they are today for futures. It was pretty well known then that the bids/asks were constantly being spoofed and the big institutional orders were well hidden by complicated algorithms.

It didn't work well back then is it really working now or has it just become an easy "sell" tool for IB's and Brokers?

Tell me I am wrong and I will dig in..........

IMVHO the second: an easy "sell" tool for IB's and Brokers

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  #6 (permalink)
idkau
Phoenix Arizona
 
Posts: 3 since Mar 2021
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I use footprint charts now and feel blind without them. The DOMs are great also but I feel we have more information available to us which I think can help us. Check out quantower as the app has all of the tools in one.

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  #7 (permalink)
 
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 AllSeeker 
Mumbai, India
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I must link you to this thread, its a goldmine if you are interested in the topic, irrespective of whether you are for it or against it.

Personally orderflow doesn't click with me and I'm highly averse to spending money on fancy stuff. So I'm not using it, that's about it.

Just my pov

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  #8 (permalink)
 edge trader 
London, UK
 
Experience: Intermediate
Platform: NT
Trading: Emini ES
Posts: 9 since Jun 2017
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Yes, you are right. It has been flogged by internet trading celebrities who never share their success rate or trading statements. The only thing you will hear is 24 hrs later they say 'I said this would happen and lookie here it did. I never predicted it , but it happened just like I said',

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  #9 (permalink)
NondualTrader
Rochester, NY
 
Posts: 9 since Aug 2020
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Leep View Post
First time post... Over 35 years in the industry but I have been completely gone the last 12 years with a disability in the family. I have a renewed interest in micro-futures.

I literally have not looked at a chart in about 10 years. Was short and made some money in 2008, but never bought back in. Ugh! Before, I had jobs selling most of the popular software we all used back then with few surviving well if at all. NT and Sierra survived fairly well.

Anyway.. --> -->WHAT HAPPENED??? <-- >-- The trading screens these days are a clustered mess!!

Did I miss something the last 10-12 years? I don't remember order flow tools for retail/independent day traders being as popular as they are today for futures. It was pretty well known then that the bids/asks were constantly being spoofed and the big institutional orders were well hidden by complicated algorithms.

It didn't work well back then is it really working now or has it just become an easy "sell" tool for IB's and Brokers?

Tell me I am wrong and I will dig in..........

I like this question and it's one that I've thought about quite a bit. There's a tremendous amount of hype around order flow but it's usefulness depends a lot on the environment in which it's being applied. A big part of the advertising around order flow (DOM, footprint, etc.) is that prop traders use these tools and so independent traders "should" use them too. What the software sellers, educators, and so on don't tell people is that prop traders' use of order flow is often quite a bit different from how the average independent trader will be able to use it. For example, many prop traders are focused on trading around major economic announcements and they'll often have various positions open during these events on a number of different correlated and inversely correlated instruments based on historical relationships as well as what they're seeing in the current order flow. Most independent traders aren't going to have the capital to wait for less frequent events and trading very large when those events do occur. Nor are they going to have access to Bloomberg and Reuters Terminals, teams of traders to formulate a plan with, very competitive RT costs, etc.

I remember listening to a presentation from Peter Davies (Jigsaw Trading) saying that most prop traders have a win rate of around 50%. That means that the intrinsic "edge" in order flow information is fairly minimal and, as with other styles of trading, that trade management plays a much larger role in success. Based on that, and based on watching some of these gentlemen trading live, it can be ascertained that they're either good at structuring good risk/reward plays or being highly dynamic with position sizing or both. The trade off with good risk/reward is that the probability on any individual trade will not tend to be particularly high and so independent traders may have a tough time being able to tolerate the drawdown and stick to the plan. On the other hand, a prop trader is less likely to be tied too closely with the capital since he's trading OPM (still needs to trade well to keep his job and earn a living of course but there are differences - that's a whole other topic). That being said, independent traders can find good risk/reward plays and order flow can be helpful at times with that (though good risk/reward trades are generally based on looking at market structure and trade location in the form of normal charts and/or volume profile and Market Profile, rather than looking for those sorts of opportunities in the order flow).

Where most independent traders lag far behind prop traders is in the ability to be highly dynamic with position sizing - losing small when wrong, pressing bets and winning big when right. If you're a prop trader who's backed by a firm that has potentially hundreds of millions of dollars, that trader is going to be able to scale in and out of trades to a much greater extent than a small trader working for his own account. So for a prop trader order flow can be very useful since they have very immediate information on whether to keep pressing into their position or backing off. They're using the actual transactions, relative rate at which trade occurs, ease of movement, etc. much more so than the bids and offers, but ideas like reloading and pulling orders are still considered.

That being said, issues with spoofing, hidden orders, the speed at which decisions need to be made, the fact that context is often far more important than the order flow occurring at a smaller scale, and order flow becomes less worthwhile for independent traders. In some instruments were spread trading is highly prevalent, the usefulness of order flow is diminished further since volume is dispersed over multiple instruments and the degree of directional conviction is potentially less significant. I spent a a large amount of time trading using order flow, became profitable with it, and still went back to trading price action because the benefits of order flow are relatively minor for my uses. If I were in a prop environment I'd put much more weight on it because I'd scale in and out much more aggressively. However, I'm not in that setting and I see plenty of good trades just based on a chart so there's no point in distracting myself with other things that don't add much for independent traders. I'd much rather be aware of the bigger picture and it's difficult to do that when watching order flow very closely. I've watched some order flow traders do a great job trading (prop guys) who are using the information to execute on very specific ideas in very specific circumstances. I've seen far more who enter trades in absolutely terrible locations because they're out of touch with the context and get drawn in by the hypnotic effects of the order flow.

Part of the draw for independent traders is the fact that order flow is largely numbers-based so they think it'll be a more exact way to approach the markets. They want to feel more secure in an uncertain environment and think order flow will give them that. What they don't realize is that there's still a large amount of subjectivity and intuition involved in interpreting those numbers (and if that wasn't the case why are prop traders win-rates still equivalent to a coin toss despite being highly trained in using order flow?). By the way, don't buy into the salesman saying that charts aren't useful. That's just part of their pitch. In my experience I've come to find that there are two kinds of traders: those who find charts to be useful and those who are horrible at reading charts. The software salesman and educators are like the people who sold shovels and other prospecting tools during the gold rush, they're certainly making a lot of money, but not necessarily from using what they're selling.

Ultimately though, order flow, price action, indicators, Market Profile, and so on are all just different lenses to view the same market. If someone is using a tool that they personally find to be useful then it really doesn't matter what other people think about it. Trading rewards pragmatism - if it works, it works. These are my current views based on my direct experiences and I'm completely open to changing my opinions if evidence points otherwise.

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  #10 (permalink)
 
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 phantomtrader 
Reno, Nevada
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The market is all numbers. Order flow is part of it. How you define order flow is something else - there's volume, bid/ask, volume delta, bid/ask delta. It's very true that there's a lot of spoofing going on in all markets. Just watch the bid/ask depth on Jigsaw on the ES or the NQ. But the number of trades that actually went off and the total volume are real numbers. Volume profile is constructed from real numbers.
Attached are a couple of 10 tick scalps from this morning's push down. The indicator is Volume Delta from ninZa.co. The indicator is set at UpDownTick_RealVolume (there are a few other settings).
As you can see from the two 5 minute charts, there's a huge amount of selling going on. So how to trade it? Find a pullback on the 10 second chart (top chart).
I have Jigsaw up as well but it's really not useful when the NQ is so volatile - I look at the total volume column which I have to reset manually when I need to see which way the total volume is running.

So yes, order flow is useful. Some of the tools are good (could stand some improvement). It's a good way to learn the behavior or whatever market you're trading.


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Last Updated on May 16, 2021


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