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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)


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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)

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Peter Davies, Founder of Jigsaw Trading, will be monitoring this thread so that he may answer any questions that you post here relating to Jigsaw Trading products and services.

Please keep in mind that some customer service/technical support issues are best handled through proper channels at Jigsaw Trading.

Jigsaw Trading is known for their Order Flow tools that act as NinjaTrader add-ons, such as their combination DOM + Time & Sales tool, Reconstructed Tape, and Summary Tape. Peter Davies developed these tools after a number of false starts in his own trading which lead him to seek in-depth instruction in reading order flow. Peter Davies has a background in software development and is leveraging his experience to build better tools for traders.

In addition to this thread, I will also be asking Peter Davies to stop by on occasion for a casual webinar where he can answer questions via audio while also sharing his screen to visually demonstrate any points as needed. The date/time of those sessions will be announced here in this thread. These sessions will be limited to questions only, there is no prepared presentation. After the session ends, the recording will be posted in this thread.

You can find more on their website:
Day Trading ? Get Price Action & Futures Day Trading Software From Jigsaw Trading

Feel free to ask any questions below and we'll do our best to get them answered.

The futures.io (formerly BMT) "AMA" (Ask Me Anything) series is by invitation only. It is part of a new program we are launching shortly called "Certified Trustworthy", something that has been months in the making. I will provide all the details of this new program as soon as it is ready for launch.

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Hi Peter,

I will start with the first few questions...

a) What exactly is @DionysusToast, how do you pronounce it, and what does it mean?

b) When I talked to you, you mentioned that you sought out in-depth instruction in order flow. Where did this instruction come from? Do you have a mentor in this area, or was it a self-taught revelation?

c) Order Flow is a popular term these days, but few can objectively quantify or qualify the advantage of studying order flow without applying discretion. Do you think reading Order Flow is an art? Is it only useful for discretionary traders, or do you have algorithmic traders making use of certain tape reading techniques (beyond L1, and into L2 depth)?

Mike

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Big Mike View Post
Hi Peter,

I will start with the first few questions...

a) What exactly is @DionysusToast, how do you pronounce it, and what does it mean?

Thanks Mike.

Dionysus is the Greek God of wine, fertility (one does tend to lead to the other)and drunken revelry. The toast is along the same lines as the wine. It's a tongue-in-cheek 'lofty' sounding name that would have anyone that looked it up take me less seriously.


Big Mike View Post
b) When I talked to you, you mentioned that you sought out in-depth instruction in order flow. Where did this instruction come from? Do you have a mentor in this area, or was it a self-taught revelation?

Almost everything I do in trading was taught to me. I tip my hat to people that figured out how all this works. I was never the type to be able to figure it out for myself but I am the sort of person that wants to do things myself once I understand them. My journey was:

Richard Joyson AKA Mr Chart - A 2 day course in trading news/earnings stocks. That was my first look at Time & Sales/Level 2 but the order flow part was perhaps only 25% of the time spent. The rest was on trade location.

After some time with that, I really wanted more instruction on the order flow side and I couldn't find anything. I found Joel Parkers "Price Action Room" and told Joel I wanted some help with stocks. He didn't cover that, only futures. He said it would be useful and told me I'd probably want to switch to futures after seeing what he had. This really opened my eyes in terms of using order flow for position day trading. Joel was 100% right that I would not want to trade stocks after that.

A while later, I found the No BS DayTrading eBook from John Grady, I read the book/watched the videos and then took one of his 1 month webinars. This was more on scalping techniques, which is different from using order flow for position day trades. I wasn't looking to reinvent my trading at this point, just to understand how other people did things.

There is also one other guy, a prop trader who prefers remain anonymous that has been showing me other techniques, especially scalping tight consolidation areas.

I also took other courses related to trade location for position trading.

I will continue to take courses/learn from people that I think have something to teach me that I can fit in around my trading.


Big Mike View Post
c) Order Flow is a popular term these days, but few can objectively quantify or qualify the advantage of studying order flow without applying discretion. Do you think reading Order Flow is an art? Is it only useful for discretionary traders, or do you have algorithmic traders making use of certain tape reading techniques (beyond L1, and into L2 depth)?

Mike

I think 'art' puts people off. I think it's more of a skill like driving. I remember once taking an hours 'flight' in an Airbus flight simulator, at the end of the hour, I was uptight, sweating and had to peel my hands off the yoke, yet there are people that can get in a commercial airliner and fly without much thought. This is the way we develop skills, we go from conscious to unconscious competence.

When you tell mechanically minded people that you develop a gut feel, they think 'random', 'no rules', 'ethereal', 'damn hippies' or something like that. The same people will get in a car driving 55mph, see a dog jump out in front of them 25 meters away and know instantly whether to brake, swerve or hit the dog. You just get a feel for it. It takes less effort.

In terms of trading it with algorithms. There are some studies on line on SOBI - Static Order Book Imbalance that might be a starting point. Trading platforms don't exactly make it easy though. I haven't seen a platform that lets you backtest level 2 or even level 1 information. I think that using order flow information as a component in a strategy that position day trades is feasible.

Using order flow for scalping has it's issues because there is a lot of bluffing and faking going on. If you are the one doing the bluffing or faking, then it's probably something you could automate (if you can throw a few 1000 ES contracts at the market) but reading the bluffing & faking would be like programming a computer to play poker.

I think this article is interesting on "how to handle deliberate misinformation and how to make intelligent guesses based on partial knowledge" - automation of poker....

Are computers better at poker than humans, asks Robert Blincoe | Technology | The Guardian

I think this helps to define the complexity of the challenge anyway.

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Hi Peter,

If I remember correctly, you mention in one of your free webinars that you sometimes would see very large orders in the market –eg an iceberg – and the market would just fill and run this orders over. You couldn’t understand this until you met someone from the pit who said these are probably arbitrageurs or hedgers without directional bias.

But couldn’t you say demand is just demand ( or supply) and the market should rise/fall when large orders enter a certain direction ( regardless the purpose of the person/machine putting in the orders )?

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Zwaen View Post
Hi Peter,

If I remember correctly, you mention in one of your free webinars that you sometimes would see very large orders in the market –eg an iceberg – and the market would just fill and run this orders over. You couldn’t understand this until you met someone from the pit who said these are probably arbitrageurs or hedgers without directional bias.

But couldn’t you say demand is just demand ( or supply) and the market should rise/fall when large orders enter a certain direction ( regardless the purpose of the person/machine putting in the orders )?

One of the key indicators of a short term reversal in any market is absorption. Someone steps up and starts absorbing market orders. Sell market orders may continue to hit into the market but bidders just absorb all the selling. This is often done in the form of an iceberg order.

Absorption on the bid itself isn't going to move the market back up. Usually, it is followed by pulling offers and throwing market buy orders in to get the ball rolling on the way back up.

If the iceberg is not part of a directional play, then there will be no follow through. The trader with the iceberg has no stake in the market direction after the iceberg. They will not defend the area.

In many cases, it's a good trade to lean ion an iceberg but you want to be doing this when there is a directional play under way otherwise it becomes more of a coin toss.

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Tip


There will be a Live AMA session on Thursday, March 21st @ 12:00 PM ET.

- Quick and casual, 30 minute cap
- No prepared presentation
- Live screen sharing
- Floor will be opened immediately to questions
- Recording uploaded to AMA thread afterwards
- Attend live to get your questions answered

The link for the event is:
https://www3.gotomeeting.com/register/135401190




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DionysusToast View Post
One of the key indicators of a short term reversal in any market is absorption. Someone steps up and starts absorbing market orders. Sell market orders may continue to hit into the market but bidders just absorb all the selling. This is often done in the form of an iceberg order.

Absorption on the bid itself isn't going to move the market back up. Usually, it is followed by pulling offers and throwing market buy orders in to get the ball rolling on the way back up.

If the iceberg is not part of a directional play, then there will be no follow through. The trader with the iceberg has no stake in the market direction after the iceberg. They will not defend the area.

In many cases, it's a good trade to lean ion an iceberg but you want to be doing this when there is a directional play under way otherwise it becomes more of a coin toss.

And knowing if there is a directional play to follow the iceberg is a coin toss to start with, isn't it?

How would one tell when leaning on an iceberg if there is follow through or if this is just a level an algo has been set to bid/offer for x y z reason (which I suppose we don't even need to care about IMO)?

Thanks Peter!

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dom64 View Post
And knowing if there is a directional play to follow the iceberg is a coin toss to start with, isn't it?

How would one tell when leaning on an iceberg if there is follow through or if this is just a level an algo has been set to bid/offer for x y z reason (which I suppose we don't even need to care about IMO)?

Thanks Peter!

Look for a couple of things:

1 - Good trade location. So for example, if you are in a range day as of late then you look at the top and bottom of the range/steps in the volume profile.

2 - Look for spoofing on the opposite side as that is more indicative of someone trying to flip the market, especially for example if we just bounced off the day high for the 2nd time, we come down 5 ticks off the high, sellers get excited and the offers are stacked and then there is an iceberg on the bid (also 4/5 ticks off a range high)

3 - Look for icebergs on the bid in the pullback on an uptrend

4 - Be aware of icebergs at the POC - the area with the highest volume of trading will tend to have high volume again but the trade location isn't very good.

5 - The more time at that level, the better quality the iceberg is. If you hit a level and 4000 trade and it's an iceberg but it's done in 20 seconds, wait to see how it plays. Gives people more time to consider bailing out.

In all cases, you can see the iceberg and decide to join it. You can also wait until you see size come in on the other side and start to push the market up. Less ticks but more confirmation.

One thing I also like to look at is the "average tick" - simply (O + H + L) / 3 of the NYSE Tick. If that starts moving up when you have an iceberg on the bid, it's a good sign. You could also reference one of the other indices - same thing.

Finally - if you use the cumulative delta. If you are seeing iceberg after iceberg on the bid and delta is pushing down 20k contracts with no real down move on price, then I'd expect the bidders to bail in the end.

Of course, all of this is relative. Right now the market is ultra thick and we can move up 3 ticks, trade 15k contracts on each side, move up 2 ticks, trade 7k on each side, then down 4 ticks do the same again. This makes things very tough. Much easier when we are averaging 6-700 contracts to eat through each level.

I feel sorry for anyone that just started looking at order flow on the ES in the past 2 weeks!

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Bump for tomorrow's AMA @ 12PM ET:

Link:
https://www3.gotomeeting.com/register/135401190



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