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Need help in understanding the FX Futures Market


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Need help in understanding the FX Futures Market

  #1 (permalink)
Tony Pepperoni
Dresden Saxony
 
Posts: 7 since Sep 2020
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Greetings,

i wont waste your time and come straight to the point:

in the attached picture you can see a HUGE!!!! volume cluster at a market HIGH. It must be institutional volume and the Delta is ONLY -383 contracts. It might have been a news event, i dont know...and doesnt really matter.

My question is: WHO could have bought here and WHY?

Are market makers that crazy to provide all the liquidity or can 50% professional volume really be that wrong?


Thx

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  #2 (permalink)
 EgoRisk 
Fort Lauderdale, Florida, USA
 
Experience: Beginner
Platform: NT8, Bookmap
Trading: ES, MES
Posts: 189 since Feb 2017
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Tony Pepperoni View Post
It must be institutional volume

My question is: WHO could have bought here and WHY?

Are market makers that crazy to provide all the liquidity or can 50% professional volume really be that wrong?

Hear me out when I say this: trying to figure out why participants in the market are buying or selling is a fool's errand.

I strongly suggest forgetting any desire you have to understand the "why" of what participants do. It doesn't do you any good whatsoever. You're trying to rationalize the market. First, you're never going to accomplish that. Second, trying to do so will on set you back by creating expectations in your mind about what the market should or should not be doing. Don't do that. Don't ever expect anything from the market.

Simply observe and respond. Don't be expectational.

---
Sidenote:

The first assumption you make is that the aggressive buys must be institutional. I have no idea where that assumption comes from. It could have been an aggregate of anybody.

Further, you don't know that those buyers at the high price are "wrong". You're assuming the aggressive buyers trade on the same time horizon as you and for the same purpose as you; and you have to know that that is not true.

It could have been options dealer hedging, it could have been commercial operators hedging fx risk, it could have been retail automatic algorithms go awry, it could have been foreign or domestic banks buying insurance against fx risk. Alternatively, it could have been a bunch of short term traders who did get it wrong. Or, the most likely result, is that it was a combination of all of that.

Either way, the correct answer was to observe that imbalance form and respond to it accordingly.

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  #3 (permalink)
Tony Pepperoni
Dresden Saxony
 
Posts: 7 since Sep 2020
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Hi fivewhy and thanks for your answer.

i wrote a long text and deleted it again. My conclusion is: that some big guys were very nervous
and hedged their positions. They may have closed them in the following days and avoiding potential big losses
was worth the hedging costs.

I have added 2 more charts to show you the impact of this level.

Thx

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  #4 (permalink)
Tony Pepperoni
Dresden Saxony
 
Posts: 7 since Sep 2020
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The day is 18-06-2015, June or Sept contract.

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  #5 (permalink)
 EgoRisk 
Fort Lauderdale, Florida, USA
 
Experience: Beginner
Platform: NT8, Bookmap
Trading: ES, MES
Posts: 189 since Feb 2017
Thanks Given: 78
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Tony Pepperoni View Post
I have added 2 more charts to show you the impact of this level.

Thank you for your kind words. To be honest, my biggest problem is imprinting my expectations on the market and refusing to let go of my bias when I'm wrong. It's a constant battle, so maybe that's why I reacted so strongly. I was telling myself more than I was telling you. Anyway, we're all learning; even the folks who've been doing this for every day for twenty years.

I think you're point about the large volume cluster marking key levels is absolutely spot on. I think that is classic volume profiling principles, but stated slightly differently.

---

I wanted to attach two charts, running along the same lines as this discussion.

Both charts are 5min bars of the ES on July 19 (yesterday) and July 20 (today). The charts show volume dots of trades that executed within 100ms.

The July 19 chart shows two volume dots: a 481 market buy order at 4231.00 and a 613 market sell order at 4225.00. These were right around 130pm NYC time. Not huge orders, but are relatively large. However, price did not budge or did not continue in the direction of the market orders.

The July 20 chart shows a 568 market buy order at 4300.00 around 1040am NYC time. And price followed through.

I guess my point is to point out that the fact that the orders occurred, standing alone, is not what is telling.

The telling thing is that, on July 20, you can see additional buying following the big buy order (on the footprint chart with buy imbalances marked in green numbers), then everyone hopped on the gravy train and price continued upward (albeit in a painful grindy way, in this instance).

In contrast, on July 19, there was not a continuation of the same directional orders and price stagnated/chopped/rotated for about 30 or 45 mins after that.

So what the heck is my point? ...this is all just my way of saying: observe and respond. And I do not disagree with anything you've said. I very much appreciate your points.




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  #6 (permalink)
Tony Pepperoni
Dresden Saxony
 
Posts: 7 since Sep 2020
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All good and thx for the charts.

May i ask what software are you using? I really like how it represents the facts.

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  #7 (permalink)
 EgoRisk 
Fort Lauderdale, Florida, USA
 
Experience: Beginner
Platform: NT8, Bookmap
Trading: ES, MES
Posts: 189 since Feb 2017
Thanks Given: 78
Thanks Received: 198


Tony Pepperoni View Post
May i ask what software are you using? I really like how it represents the facts.

The charts above are from EdgeProX, which is a tailored version of Motivewave. EPX is something FT71 is basically creating and is only available through the EdgeClear brokerage.

It's hard for me to acclimate to new tools, I'm very stubborn that way. But the more I use it the more I like it.

Edit...I guess I should also say this is the "Volume Imprint" study and the "Big Trades" study. The VI study is super useful but it's like a whoooole lot of things built into one study. This is showing like one tenth of what the VI study can show.

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  #8 (permalink)
Tony Pepperoni
Dresden Saxony
 
Posts: 7 since Sep 2020
Thanks Given: 1
Thanks Received: 1

Ah...i see. EdgeProX...something i want to try out for weeks now.

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