Mauro fails to do so in my opinion. I'm really excited about trading now. Actually trading and not sitting on the sidelines playing with indicators. Still, I'm gonna give this some time and let it digest and see just how well it impacts my long term. That is most important.
I will share my improvements as they manifest themselves. Darkstar concnetrates more on the fundamental reason behond what is happening and encourages the reader to create a strategy that works with the way they like to trade. However, I used to trade binary options before actual forex trading. Then I had spent some time at www. Especially when he has mentioned everything in FF.
Moreover, Grkfx's www. Not the old Indicator and pure tech and fundamental decision making process. The important thing is the framework and you can use THE framework to develop systems etc. In my opinion the sum total of all the things posted on FF, the 's of systems developed,the number of books published etc are not going to match what you can get out of websites such as forexlive those guys were interbank traders.
For those into the orderflow mania or for those that think that this was some recent discovery,LOL Some of the founders of forexlive were the very founders of IFR forexwatch. The threads are relatively easy to find - you will understand when you start going through the contents it has the build up to the holy grail feel,lol.
However, in all fairness - DS did a good job in the thread. Then again even if you read the book - you have to develop your own method Cheers everyone sorry for the ramble. Copyright Minden jog fenntartva. Please introduce links to this page from related articles ; try the Find link tool for suggestions. December Retrieved Forex Training Group. Jumpstart Trading.
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Silvani spends a big part of the book talking about stop hunting and how the dealers in the trading brokers both retail and on the inter-bank market will actively hunt the stops of their clients during illiquid and highly volatile times in the market. There is loads more information contained in the book.
The sections in which Larry talks about liquidity and volatility are some of the most interesting in the book, as are the chapters where he talks about the different market participants and what their goals in the market are. Larry also spends a large part of the book talking about the structure of the trading industry and the process one has to got through to actually get a trade placed.
These variables all depend on trader behavior. Time Compression Trading is the first trading book which really got me thinking about how other traders in the market trade and make decisions. Before I read this book I never used to think about how the other traders in the market affect the market price, but by the end I had realized that it was one of the most important things which needs to be studied, due to the fact the forex market is a zero sum game something else I first learned from the book a game in which one persons losses equate exactly to another persons gains.
This basically means that the only way you are going to make a profit from the market is if other traders lose money. So understanding how other traders lose money is obviously really important because our profits literally depend on it. Luckily Jason goes into great detail in the book about how traders end up losing money and closing out their losing trades.
I do not find this a good rate to sell at, so I will issue a limit order. I know there are stops above 50 and those will likely get the attention of predatory traders which will push price into the direction of stops. I therefore issue two a sell limit order at 51 and Those traders determined that they want to get out of their short position at those rates and their demand will accelerate the move and trigger my offers. I provided liquidity to them, but I exploited the weaker side of the market and got into a position at a better rate.
I will cover the topic of stop hunting later seperately, but I hope this made it more clear for you. Regarding your second question: You do not need the DOM to predict order flow. Even if you have the DOM for i. I used the DOM above to visually explain the process of price change. I will cover the topic of projecting future flow also at a later point.
I studied Market Microstructure so long, I tend to forget to keep it simple when explaining it to others. If there were any parts that are not clear in the previous articles, feel free to ask, I will be happy to answer them. Great post! However something keeps me confused and I hope you help to clear things up a bit. This is sort of technical question, hope you dont mind explaining the basis to newbies. The traders I mentioned are simply traders who, in the mentioned example, were short the asset and had their stops above It can be speculators, model funds algos buying into short-term momentum or dealers who do it to manage their books.
I will cover this activity in a later article, but the key is that a larger cluster of stop loss orders will have the attention of other traders, especially when they are near. GBP bias is clearly negative and we saw a sharp drop down to As price declined, there were traders who lowered their stops to protect their gains and in general, more buy stops were building above.
Take a look at the chart below and you will see what I described happened twice! First stops above 1. However, up momentum disappeared and price quickly dropped below. The 1. Do you see what happened? Stops above 1. I hope that helps.
At the time of breakout, how will you know the breakout is of forced buyers or of real fresh buyers?. A lot of people cannot accept the fact that stop hunting is a common market strategy in all markets. It is as old as the business of speculation. Retail traders are generally aware of stop hunting, but have a wrong idea what it really is. It is not your retail broker slipping you for a few pips to get your stop.
Those brokers do not have the size to move market in such a way! As we covered in the previous article, large traders cannot simply accumulate or distribute a large position whenever they wish. They have to look for liquidity and stops are helping them in an indirect way, like I explained in the example above.
That is why stop hunts tend to be quickly faded: The large bids or offers got filled and with the stops triggered, there are no buyers left in a buy stop-hunt scenario and no sellers in a sell stop-hunt scenario. Those bids and offers tend to stabilize the market. There are also traders that anticipate such moves and look to take profit near the level where stops are rumored to be.
Dealers also participate in this activity. While there are looking to make some profit from short-term trading, their main task is to provide clients with liquidity and get them filled with less as possible slippage. This means those clients want to get out of their position once price breaks above the determined rate. If he does nothing and waits for price to break above 1. There will be stops from other market participants above 1. He would fill his clients at a bad rate, earn nothing from it and his reputation would be seriously hit if this would happen several times.
So what can he do? He can gradually start to accumulate a long position and anticipate a break of 1. Buy 20 million 1. So he will distribute his position as price breaks above 1. This can of course go wrong if price fails to maintain the upside momentum and turns lower. The dealer must then quickly get out of his position. Graphical examples are perhaps easier to understand, so I will pick an example this week and post it in the thread.
Again, banks do not open their order books directly to just any outsider, one would need good connections. So people claiming they have some software that shows the order books for the FX market are scammers. The one you maybe see in your trading platform is only the DOM of your broker and retail brokers have a small role in this huge market. However, discretionary flow information is something different. Those are people that have some connections in the trading industry, mostly as they worked as traders too in the past.
So again, bids are limit orders to buy at a determined price. Bids mentioned in the flow info providers will be levels where good buying interest is noted. Offers are limit orders to sell at a determined price. The mentioned Offers will be where decent selling interest is noted. Market participants always look for the weaker side of the market, so both buy and sell stops will be targeted.
You need to have other factors that support your trade idea. When using this, it is very important to keep in mind that this is additional information that may help you in your trading, but you should not trade off this information alone - that is, using them as trade signals.
Watch for additional signals. Price action and sentiment comes first! There are always bids and offers, smaller and large ones, but in the end it depends on the power of the bulls or the bears. First, determine the current sentiment.
I therefore will only look for opportunities to sell the pair. Second, note key price levels. Third, watch for price action to give you a high probability opportunity to enter short. I will cover later some of the various Order Flow techniques I learnt from Darkstar. For now, I just want to note that you should always use flow information like bids and offers with caution. You want the market bias to be in your favor and wait to see a reaction to those levels, not enter ahead.
I hope I have emphasized enough how important it is not to use them as trade signals, so I will post now the resources I use for the flow information they are free :. If you dont have access to it, dont worry, there is enough info from the free sources.
Feel free to ask anything about Order Flow Trading. Next topic is about identifying cluster of stop loss orders in the market and what to do with them. Should be very interesting topic for OFT newbies. I actually prompt me to read more of darkstar material and see the way market in other aspect. I have a few quetions tho, from those links you provided above, is there any reliable source where you can get info on the bids and offer placed?
Like how darkstar tweeted in his page, i wonder how he got his resources from…and do you trade with news impact as well? There will be quite often stop hunting going on after news releases and if I feel the reaction is exaggerated especially if it goes against the current market bias I look to fade it.
Let me know if you have any other questions Jack.
As price rises, more sellers come in, fulfilling the eighty lots, in chunks, until the entire one-hundred-lot order is filled, at which point the market balances out, or reverses if the sell orders become bigger than the buys. Sharp rises: These happen when buy orders enter the market that are significantly bigger than the sell orders coming into the market.
The rise is NOT necessarily from traders placing trades. Price must rise to find more sellers and by extension sell orders to match with the buys. Then, once enough sellers and sell orders are found, the market will balance out. Price will consolidate or stall, or it may even reverse if the sells become bigger than the buys. How far will price rise? The answer to that question is based on: The size of the buy orders coming in, and The size of the sell orders that come in as price rises. If fewer traders believe price should move lower, only a few sell orders will come in.
This will lead to a sharp rise in price. The buyers are trying to entice sellers to part with their money by raising the price. This is also the reason price drops like a rock during crashes and other large-scale events. Everything is bad; no-one wants to buy. We can extend this idea: When price rises and herds of sellers believe price should move lower, such as during a strong downtrend, the price will rise slowly, in a gradual fashion. Piles of sell orders are coming in due to the downtrend.
More liquidity means it takes bigger buy orders to overwhelm the sell orders and push price higher. So, it is slow going. If price is falling for a prolonged period of time before a demand zone is formed, most traders are selling. And they will want to sell even as price rises. The sellers will view the rise as a chance to get into the down-move at a better price. This means it takes much bigger piles of buy orders to make price rise.
This is what creates a strong demand zone. A strong Demand Zone has to overwhelm the down trend. Naturally, it is due to traders buying and selling. Think about it again; go one step further. Markets orders, limit orders, and stop-loss orders which are really limit orders : It is the orders which affect liquidity in different ways.
Orders affect the market, either by adding or removing liquidity from one side of the market. This leads to low liquidity or high liquidity conditions. The resulting liquidity expresses in: sharp price changes or slow, gradual price changes. For most of us, market orders are the go-to order type. They allow you to enter the market instantly, at, or close to, the current price, which makes them insanely flexible. They make it more difficult to buy or sell.
When you use a market order, what are you doing? What does the order enable you to do? A market order will either buy or sell almost instantly at, or near, the current market price. This is regardless of whether one is available. You are demanding an opposing order, which puts more pressure on the other side, increasing the probability price will move in that direction. There are now fewer orders in the market. If sellers are available assuming you are buying and those sellers are selling more than your order size, your order will execute.
Your currency will get bought, NOW. And that goes for whether you bought via placing a trade, taking a profit, or closing a trade. All of these actions require sellers, remember! Simple: Your trade will only partially execute. In other words, you will have slippage. Price will then rise until more sell orders are found. Your order will spread out and be placed at ever-increasing prices.
This is just like what happened with Johan in our example. He tried to buy more than the sellers were selling, A TON more. Nobody wanted to sell, so price jumped higher, until sellers found the price high enough to make them decide to sell. Market orders might be the go-to order type for most traders; but, limit orders, or pending orders, are also popular and affect the market in a unique way, different than market orders.
You place the order and wait for price to reach the trigger price. If it does, your order executes, and you buy, or sell. A limit order guarantees a buyer or seller exists at a price. For as long as the order exists without being triggered, the buyer or seller is ready and willing to buy or sell at that price. That is what the limit order represents; A buyer or seller is waiting for an opposing order to match with their own. At that matching point both orders execute.
Why is this important? Because it means unlike market orders, limit orders ADD liquidity to the market. A limit order makes it easier for traders to buy or sell, not harder. If an order to buy, or sell, exists at a price, someone is automatically ready to buy, or sell, once that price is reached. The order can be matched with opposing orders, adding liquidity to the market. Liquidity is not an issue.
Our puny, little orders can easily be matched due to their tiny size. Their buy and sell orders are so massive that finding enough opposing orders is next to impossible. So, they will often push price to points where a large bunch of limit orders have built up. This gets more of their positions placed. Many limit orders accumulate at these prices due to their significance in the market. The banks, of course, know this and push price to BRNs big round numbers so they can purposely trigger the limit orders and help place their own trades.
That is why so many big reversals originate at, or close to, big round number prices. Open any chart, and you will see this yourself. They make it easier for traders to buy, or sell, not harder. Keep this in mind, and always try to figure out where stacks of limit orders may have built up. Big round numbers are the most obvious and well-known location. Also consider specific technical points, like major support and resistance levels.
Some singular prices have a lot of significance, like the 1. Of the three orders, stop orders are probably the most interesting type. Stop Orders act as a limit order when placed and a market order when executed , meaning:. Since a stop becomes a market order once it is triggered, it removes liquidity from one side of the market. When this happens in large enough numbers, it can often result in a stop cascade.
You will usually see this where a collection of prominent swing highs or lows appear. These are points where traders typically place their stops. The swings form near one another and get broken, as you see above. Price breached the first low, triggering the stop orders placed underneath. That caused a mini stop cascade, which pushed price below the next low.
Another stop cascade then began, resulting in price punching below the last low, triggering another cascade. Together, each mini cascade sets off the next cascade. The cumulative result is a sharp drop below all the lows.
This cascade effect takes place in a matter of minutes. So, if you see a bunch of swing highs or lows develop close to one another, be on guard. A stop cascade could be in the works. Remember what I said about limit orders? The banks push price to points where limit orders accumulate, like big round numbers, to help place their own orders?
The banks purposely trigger build-ups of stops to help place their own orders. Since they become limit orders once placed, the banks often target bundles of stops. They can use the limit orders to match with their own orders. Tell me… How many times have you seen price spike a low or high and take you out of your trade? Annoying as hell, right? The reason that happened, probably, was because the banks purposely spiked the stops, because those stops built up around the low or high, to get their own orders executed.
The large-cap traders decided to run the stops to trigger those orders, and use them for their own devices, causing you to lose in the process. Stop hunts are a big focus in Order Flow trading. Before we move on, here is a review of the key points from this section. Write these down and go over them again, and again to really get a handle on what order flow trading is all about. At its core, order flow trading is about predicting the actions of other traders.
Everybody analyzes the market through the same lens price charts , but rather than focus on price, like most traders, we go one step further and try to determine the actions of other traders. Price does not move on its own. Therefore: We should concentrate on understanding how other traders think and make decisions.
If we do that, we can predict what price will do in advance. This gives us a clear advantage in trading the market. This is the understanding of liquidity and how orders work. THEN: We ask ourselves questions about other traders. This forces us to think about their actions and what affect they will have on the market. We ask questions like: How many traders are losing right now?
What will happen when they close? Where have traders placed their stop-loss orders? What action can the banks take to harvest the current crop of orders? As Order Flow traders, it is up to us to determine when these effects will take place and what affect they will have on the moves the market will make. Order Flow trading takes a lot of lateral thinking. Order Flow uses more intuition than something like price-action trading. Order Flow forces you to draw conclusions from data which cannot be confirmed or checked in any way.
Order Flow is all about recognizing the actions of other traders! We are watching the same things the banks are watching. We want to know when the next crop of retail traders is ready to be harvested. The sheep are the emotional traders, the traders who jump into trades without much thought. They make rash decisions rather than using logical analysis. They react to news, crossing lines and pretty pictures on their charts. In Order Flow trading, the sheep are the key for two important reasons: 1.
The sheepish orders drive most of the movement we see: specifically, from closing losing trades. Are they: Buying to place buy trades? Closing losing sell trades? Taking profits off open longs? One of the biggest logic errors traders make in Forex, which I made myself for a long time, is assuming all price movement is generated via traders buying or selling to place trades. It is NOT!! Price movement is not generally caused by placing trades, although that does cause some movement.
Price movement is mostly caused by traders closing out losing positions. A losing trader must take the opposite action, e. And what are most retail traders sheep doing in Forex? There are multiple aspects to Order Flow trading, all of which you need to consider to get into the Order Flow mindset. However, here are the three key areas to focus on when viewing the market in terms of Order Flow:. A big part of Order Flow trading is thinking about: 1. In Forex, multiple forces exist: the banks, the sheep, and other large-cap traders.
The actions of these forces almost always depend on the actions of one, or both, of the other groups. For example… If the banks want to take profits off a buy trade, they need to sell, so they need the sheep to be buying. The banks need to sell what they bought, which they can only do if others are buying.
The banks are taking profits using the orders coming in from the sheep who are late due to the rise. When the banks buy the sheep need to be selling. When the banks sell the sheep need to be buying. Now, the big corollary, the inescapable conclusion: We need the banks to make a profit. This is the reason it is so important to learn how the banks operate. Naturally, the banks are the biggest force in the market.
They have the deepest pockets, after all. BUT, retail traders, sheep, by losing their trades, are also a major force. In fact, this is what creates much of the movement we see. The sheep get pushed into a corner where they cannot hold their losing positions any longer and they must liquidate their trades at a loss. They do this by using the opposite action: A losing short trader must buy back what he sold: putting a buy order into the market.
A losing long trader must sell what he bought: putting a sell order into the market. So, whenever someone closes a position, the opposing order enters the market. A buyer exits and a sell gets put in. Imagine the effect on price action when tens of thousands close at similar times! Price goes NUTS!! Almost ALL the movement during this rise is from losing short traders closing their trades.
They sold at the bottom of the last down-move, thinking the trend would continue. When price rises, their trades go underwater; they start closing en-masse to escape. AND, the further price rises, the more trades they close as their losses increase. So, always ask yourself: Where are the losing traders? And, try to understand what will happen to price when they close. Their loss will be MUCH bigger.
This is kind of like the frog being dropped into a pot of boiling water; he will jump out immediately! It will panic them into closing, causing them to exit quickly, which increases the rate the price rises, and creates even more panic liquidation. The gradual increase will give them a sense that price could still move back in their expected direction, so they stay in for longer.
This is kind of like the frog being gently set into a pot of water and THEN turning on the heat slowly; he will slowly simmer to death. Try to factor in how many traders could lose. That knowledge will give you a sense of what type of movement you will see if price moves in the other direction.
If price has been in a long downtrend, and the market is extremely bearish, it makes sense that most traders are short. So, what will happen if price reverses? You often see this when price reverses sharply after trending for a long time. The sharp reversal is from all the losing traders closing their losing trades. The banks rely on other traders, the sheep, to carry out their actions: placing trades, taking profits, closing trades. Only a few sheep selling? Only a few sheep buying? With this in mind, one of the key goals of Order-Flow trading is getting a handle on what action the banks can initiate with the current crop of orders, and what impact that action will have on the market.
So ask yourself: Can the banks place trades, take profits, or close trades; and if so, in what amount? Again, to do this, we think about the sheep. How many sheep are buying or selling right now? Since the banks depend on the sheep to operate, understanding how the sheep think and make decisions helps us understand what the banks are going to do in advance. The market is looking VERY bullish right now. Needless to say, most sheep are currently long.
The recent sharp rise coupled with price rising beforehand leads the sheep to think price will keep rising forever. Well, think about it; only 3 actions require buyers: 1. Taking profits off long trades. The banks must sell what they have bought, which requires buyers, 2. Closing open long trades, for the same reasons as above, 3.
Or placing sell trades, again, you need buyers to sell. However, we can look at the market, assess the probability and come up with a good insight. When was the last substantial retracement or consolidation? And the market has moved over three-hundred pips too! The banks must be getting sweaty.
Imagine sitting on a three-hundred-pip profit, and trading at their size!! The banks might take profits off their trades, resulting in a retracement or consolidation. The banks take profits, and we see a retracement or consolidation. But what about Scenario 2? The banks place sell trades to make price reverse? The banks could easily decide to sell by using the current crop of orders. The banks can never place all their trades in one go! They never have enough orders!
The banks split the trade into small chunks to lower the orders needed. The swings form at similar prices; because, the bank attempts to replicate placing one trade at a single price. This is their ideal scenario if enough orders are available. Scenario 3: The banks close trades. I have a category that states if this happens the market will definitively move immediately. Another category states if this happens it can provide a strong bias for the day.
Sometimes I deem the information to be absolutely non market moving, so i disregard it. Sometimes I deem the information to be non market moving, but with potential for moving the market, just not on this particular day. Everything happens in context. But bear in mind that I have read thousands of articles on market sentiment as well as economics, monetary policy, etc so there is a lot of subconscious information in my brain.
What works for everyone is different. Depending on what style of trading you want to do, and if you want to figure out why price is doing what it is doing I would recommend this: Keep a daily list of all the 7 major currencies eur, gbp, jpy, chf, aud, nzd, cad, and write down every day why you think price did what it did. Write down everything that you believed generated order flow on that particular day.
Think about who is providing liquidity to whom at various price levels and time of day. Real money buyers adjusting their allocation to euros from being underweight to more neutral position. Stops tripped above 1. Hunters knocked out the 1. Any Macro related offers who missed out on the huge down move to 1.