Discussions on Order Flow/Volume

This is precisely true and reminds me of what my friend and mentor (Jason Alan Jankowsky) often said. "Losers watch the market, and winners watch the losers..." What he meant by that is that the market watchers, whom you have described very well above, are using some kind of technical analysis technique that, according to their technique or methodology, will place orders inline with these methods and therefore we "know" how they should react under xyz condition. In other words what we have is a "self fulfilling" prophecy. Fibonacci works because everyone piles on the orders at the 61.8 level retracement...or the 38.2 level...or...whoops I guess not ALL traders read the same book.

I see nothing wrong with learning about and studying these methodologies, but I dare say if you depend on them to make your trading decisions, then you will be giving your money to the rest of us who are watching you...via the order flow.

Sorry, I have no idea what this is...

This statement is accurate but not in the way you mean it. If you speculate that due to some "golden cross" of average prices (which ALWAYS lag behind the market) that the participants in mass will do something...think again. Take a look at any chart with this set up. Let look at this chart with the typical "Golden Cross":

You can clearly see this cross was the result of a large move higher in prices...and because the averages lag behind even price (no to mention the order flow) the group you mention as using technical analysis methods are taught that they should be entering longs (if they haven't already). The first closed candle that shows this cross is indicated by a white vertical line. You can see that at that point price was clearly going sideways, and continued sideways long after that...until prices FELL...they didn't rise...even as prices fell, this cross shows a "bullish" indicator...Anyone and everyone who is holding long is either stopped out, or is having a very difficult time with this long position.

Now lets look at that same chart, but this time with the order flow:

I have drawn a line at the same place that the previous chart showed the golden cross. But you can see clearly that BEFORE the cross the order flow was showing signs of exhaustion even while the technical indicators were telling you to buy...LONG before the smart money was selling their longs to the technical analysts and even though they were en mass, the volume of those buys was absorbed by the smart money now entering short (indicated by the order flow inversion). But their entries were limit orders that the technical analysts were executing against with their "aggressive" market orders. ALL of this occurring BEFORE the cross...

Of course you can also see the same thing repeat itself again at the bottom of this movement, while the people following the cross were still trying to enter buys...the sellers keep coming in and negating their volume...all the while the "golden cross" is showing bullish bias. Is this really how we want to trade?

We don't need to do any of this...all we have to do is read what orders are actually coming into the market and watch how price is reacting to those orders. I makes no difference who is acting on what technique, or why. All that matters is that they must enter orders and when that happens we can then see how price responds to their order flow.

Again I repeat, this is NOT another form (or some superior form) of technical analysis...it is simply the truth as I stated in the beginning of this thread. (1) Anyone who wants to participate MUST do so by placing orders. (2) These orders are processing in a grand machine called "the market". (3) The result of surplus unprocessed orders and their corresponding volume are what create price movements, and, (4) At times even the price movement itself lags behind the order flow that created it.

Excellent Video...this explains in a very detailed way what I've been trying to impress on you with this thread...you can clearly see it has NOTHING to do with technical analysis, and EVERYTHING to do with where (what price) buyers and seller are interacting with the market, and how price responds to this interaction. Thank you HiddenGap...excellent post!!

Agree with this, and I used to call it the ‘stop’ of price movement. but it may be more acuurate to call it 'EXHAUSTION' in one direction'，same meaning.

Yes , This is exactly what I want to say. The hiddensignal I am talking about is something that almost all people can see in their charts , but they do not think about the deep meaning of these things and then throw them away like garbage.

Agree. haven‘t thought about this aspect before, but I think it makes sense.
by the way did you discuss these so-called 'singals' and how the "normal" order flow looks like in your previous 'what about volume' thread?

Haha, you have also read JAJ's book. I am a big fan of him... I am reading his TCT book (just abbreviation. not advertising.) this period of time. I considered that his book introduces order flow and how to beat the traders that against you, but he always tells you what should to think about in an enlightening way instead of telling you the answer directly.

Looking forward that will you discuss how JAJ's method should be applied in practical application later in this thread? Or open a single thread.... Very interest with these stuff....

BTW i am not saying all traders read the same book, however there are only a few technological theories in public, and the general groups always use those popular methods. The minorities can be ignored, because it is enough to consider several major groups of technologists in the market.


note that I am also criticizing the group that still uses 'golden cross' technology. They are stupid. In my example, I just said that there will be such a group of people who will place orders. But according to what you said, no matter who uses what technology, as long as they place orders, their reasons/intention will be reflected in the order flow, which is also absolutely correct. Thank you for giving an example to explain this.

Expect your more disscussions on these topics as follows (but if you dont think it is necessary ,pls ignore, just mention areas that interest me ):
1> how to detect EXHAUSTION in one direction ( OK i will go to your 'volume' thread to check these information)
2> how the "normal" order flow looks like under xyz conditions
3> more disscussions of stuffs in jaj's book? I don't think his book conflicts with the order flow trading.

Hi, thank you for the very interesting discussion!

Few years ago i did read about Dan Zanger (Stock market trader) that he has a tool, which does give an audio sound if:

buying at the ask with a volume > XY shares (e.g. 400 shares) does happen
and another sound if:
selling at the bid with a volume > XY shares (e.g. 400 shares) does happen

he does observe a few market leaders like AAPL,AMZN, NFLX,... to get a better feeling about the overall buying/selling pressure in the market


Cheers from Europe
Shaga

JAJ is one good trader...

I have all three. They are a great read and each one can be completed in a single afternoon instead of channel surfing only to find there's still nothing worth watching on TV.

Greetings All... Hi Again DonPato... I have made only a couple of posts so far and can barely wait to contribute more to your "Order Flow/Volume" thread.

Before I do, I am taking the time to read your thread "Hey... what about Volume" - in its entirety - so as to contribute as a more informed participant.

I sense - at times - a (very small) touch of discouragement due to lack of participation by others. Please don't be discouraged... You are a "bad ass" teacher and the information you have provided to date is clicking all kinds of lightbulbs...

I am actually reading/seeing order flow in so many ways on the charts now (MT4 at that - your fav I know!).

Its so amazing to see/watch/observe how order flow actually develops the technicals we all were trained to look for as beginning traders...you know - those technicals that had us making decisions after the fact (way too late) 90% of the time.

AND NOW- add this new understanding of momentum... Holy Crap!!! You can probably see the lightbulb 2000 miles away!!!

Maybe its the 25,000 hours of screentime that helps me witness this - I don't know - doesn't matter - its damned exciting.

I am building screenshots and examples and a questions list.

Hope my forthcoming contributions will be even a fraction of an impact to others that yours have been.

May your holiday season be packed with blessings commensurate with all you have offered us!

Happy Thanksgiving!

Best Regards & Gratitude

~deanoracer~

Thank you for your very kind words. The sun is just coming up here where I am. I will add some info a little later today when I wake up completely and have my morning dose of caffeine.

This video is well worth a listen to on liquidity and market making.

Hello again Friends...There has been a small lapse in my posts simply because (as I stated before) I wanted to let the information presented here to "sink in". I hope that you can now clearly see HOW the market works and just as with each small tick in price (up or down) also larger movements work in exactly the same manner. It is ALWAYS order flow/volume-within the context of time-that produces price. While many people see price as its own entity, it is not. Price is a RESULT of the market structure in operation.

Now I know that this concept (yes, ever here in this thread) will meet with some resistance. This is mostly because we as "uneducated" traders have been taught that "price is king". That there is nothing closer to the market than price and price action. I hope that by now, on page 5 of this thread, that you can see perhaps this may not necessarily be so. But for a moment let us look at this thinking because it will help us understand a very important concept in the order flow that seems to grab much attention. Again, I will illustrate with a story from a very common experience.

Lets assume for a moment that you have decided that you are going to enter a long position with a buy order. (However you came to that decision is not important right now). But at the moment price is ranging. If you are a "good student" you understand that your decision to buy must first be "confirmed" by the market. So you wait - patiently. You are seeing price rise, (which drives an even greater urge to buy NOW), but price has not surpassed the line you drew on your chart which means "confirmation", but you are very close... You have drawn this line because you feel if price rises above this line, then it "should" keep going and you will have the start of a new bullish trend. And if price does NOT rise above this line then you have dodged the bullet on a losing trade.

Price comes up to your line...pulls back...advances...pulls back...then BAM! Rockets higher. So now you are well beyond the line and you feel confident that NOW you can trade and your trade should succeed. You enter you buy order and immediately price falls...and falls...and moves right to the point where you placed your stop, (which was just on the other side of that line). You are stopped out, and as soon as that happens, price once again moved in the direction you entered...and does just as you anticipated it would...except you are left with a loss and a gaping hole in your account. WHAT HAPPENED??!! I know this is a common story...and I know that you have tried it over and over again with every variation of this condition and yet no matter WHERE you place your stop...the market finds it...then moves in the direction you originally thought. This has happened to me so many times I have a name for it...I call it the "crazy Ivan" or the "FU stop". Its as if the market has turned into some version of Seinfeld's "Soup Nazi"..."No money for you!!"

So now lets look at this from the perspective of Order flow/Volume. This demonstrates a concept that I want to drive home emphatically and hope you will never forget this: There are only two states present in the order flow. (1) Balance; and (2) Dominance. That's it...two. And what's more, one always ends in the other. Balance will always end with dominance and dominance will always end in balance. This is perhaps the easiest way to visualize the order flow from the perspective of "price action" only. Our above scenario represents a very typical transition from one to the other. Lets start with a "balanced state":

The order flow/volume is typically "balanced" when there roughly an equal volume of market buyers and market sellers. And thus neither one can really cause price to move very far. Typically this is a low volume environment so the group of buyers can only push price up so far, and then a group of sellers will come in, balance their volume, and send price lower, but they too are limited. So price moves up...down...up...down...and forms a price range. Buyers at the bottom (typically) and sellers at the top (typically). This range may extend the edges a bit (read "head fake") but then the move poops out and price returns to this back and forth. The order flow is (for lack of better term) "Balanced". I KNOW you have seen this many times. Now let me ask you this question: "If there are participants holding positions (long or short), where do you think their stops are going to be?"

So now lets talk about how a "balanced state" ends. Something happens...a news announcement, session open, or just someone with volume who has decided to enter. (We will speak about the long side since that is what I presented earlier, but this can happen on either side). Somewhere there is enough buying volume to send price higher, and drive it into the stops for the shorts. Remember that stops for the shorts are really executed as "market buy" orders. So the participants that drove the price into the stops now see a flood of market orders pushing price even higher. This onslaught of orders eats up all the liquidity that was present during the low volume period and price goes skyrocketing higher. I affectionately call this the "whoosh". This is what technicians call "the break out". This rapid price movement is what drew your attention and "confirmed" your idea to go long. But what happened? Price didn't continue...

So lets break this down: (1) most ranges are "balanced" because the environment is LOW VOLUME. Like all things in the market this isn't ALWAYS the case but it explains the majority of them. Look at when ranges form. In "gap time", between or just ahead major market sessions, just prior to major news announcements (think NFP). (2) Low volume environments lead to low liquidity. Not only are the participants "weak" because they are small time with now volume, but also the liquidity is absent simply because the provider doesn't want to get "caught" on the wrong side.

So it doesn't take a great deal of volume (comparatively speaking) to send price in one direction or the other. And as soon as price digs into those stops, its all over. "WHOOSH!!".

So now, lets look at the next step. Once the "whoosh" happens, then what? Ok price moved higher but then...nothing!! Think about this from the order flow/volume stand point. Everyone that is going to participate long is already in. And all the opposing order flow was just stopped out. Not to mention that all the passive order flow (liquidity) was used up (that's why price advanced so quickly). So who's left to continue buying? Remember for price to continue to rise you need a fresh round of market buyers to jump in and use up even more liquidity...but that's not happening. So price starts ticking down...to attract more buying. All of the sudden price is MOVING down, most likely because those sellers that stopped out are now actively selling again. (But remember they didn't have very much volume). All of this up and back has now attracted the attention of the liquidity providers and they are now putting in liquidity. So here is the question...WHERE (what price) do you think the densest liquidity will be offered?

If you think it will occur somewhere near where the stops were triggered...you would be right!! Price returns to the area where the buyers "broke out" and new buyers start to pile on. Now...there is liquidity and price starts to "grind higher"...as it takes more volume now to use up the denser liquidity. And guess what? Some of that volume was the stop you placed on your long because you placed it "just below" your "line of confirmation". However now that all of this has occurred the order flow has now changed...it is now a buying dominant order flow. The balanced state is over and most of the market orders coming in are buys...except the market is moving without your position. Further it is a "grinding" relentless advance. It is not a "whoosh" but a slow steady grind that eats up sell stop after sell stop. And because of this "price action" you never see a "signal" or get a definitive "cross" on your oscillator. In fact it is most likely pegged near the top showing divergence signal after divergence signal...all "false" and losers.

However now you can see that this is really order flow dominance that will continue until at some point...EVERYONE who wants to be long has bought, and they're in. So what do you think will happen now?

Volume to buy gets weaker and weaker, because all the longs have already established their positions. Volume to sell is now "shy" because they've already been burned and any shorts will be (again) low volume. Perhaps now we are also coming to the end of the session (or day). No one is willing to commit anymore. Any selling at this point will only be profit taking on earlier longs...not establishing short positions. So, we return to a low volume environment, longs holding, shorts shy, and VIOLA!! another range forms and the order flow balances again.

I have just taken you through the course of a typical day, that many might describe as a "bullish trend". But this can happen on any time frame, and go longer than anyone thinks. But I hope you will see what causes these two states and that now you might be better able to recognize these states based simply on the price pattern you see on your chart. NOT a "price action" pattern but simply the state of price.

Remember, (1) People must interact with the market through order placement, (2) This resulting order flow causes prices to move in a certain way, and (3) These price movements produce recognizable patterns are are easy and simple to see in real time.

For more on how to use this in a very practical way please see my earlier thread: Price-Structure-Order Flow

Enjoy the rest of your week end.

Kim Jong-un teaching many dedicated and enthusiastic students on the virtues and nuances of order flow in the Nth Korean corn market.

HA HA HA!! Exactly right!! And here you can literally SEE the order flow

Excellent sound bite. I really enjoyed hearing from an actual market maker, and finally hearing from an authoritative point of view that the MM (Market Maker) is not out there "hunting your stop" or trying the manipulate the market to take your 5 mini lot position. The MM is simply trying to balance the order flow on both sides...as I have always said.

Here are some screen shots to illustrate what I spoke of in my previous post here

Note here how price balances, breaks, balances again, and breaks again, and has at the end balanced once again.

Now take a look at this same area but this time using the order flow charts:

You can clearly see the buying that created the break out...and the "thin" liquidity that caused price to rise so quickly, but then? NOTHING...

Price then returns and again you can see the buying come in. Same with the 2nd break. Lots of buying at the top, showing the stop out, but then price returned...but where is the buying supporting this break? I cannot tell the future but perhaps price is done rising?

I hope this helps you "see" things a little more clearly

Just spent my weekend reading : Hey...what about volume ok ay next: Price-Structure-Order Flow ….. Really enjoying your clear explanation Don. I have spent over 20 years in the Adult Education sector and wish my training staff were as good as you are educating us.

Thank you Froggy for such kind words and sentiment. It really means a great deal to me to know that these threads are helping even just a few people understand the market a little better and that they can then translate that to more productive interaction with the market themselves.

Hello donpato, been reading the thread from the start and just trying to absorb as much as I can. Well done for sharing all of this

Can i ask what broker you use for your order flow feeds?


Bjpumping

I use cTrader for the data feed for most of the charts I am showing here. You can get it for free with just a public beta or find a cTrader Broker. There are several to chose from. In addition for the futures, TradeStation provides both my brokerage and data feed.

Begs the question - futures are best, but I think brokers (outside of say TS and similar - I DO NOT LIKE the Interactive Brokers platform) may use just CFDs? Mine does. Hmm.

There are just two Aussie brokers which do cTrader. Both international. One is regulated by just the Cyprus authority. That is like the lions regulating the den. They are also proud sponsors of the Yacht Club de Monaco, and the McLaren F1 team. What?? Goodbye.

The other one is regulated by Australian authorities. Better than a poke in the eye with a blunt stick, I suppose.

Edit - by the way, I did a search on MarketDelta (which is no longer available?), and there are a few reasonable looking alternatives. I'm sure that is probably not exhaustive.

https://community.optimusfutures.com...-software/2955