2/18/2017 OrderFlowTrading
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Thread:OrderFlowTrading
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02222013, 09:49AM #1
JoinDate: Jan2013
Dali Posts: 108
JuniorMem ber
OrderFlowTrading
OrderFlowTrading
LasteditedbyDali02272014at03:58PM.
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02222013, 09:50AM #2
JoinDate: Jan2013
Dali Posts: 108
JuniorMem ber
WhatIsOrderFlowTradingandWhatItIsNot
WhatIsOrderFlowTradingandWhatItIsNot
OrderFlowTradingisatermthatcancreatealotofconfusion.Somepeoplethinkitistradingdirectly
fromflowinformationfrombanks(infothatonlyasmallcircleofpeoplehaveaccesstoandtheysurely
wontshareitontheinternet),somethinkitistapereadingandsomethatitissimplyanotherformof
priceaction.
Thereisnocleardefinitionandintheend,allabovementionedmethodsarebasedonanticipationof
futureorderflowinthemarkets.ThewayIviewitisthatOFTisamindset.Insteadofjustlookingfor
technicalpatterns,wegoonestepaheadandthinkaboutwhatothermarketparticipantsmightdo.Itsall
fearandgreedinthemarketsandwecanseethiseverydayinthemarket.
Itsabigchangefornewbies,especiallythosethatpreviouslyusedonlytechnicalanalysis.Butlikeany
otheractivity,itbecomeseasierwithtimeandyoustarttoviewthemarketwithcompletelydifferenteyes.
Youareawarehowpriceismoving,inwhichmanneritmoves(notasgoodasbankflowinfo,butPAgives
somegoodinsights),yourknowledgeaboutotherparticipantshelpsyouavoidcommonmistakesand
finally,yourknowledgeaboutmarketinefficiencieswillhelpyoucombineallthisandexploitthose
opportunitiesinlivetrading.
OnecouldarguealotaboutthetermofOFT,butforme,itisawayofthinkingadifferentapproachto
themarketsthanthecommonones,notsomethinglimitedtoaparticularmethod.Idonthaveany
privatebankflowinformation,butstill,myknowledgeaboutmarketmicrostructureandothermarket
participantsaregivingmeanedgeinthemarkets.
HowdidIgotintoit?IfoundathreadonanotherforexforumfromtheuserDarkstarthatmentioned
OFT.Itlookedallquitecomplicatedandevenafterreadingthewholethread,itdidntmaketoomuch
senseforme.Ithenfoundhiswebsitelaterandboughthisbook(Idontwanttobeaccusedof
promotinghereanything,soNOlink,butaquickGooglesearchfororderflowtradingdarkstarorthe
http://forums.babypips.com/freeforextradingsystems/51590orderflowtrading.html 1/5
2/18/2017 OrderFlowTrading
titleofthebook"OrderFlowTradingforFunandProfit"shoulddoit).Ithasaveryhighpriceforabook,
butitchangedalotformeanditwasaturningpointformytradingcareer.Thechatroomisabit
unorganizedsometimes,buttherearesomegreattraderstherewillingtohelp.Theforumunfortunatelyis
almostdead,anotherreasonwhyIpickedBabyPipsasplatformformythread.Again,Idontwantto
promotehereanything,IjustthinkitisfairIsharehowIdiscoveredOFTandgiveothertheopportunities
tocheckoutthesourcewhereIlearnedit.Afterall,thereisalsosomefreematerialavailaibleaboutit.
WhatarethestepstolearnOFT?
Learnaboutmarketmicrostructure(howpricechange,typeoforders,liquidityetc.)
Learnabouttheothermarketparticipants(commercials,banks/dealers,realmoney,
sovereigns,largespeculators)
Exploitmarketinefficiencies
IwillcovervarioustopicsintheupcomingarticlesandgograduallyfromStep1toStep3.
LasteditedbyDali02242013at03:25PM.
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02222013, 10:32AM #3
JoinDate: Oct2011
Location: Bergen,Norway
Posts: 456
liftoff
SeniorMember
Bluefontlooksmightyfamiliar.Allthebestmate.Knowledgesharingisverymuchwelcomehere.Willkeep
aneyeonyourprogress
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02222013, 12:53PM #4
JoinDate: Nov2011
Posts: 398
gs8888
SeniorMember
Allthebest.Hopethisthreadwon'tgetclosedlikethepreviousone's.
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02232013, 06:53AM #5
JoinDate: Oct2012
vijaim Posts: 90
New bie
Interestingthread.Subscribing:)
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02242013, 03:22PM #6
JoinDate: Jan2013
Dali Posts: 108
JuniorMem ber
TypeofOrdersandHowPriceChanges
TypeofOrdersandHowPriceChanges
Inthisarticle,Iwillcoverthethreemaintypeofordersusedintradingandhowpricechanges.Wewill
takealookwhatreallyhappensandwhatismovingprice.
Firstofall,thereisthetermliquidity.Ifyouwanttobuyanasset,youneedsomeonetosellittoyou.
Youarethereforelookingforliquidity.Thesamethingsappliesifyouareaseller,youarelookingfora
buyertotaketheassetyouwishtosell.Abidisalimitordertobuyanassetataspecificprice(better
thanthecurrentmarketrate)andanofferisalimitordertosellanassetatthedeterminedprice(better
thanthecurrentmarketrate).Bidsandoffersmakeliquidityinamarket,theyprovideittoparticipants
whichtradeviamarketorders.
Liquidityisaveryimporantfactorintrading,especiallyforlargetraders.Themoreliquidamarketis,the
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2/18/2017 OrderFlowTrading
moreitwillattractothertraders.Largetraderscannotsimplythinkabouthowmuchpricewillmove,but
alsohowtheywillgetoutoftheirtradewhenthetimehascome.Thisisnotaproblemforusretailtrader,
butdefinitelyakeyfactorforthosetradingbigamountsofmoney.
TypeofOrders
Marketorders
Marketordersconsumeliquidityprovidedbylimitorders.Theyareordersissuedtobuy/sellaspecific
assetatthecurrentmarketprice.Abuymarketorderwillbefilledagainstthebestofferandasellmarket
orderwillbefilledversusthebestbidavailaible.Marketorderstakeawayliquidityfromthemarketasthe
participantthatissuesthemwantstotradeimmediatelyandeatsavailaibleliquidityvialimitorders.
Limitorders
Limitordersprovideliquiditybecausetheygiveothertraderstheoptiontotradeagainstthem.IfIissuea
1millionbid(buylimitorder)at1.31000forEUR/USD,Iprovideliquiditytootherparticipantslookingto
sellatthemarketatthisprice.Theyarecalledlimitordersbecausetheycannotbefilledatapriceworse
thanspecified.Thismeansmybidat1.31000canbefilledATorBELOW(positiveslippage)therate,but
notabove.
OrderbooksorDOMs(DepthofMarket)aremostlyusedinFuturestrading,astheFXmarkethasno
aggregatedvolumedata.Example:
Name:DOM1.PNGViews:25995Size:5.5KB
Inthisasset,wehavenoordersat44and45,whichmeansyoucancurrentlybuyat46(thebest
availaibleoffer)andsellat43(thebestavailaiblebid).IfIdecide45isagoodpricetosellatandissuean
offeratthatrate,thespreadwillnarrowandbuyerswillbeabletobuyfrommeat45theamountIoffer
tosell.Letssaythereisanimpatientbuyerthatmoveshisbidsto44.Hewillagainreducethespread
andnowsellersareabletosellatabetterpricethanbefore.Theorderbooklooksnowlikethis:
Name:DOM2.PNGViews:25536Size:5.8KB
HowPriceChanges
Scenario1:TraderAbuys20contractsoftheassetatthemarket.Theorderbookaboveshowsthe
availaibleliquidityanditisvisiblethathewillnotbefilledat45asthereisinsufficientliquidity.Hewillget
filledasfollows:10at45,8at46and2at47.AsheconsumedALLliquidityat45and46,theorderbook
willnowlooklikethis:
Name:DOM3.PNGViews:25118Size:5.4KB
Theorderbookwillstaythiswayuntiltherearenewbidscreatedbelow47ORthereisevenmorebuying
atthemarketprice(atthebestoffer)whichdrivespricehigherandfurtherconsumesoffers.
DOMsarenotusedinFX(oratleast,shouldntbeused,asthereisnoaggregatedvolumedataforFX),
butthemechanismofpricechangeisthesameinallmarkets.Limitordersareprovidingliquidity,while
marketordersareconsumingthem.
StopOrders
Stopordersareorderstobuyabovethecurrentmarketprice/sellbelowthecurrentmarketprice.The
termstoporderisusedbecausetheorderisstoppedfrombeingexecuteduntilithitsthedetermined
price.Itisbeingstoppedbecauseotherwise,ifyoucreateabidatthepricewhereoffersalreadyexistor
above,itwouldbecomemarketableorderandwouldbeexecutedimmediately.
Mostofthetime,abuystoporderwillbeexecutedwhenitspricehashitthemarketofferpriceanda
sellstoporderwillbetriggeredwhenitspricehashitthemarketbidprice.Theywillbeconvertedinto
marketordersandwillconsumeliquidity.
Butthereissomethinguniqueaboutstoporders.Theycanalsoprovideliquidity.LetssayImalarge
traderlookingtosellanasset(pleaseforgetabouttheaboveorderbookforthisexample).Marketpriceis
currently44/46(Icanbuyat46andsellat44).Idontwanttosellat44becauseliquidityisnotgood
enoughfortheamountofcontractsIintendtosell.Imawarethattherearealotofbuystopsabovethe
priceof50fromparticipantsthatarealreadyshort.
Otherparticipantsarealsoawareofthisandpricewillbeattractedtothoselevels.Iwillthereforesetmy
offersabove50(letssay51and52)andgainadvantagefromthestops.How?Chancesaregoodthere
arenotmanybuyersatthoselevels,aspricewillbeperceivedashighandliquidityisabitthin.Butthere
areforcedbuyersabove50andtheywillhavetotakemyliquidity.Myshortswillbefilledandpriceislikely
tomovequicklyinmyfavorasmostbuyingcamefromshortsthatwerestoppedout.Priceisnot
attractiveforbuyersandwilllikelydropquickly.
StophuntingisacommonactivityinALLmarkets,notjusttheFXmarket.Retailtradersareawareofthis,
butmostlyinthewrongway.Imnottalkingaboutyourretailbrokerwideningspreadstotakesomefew
morestopsout,butstophuntingonalargerscale.Largetradersneeditforliquidityasabovedescribed
andbankdealerswillalsouseitalsotocontroltheirbookbetter.Butletsleavethatforlater
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2/18/2017 OrderFlowTrading
Ihopethisarticlegaveyousomegoodinsightsaboutthethreecommonordertypesusedintradingand
howpricechanges.
Asasidenote:Englishisnotmyfirstlanguage,soIapologizeforanyerrors.Idomybesttowrite
understandable.
Ben
LasteditedbyDali02242013at03:32PM.
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02242013, 09:38PM #7
JoinDate: Mar2012
Paddymctaff Location: Sydney,Australia
JuniorMem ber
Posts: 172
Veryinterestingindeed.Notlikelytostartusingthisstuffyetbutisdefinitelyaneyeopenerintohowthe
marketswork.Lookingforwardstofurtherreading,manythanks.
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02252013, 12:58AM #8
JoinDate: Jun2011
Location: Dubai
Posts: 509
salimvp
MasterContributorandMember
Ben,
Veryinformativearticlemate. YourEnglishisverygood.Lookingforwardtomorearticles.
Happytrading.
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02252013, 02:37AM #9
JoinDate: Oct2012
vijaim Posts: 90
New bie
HiBen,
Thankyouforyoureffortstoteachus.
Ifind,'Stopordersalsoprovideliquidity'isbitconfusing
Couldyoupleaseexplainmewithanexampleifpossiblewithascreenshotimage
ifDOMsarenotusedinFX,willitbehardtopredicttheorderflowinFX?
Regards,
Vijai
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02252013, 09:11AM #10
JoinDate: Jan2013
Dali Posts: 108
JuniorMem ber
OriginallyPostedbyvijaim
HiBen,
Thankyouforyoureffortstoteachus.
Ifind,'Stopordersalsoprovideliquidity'isbitconfusing
Couldyoupleaseexplainmewithanexampleifpossiblewithascreenshotimage
ifDOMsarenotusedinFX,willitbehardtopredicttheorderflowinFX?
Regards,
Vijai
HiVijai,
Toansweryoufirstquestion:Stopsarenottechnicallyprovidingliquidity,butinanindirectway.Let's
againtaketheabovementionedexample.I'mlookingtosellanassetwhichiscurrentlyat44/46(Icansell
at44andbuyat46).Idonotfindthisagoodratetosellat,soIwillissuealimitorder.Iknowthereare
stopsabove50andthosewilllikelygettheattentionofpredatorytraderswhichwillpushpriceintothe
directionofstops.Ithereforeissuetwoaselllimitorderat51and52.Let'sassumesentimentforthe
http://forums.babypips.com/freeforextradingsystems/51590orderflowtrading.html 4/5
2/18/2017 OrderFlowTrading
assetisrathermixedandtherearenotmanybulls.Withthis,therelikelywon'tbeanybuyersat51and
52andpricewillnotevenreachthoselevels.Butwiththebuystopsabove50wehaveforcedbuyers.
Thosetradersdeterminedthattheywanttogetoutoftheirshortpositionatthoseratesandtheir
demandwillacceleratethemoveandtriggermyoffers.Iprovidedliquiditytothem,butIexploitedthe
weakersideofthemarketandgotintoapositionatabetterrate.Withouttheforcedbuyers,theylikely
wouldn'tgettrigeredatall.
Iwillcoverthetopicofstophuntinglaterseperately,butIhopethismadeitmoreclearforyou.
Regardingyoursecondquestion:YoudonotneedtheDOMtopredictorderflow.Evenifyouhavethe
DOMfori.e.futures,itshowsyouonlyordersfortheupperandlowerfivepricelevelsandwiththose
marketsbeingsoliquidandfastchanging,youwon'tbeabletoextractanyusefulinformationfromit.I
usedtheDOMabovetovisuallyexplaintheprocessofpricechange.Iwillcoverthetopicofprojecting
futureflowalsoatalaterpoint.
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