Order Flow Trading

Discussion in 'Financial Futures' started by Alphafuturestrading, Jul 5, 2019.

  1. Baozi


    A noob question from someone who never traded futures:

    how do you deal with all the algos and the spoofing? How can you read the tape through so many layers of deception? It is my understanding that in modern markets it's almost impossible to trade the order flow (as a human).
    #11     Jul 6, 2019
  2. Base decisions on traded volume, i.e. the Footprint. What has HAPPENED. Not what people are advertising as their intentions (or not). Matt's link explains this well. The tape has happened. The DOM is what might happen.
    #12     Jul 6, 2019
    Alphafuturestrading likes this.
  3. traider


    This is not the main problem, the problem is being able to drive costs low enough to trade at the frequency required to use the DOM effectively, jumping in and out of trades at high frequency, quoting both sides of market and getting rebates for trading.
    #13     Jul 6, 2019
  4. qlai


    I don't think what you are talking about is what this thread is discussing - how manual traders use orderflow. I'm not saying you are wrong, but it's not conventional use of orderflow, imho.
    #14     Jul 6, 2019
  5. Futures is actually more cost effective than CFDs once you take everything into account, but this depends on a number of things including Broker fees, margins, etc. What you describe is effectively what is called “scalping” and you can use the DOM for orders entries and observe the DOM without scalping. I trade the order flow and I probably would be called a swing trader or position trader, but not a scalper. The DOM is just a tool but there are many effective tools to trade the order flow.
    #15     Jul 6, 2019
    birdman likes this.
  6. sillyw10


    having spent a lot of screen time with Sierra number bars..Multicharts equivalent..Volume Profile and TPO's..and all the various combinations of showing values for bid/ask volumes and deltas..I have come to the conclusion that trying to scalp against the algo and HFT traders is a total waste of time and effort for the ordinary retail trader..it could even be called a "mugs game"!

    that said..I have learned a few things I did not know previously..and just recently discovered that you can now get to see how many algo trades are actually taking place on your chosen timeframe..have to spend time on that yet but not expecting too much from it to be honest

    as an experienced order flow trader..who does not scalp..what do you consider to be the most important things to watch in order of priority to help identify the " possible" opportunities to start risking or take loss/profit

    #16     Jul 7, 2019
  7. Hi Sillyw10! I am not sure how we should really define “scalping” but the usual definition I suppose is to get in and out of trades within a very short period of time. Fighting against Algos or large institutional traders can be very daunting indeed and certainly seems like a lost cause, but they tend to follow some patterns and do leave lines in the sand, so as large and scary as they might be, they can easily be recognised and avoided and ..used..

    Although I do not scalp, I always like to compare myself to those little fishes who follow and surround whales and who feed on them and their leftovers: While this might be insignificant and useless and unworthy for the whales, it is more than enough to feed the pilot-fish that Retail Traders are.

    I also believe than one needs to find his/her own style: I you find scalping to be stressful and a mug game, it is likely that you wouldn’t be very comfortable with it and good at it. It is crucial to have your own style and methodology, something that suits you and makes sense to you (in addition to being in line with the reality of the market).

    Trading is not a science or a green/red light system, and requires a lot of discretionary decision making and does not fit traditional education, and rules based life, which makes it a difficult “art”.

    If I was to pick what is the most important and essential part for me, it would be identifying areas of supply and demand, which are defined by past exchanged transactional volume and time to some degree, and used as future references points. Often times, even during very active moments, bid/ask tend to follow those reference points and areas, and what might seems like chaos is actually rather organised and tend to react rather precisely to those areas.

    It is therefore very possible to analyse the order flow and stay hours building a position, work and average price, and stay within open interest overnight and sometimes for a couple of days. Still being able to understand day types, market phases, who is in control and why/how, or at least venture a very decent guess, seeing actual transacted contracts exchanges and observing apparent available liquidity on the order book, offers a good chance of being able to feed on the whales and get away with a full stomach.
    #17     Jul 7, 2019
  8. sillyw10


    I have a good handle on what you speak about except for one thing..what do you mean when you say "stay within open interest"..are you talking about ES or any market?

    OI interest for ES had a daily change of just over 4k for last Thu or Fri..maybe both days..need to double check..the system I am currently testing has OI details..not sure if it is live yet as have to wait for markets to reopen

    #18     Jul 7, 2019
  9. Sorry Sillyw10.. I made this confusing when all I meant was that “when you do not close an open position”.. I like to work an average price rather than “be short” or “be long” all in. I would slice an overall order, according to the type of day, previous days, and order flow in general, and work on a weighted average. This takes a number of contracts and can spread on several hours or more rarely days and some overnight open positions. This is often what Institutional Brokers do as they may guarantee “best of VWAP”. This requires more to have a sense of where the day or days might evolve as opposed to scalp in and out within minutes, and means that algos and other potential influential market movers are far less of a concern.
    #19     Jul 7, 2019
  10. bone

    bone ET Sponsor

    There is so much “spoofing”, flipping, stacking, order-crossing and gamesmanship going on with electronic order books that only a fool would try to interpret anything from depth-of-market. And big commercials use very sophisticated “Iceberg” order injection algorithms in order to hide their footprints. But if you think that you have an edge with it - by all means ignore me.

    Here’s the thing - no one outside of the exchange regulatory compliance department has access to individual order identifier tags - so it’s a myth that some vendor or system has the ability to segregate and identify market participants.
    #20     Jul 8, 2019