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So I've spent a lot of time on the time confluence thing, and wrote some of the indicators for it. Over the past 3 weeks or so I maybe had 3 losing days with it? But once again like everything it's not a silver bullet. When you get a reversal and all the domino's start falling down it goes a long ways towards telling you how far things can go. But ultimately it relies on trend and if you don't get that trend it can just slice you up. You need strong runners for it to work out. My back testing and results suggest that you need a lot more than that. In the end it always comes down to generating more edge than your competition. Timeframe continuity is kind of too obvious. So it ends up being something that you should absolutely know and incorporate, but that will probably just get you to break even on its own.
And it's the same thing with order flow. The one advantage order flow might have is that it's a lot harder to generate an algorithm, find historical data, and run a backtest on everything that an order flow trader looks at. There may be less order flow traders than there are other methods right now, but there's still enough. You still have to find something unique that gives you enough of an edge on everyone else to generate excess returns.
Good analysis. There's also an increasing element of randomness in all the markets which is why, at best, most are just breaking even. Trend and steady buying/selling which you can see on the DOM is probably the most important thing right now. The days of just looking for typical DOM setups are over. It was nice while it lasted though!
I am using it. It is an amazing tool.
But honestly, you need years in front of it to make sense of it.
And you have to be willing to see and accept when the market changes and learn it all over again.
H.
Absorption - This is a valid concept but it's contextual. For example, market pulls back, it takes 200 contracts to push down through each level and then 2500 sell into a level and it can't move down. It will not work all the time - but it's an R:R trade - stop is small and potential is new highs. Won't work in a directionless market or a fast news driven one
Another case of absorption - market pops up out of a 2 hr range 5-6 ticks and suddenly all buying is absorbed - classic headfake in a slow sloppy market.
But what do people do? They create a 1 rule trading system to "always fade absorption" regardless of market state or context. All absorption means is that buying or selling is no longer having impact at the moment. Wait for some people to puke to get in if you need additional confirmation.
A lof of the professional use of order flow is momentum based, watching the market being hit hard and moving well - often off news. Trouble is your man at home doesn't want to take momentum trades, he wants to buy the low or sell the high.
I would disagree with Jigsaw being flimsy... but the problem with the order flow market is too many gimmicks promising the world. It's over-engineering to make lots of shiny stuff to impress newbies. If you aren't prepared to sit in front of a DOM - don't expect to be as good as the guys that do.
You have to remember your place in the food chain. You can't beat algos because you aren't even playing the same game. The way I see that world with Day Traders trying to 'beat algos' and coming out with stuff like "the algos are trying to take it to x" - it's all nonsense. Like a swing trader saying "I can't make money because of those damn day traders".
A lot of algo/hft stuff is arb. It's not directional. There is no "they" moving the market 30 points - if 'they' did - it'd move back 30 points the other way when they tried to unwind the position.
Day traders sit in a certain place, the more institutional/news driven trading there is, the more money we can make. Same in STIRS. You need people trading with urgency, giving up the spread etc. Day Traders are sitting in a space in time above HFTs/Algos but well below the big money. Inside that space, you can play your game without obsessing about those in nanosecond timeframes below you.
Edge is all about exploiting patterns that occur in the market. Seeing them in time to actually make money. Sometimes it's a lovely Trump-tweet tailspin. Sometimes unemployment numbers. Sometimes just a nice, active market that ends the day right where it started.
Order Flow is one means of analysis and recognizing patterns in the market to make a simple decision - up or down. Very few approaches allow you to use it in isolation (i.e. no market state, no context). It is icing on the cake, price improvement.
It is NOT beating the trading boogeyman.
I was talking to a trader a couple of days ago that trades 1000+ contracts a position - nothing but order flow IN CONTEXT, not on it's own. No short term charts at all.
It's also true that the STIRS game is dying a death - both spreading and outrights. So the OP coming from that angle. I know quite a few Aussies that got caught there. But that's a different discussion.
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I think a lot of this is based on the fact that there's a lot of push by vendors to describe Order Flow as a market depth game.
I wouldn't even say that Market Depth is 10% of the picture. For example - go back to the high of the day on ES & the offers are almost always stacked just above it. Doesn't mean they wil be there when you get there.
Order flow is all about executions, how it's moving/trading, where people are positioned, whether aggressive trading is coming into the market. I think TA doesn't tell you this, nor does Market Depth - but executions/movement does IMO and very well.
Chart vs DOM? I think it comes down to the fact the markets are like a pole dancer - they can only go up and down. The DOM shows you that and little else to disctract you - it's not left to right like a chart.
At the end of the day - it's really all I know and the approach of all the people I work with (including professionals), I simply don't come into contact with people outside of this domain, so my view is slanted.
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They do indeed - but they aren't trading those bids/offers alone - that's the trap many get into. I've sat there when they are waiting for a news release and to say it's tense is an understatement. It's like sitting in a library towards the announcement. 15 mins before they'll all be talking about what their expectations are, how they will play it. Then silence as it's coming in - then action/swearing.... They are watching multiple markets for a reaction - mostly signs that people are piling in in various places. The bids and offers aren't primary - but are discussed. The primary is the expectation and the reaction.
Cause & effect.
Yup - and they will go offside a fair bit if they believe that the fundamentals of an event will pull the market up - something else order flow traders don't want to do. Same for scaling in.
At Axia - they have an expectation of a reaction. Order Flow confirms or rejects that expectation. That process is more than most people are prepared to do though.
If you have any questions about the products or services provided, please send me a Private Message or use the futures.io " Ask Me Anything" thread