hyperscalper 

I may have been responsible for revitalizing the issues around Order Flow, and in my work, I've certainly done a lot of it. But let me just re-clarify what I understand Order Flow to mean. WHAT IS "ORDER FLOW"? Most people, including me, for a while; define Order Flow as "Trade Flow" or Analysis of the Time and Sales for Buying versus Selling; and thus calculating some concept reflecting an "imbalance" of the Market Makers' "net buying or selling" behavior. So, if the Time and Sales shows only Selling, which would mean that the transactions occurred at or very near the BID price; then Market Makers would be accumulating "long" or an excess of Buying, and be motivated to move the Market Price upwards, to sell off what was purchased from Retail Sellers, then to Retail Buyers at a Higher Price. This can be useful, but I've described it more as a "situational awareness" that "Yes, Market Makers on aggregate have absorbed a lot of Selling, so they may be motivated to Support the Price, and lift the Price as a result". It cannot tell you the instant that a down trend, becomes an up trend, with any precision at all. All of that is a very natural and logical way of approaching Time and Sales, and many people consider that to be Order Flow Analysis. In a sense, Orders on the Book are "Flowing" to Retail players as transactions take place. BUT THERE IS A SECOND AND MORE USEFUL MEANING, WHICH IS ANALYSIS OF THE LEVEL 2 OR "THE ORDER BOOK" which exhibits Market Maker Orders (and some Retail players limit orders) which exist at varying Price distances from the Inside Market; BUT WHICH HAVE NOT generated any Time and Sales transactions; they are merely Orders. The "Flow" of these Orders, or the "discoverable patterns" which do exist in the various "Tiers" on the Order Book are an order of magnitude MORE DIFFICULT to evaluate, in order to generate Trading Signals which predict which way the Market may move in the near future. WHAT ARE THE FACTORS THAT LIMIT "DEPTH OF MARKET ANALYSIS"? Firstly, many cheaper brokerages offer only a limited number of Tiers on the Level 2, and anyway, ordinary traders don't know what to do with a fluctuating Depth of Market (aka "The Order Book"). If you are given only 10 possible Tiers either side of the Market, then you will be limited in perhaps what information you could extract from that presentation. Secondly, normal traders do not have the ability to apply algorithmic real time analysis to the Depth of Market (the DOM) and, even if they did, that analysis might not be useful in their trading, so perhaps they are 1) unwilling to pay extra for Market Depth, and 2) the data volume or "bandwidth" to the local trading platform is generally kept at a minimum for most traders, thus not requiring much infrastructure to deliver. Thirdly, Premium costs may be incurred for a Full Market Depth which is "not aggregated" and which might offer 50 Tiers of information on each side of the Market, and the data rates of such feeds (such as Rithmic's Depth of Market or other "premium" providers) may be prohibitive for retail platforms. For example, the Rithmic Market Depth (not aggregated) could generate up to 1000 or more UPDATES PER SECOND. The potential to use this information is questionable; and the retail demand is generally low; so why would it even be interesting at all; given the high cost, and the inability to UNDERSTAND the meaning of any patterns which exist in the Depth of Market. BUT HERE'S THE TRUTH. ANALYSIS OF THE MARKET DEPTH is one of the strongest "edges" that a highly technical trader can have. Notwithstanding those people who say they can trade successfully with nothing but Level 1 pricing; and who claim that Level 2 never gave them an edge. THE PROBLEM IS PROCESSING THE INFORMATION, and then being able to predict where a market will move based on that information, which is a highly specialized and relatively expensive proposition. You cannot just "eyeball" such information and expect to extract anything useful. It is a highly technical algorithmic problem to determine Market Trend from analysis of the DOM (the Depth of Market) and you are likely to need a "premium" non-aggregate feed (such as Rithmic's feed, and probably some others) in order to do that. SO I HOPE THIS CLARIFIES the differences between Time and Sales Analysis, versus Depth of Market or "The Book" as a source of Signals for trading. Both are perhaps confusingly lumped into the category of Order Flow Analysis. hyperscalper

that's what I believed years ago: that DOM could offer some type of advantage. Now I think reading DOM is very confusing, basically all the tricks that used to work years ago are now useless because everyone knows them, also there are robots that can read the full LAdder (by the way I used 300+ levels, not 50), in matter of micro seconds, and take decisions faster than you.
I think most of the people lose money because they are so focused on the ladder. They think they understand the market because the see a big order and they scream "that is spoofing" or when it gets hit they say "market is strong because..." etc... the result is that they always have a justification for what is happening.
These people take peanuts out of the market, when they make 200 USD per contract, smart traders make 1000USD with lower risk.

That's only my opinion, but check around in the website and you will see that 99% of the losing traders are huge fan of the DOM.

I remember this trader Christian Anthony who seems to take trades almost entirely based off the DOM, and he seemed to be successful at it: [yt]https://www.youtube.com/channel/UCrBE3T_vQzZgevVycQIROEg/videos[/yt] (No relation to him). It's a bit too hectic for me, as I prefer time based footprint/bid-ask charts as a representation of the order flow.

SBtrader82 

that's what I believed years ago: that DOM could offer some type of advantage. Now I think reading DOM is very confusing, basically all the tricks that used to work years ago are now useless because everyone knows them, also there are robots that can read the full LAdder (by the way I used 300+ levels, not 50), in matter of micro seconds, and take decisions faster than you. I think most of the people lose money because they are so focused on the ladder. They think they understand the market because the see a big order and they scream "that is spoofing" or when it gets hit they say "market is strong because..." etc... the result is that they always have a justification for what is happening. These people take peanuts out of the market, when they make 200 USD per contract, smart traders make 1000USD with lower risk. That's only my opinion, but check around in the website and you will see that 99% of the losing traders are huge fan of the DOM.

The key is to know exactly how the DOM gives you meaningful market direction signals.

Now, my focus is on Nasdaq Micro Scalping; and essentially when the Price is about to Rise, then Ask tier size
will decrease (and Bid tier size may also increase) very quickly. It's only necessary to see maybe 20-30 tiers
to get that effect fairly strongly. And you need to use smoothing judiciously, so as to get just about
the right level of "noise reduction". But, because there may also be a Persistent Bias between size levels on the
Bid versus Size levels on the Offer, you'll need to establish a slow Reference size level on each of these sides,
in order to detect the Delta change in volumes that I'm speaking of. Maybe the ratio of the Slow to Fast would
be 10:1 or as much as 20:1 .

In such delicate (but very fast) measurements, "the Devil is in the exact details" so that you can detect the
signals you are looking for... And, then, you may have the challenge of actually triggering your Order Entry
on some of those potentially very fast signals as well... so, in my case, I have Analytics through to Order
Control as part of a semi-automatic integrated setup; and all the code's custom.

My focus is laser sharp, on just the Nasdaq NQ and MNQ contracts. Oddly enough, the MNQ micro contract may
divulge more "secrets" than the NQ. So I analyze the MNQ, but execute on either MNQ or NQ.

Trading is about finding a niche, and then exploiting that through extreme methods; in my opinion. Not everybody
is able to do this; so "your mileage may vary a lot"...

[EDIT] I should add that "spoofing" is a real issue; which is intended to make both
sides of the DOM appear the same to the naked human eye; but a computer can
be used to measure the "persistence" of sizes on the DOM by noting the minimum
values seen on a Price level over a window of time. This minimum is more of a
proxy for a "true" level of interest at that Price. And there are many other issues,
such as whether measurements should be Price specific, versus Tier specific,
given that as market moves up and down; it traverses a range of actual
Prices.... so it's a complex problem to solve to get a good prediction you could use.

hyperscalper

TradeTheTrade 

Hello guys, I am an aspiring trader and just recently learned about order flow and all these concepts. I was thinking about getting into NoBsDaytrading and learning about DOM scalping then I came across a reddit comment from someone who claims to be a STIR trader and claims that orderflow is the modern day technical analysis. I will copy paste the comment here: "I'd put it this way: The way orderflow is used by retail is completely different than it is used by professionals. All those concepts like delta, footprints, absorbtion are part of a snake oil sales armada just like the technical analysis hype fuelled the retail software industry 10-20 years ago. "Orderflow" was more or less taught in prop shops (especially bond and STIR desks) and it worked because markets were much more isolated back then. When you were able to spot a refreshing bid you could really identify what was going on since it most likely was one guy or one firm executing. Now it's old prop traders who ran out of edge who teach the concepts to the public. Today all markets are correlated, so a refreshing bid could mean an algo that trades a weighted portfolio of 12 different assets, which is pricing your bid off of 11 other markets. He's refreshing at 20 now until one of his markets ticks down, then he's refreshing at 19. There is so much cross flow between markets that it is nearly impossible to identify a trading opportunity aka. a price to lean on. Also, the big volume has moved from the lit market back to OTC since they are sick of getting robbed. No as far as the professional users of flow goes, they are just screening the markets for stale orders to lean on, they have access to OTC venues to get an indication which direction the paper is trading and they monitor changes in correlations. They also look into microstructure but opposed to the flimsy stuff Jigsaw, ATAS or Bookmap provides, they are modeling the FIFO queue in order to find out weither an order should stay for the 0+ trade or cancel/replaced. Do they use delta or bids vs offers hit? Yes, some do, but it is just a miniscule part of the trading. More important, they monitor the trading of hundreds or thousands of instruments to get an idea which asset is out of whack. As others already mentioned, the data and creditlines necessary to trade on that level is so expensive that it is just not worth exploring for retail. If you do not have a specific edge to exploit with your "orderflow" concepts, just don't bother programming an algo around it. Most of it is BS to be honest. Good Luck" I would like to hear your opinions about what he said. I dont want to waste my time if what NoBsDaytrading used to work and now doesn't anymore. I know I sound like a newbie because I am. I am trying to learn about the nature of the markets and how they work but after reading this I became skeptical of everything for some reason Thanks

Hi, what you present is certainly interesting. I always thought of "Orderflow" as a discretionary tool. There's no magical solution to profit in trading, you have to develop your own edge and be consistent at it. Whether it's moving averages, raw price action, delta, foot print, fundamental analysis etc... no one knows with certainty what the market will do next. Find something that makes sense to you that will help you "rationalise" the market, give you the confidence to pull the trigger on a trade, and remain consistent in the long run. Good luck!

Sent using the NexusFi mobile app

you can get some useful info from a lot of different techniques for trading even if you don't trade that way

Azul1 

Hi, what you present is certainly interesting. I always thought of "Orderflow" as a discretionary tool. There's no magical solution to profit in trading, you have to develop your own edge and be consistent at it. Whether it's moving averages, raw price action, delta, foot print, fundamental analysis etc... no one knows with certainty what the market will do next. Find something that makes sense to you that will help you "rationalise" the market, give you the confidence to pull the trigger on a trade, and remain consistent in the long run. Good luck! Sent using the NexusFi mobile app

OK, I'd like to make some comments that could help. But I am biased toward an extreme degree
of specialization; and also to custom coding of high performance algorithms; and toward the
higher cost data feeds which may contain the hidden signals to give you Real Signals for
Market direction.

My work is solely focussed on Futures day trading, or Scalping; using NinjaTrader 8 with
fully custom algorithmic indicators (nothing off the shelf is really good enough) and also the
use of a dedicated server, situated fairly near to the Chicago area, which also presupposes
that you either can system-manage, or you know somebody who can...

Given these constraints, and the nearly impossible goal of predicting with high probability
which direction the market will move in the near future.... given all of this, the only way
I can help is by giving general advice on the setup which is needed to achieve
consistent success. CONSISTENT success is the goal; so that, on a daily basis, you
are profitable; and your Account Equity is not wildly gyrating from day to day, and you
are not overly leveraging your buying power, thus putting your survival at risk...

I am a Technical Trader, relying upon Real Time Technical Analysis. I don't do Swing Trades,
and I might be involved in many hundreds of individual trades, which form part of a
"Meta Trade" involving many Micro contract positions, all working together to allow me
to be successful by controlling a couple of KEY FACTORS.

1) RISK CONTROL involves using multiple Low Risk positions, as a Group, so that both
Cost Basis (your Trade Break Even price) and Risk Levels can be "modulated" as the
trading action proceeds.

1a) ...essential to Risk Control is that you NOT be overly-leveraged; so you can add
to your position size, or reduce your position size; without fully Stopping Out during
Price Adversity, nor having to be All In with a position size that puts you at high
risk. This may involve working with the Micro contracts (which are 1/10th the size
of the Mini contracts) instead of the Mini contracts. By "spreading out" your Entry
Price levels, your Cost Basis is the Volume Weighted Average Position Price; and
also your Risk Level is your current number of outstanding positions which form a
Macro Position.

2) LIFO Accounting for Partial Profits as the Macro Position proceeds. Most brokerages
use a FIFO accounting method; but this is not desirable in helping you to know how
much your Profit Taking is contributing to your Open Losses. A FIFO technique helps
you to say "OK, My Macro position is losing $100; but I've taken $75 already in partial
profits, so I'm really losing only $25 as I continue to 'work' the Trade".

3) You'll want to anticipate tolerating Price Adversity which may be in the range of
50 market ticks or so; in the normal course of your trading. You may reduce a
portion of your position, but you must be ready to increase your aggregate position
size whenever possible; and that will be directed by your Trend Direction analysis.

The above observations are off-topic and don't address the usage of Time and Sales
Analysis, nor Depth of Market Analysis; I realize that. I've already said that although
Time and Sales (what I call "Inventory" Analysis) is valuable; it doesn't help you
Pin-Point precisely when Trending is favorable to you.

So we are left with what I regard as the best way to Identify "true trending" through usage
of the Depth of Market, and developing a "bias" Indicator which will tell you when trend
is favorable to your position (so that you can add to your position) and when you
should possibly reduce your position size, or take individual Partial Profits to contribute
to your "in pocket" cash, which offsets your open losses as the aggregate position
proceeds.

You'll need a platform which is programmable, such as NinjaTrader 8 which uses compiled
very high performance C# code to develop Indicators. Also, you'll need access to a
Market Depth feed, which is likely to be Rithmic at NinjaTrader brokerage. If you have
a substantial account size, then you can tolerate the fact that your margin requirements
could be very much worse, than with the normal data feeds; but you'll need that Market
Depth from Rithmic to do analysis.

Using the LeeLoo proprietary trading service, you will have access to Rithmic Data, and you
may be able to qualify for paying performance accounts in that way.

IN ANY TRADING, you simply cannot "flip a coin" and determine which direction to trade,
either "long" or "short" as they say; and have any hope at all of surviving. ANALYTICS
which are predictive of Market direction MUST BE the starting point for everything further
down the chain, where Execution is the least important.

Consider that Market Makers are NOT driven by "Retail Buying and Selling pressure" but are,
instead, the prime drivers of all Market direction; where Retail players are simply followers.
You'll constantly be told things like "Buyers are in control of the market today, which is
why the price is rising." as though the Retail participants control Market direction. At least
in Futures markets, this is Absolutely NOT True. It is what I'd call a "Convenient Fiction".

Can you tell that I'm not going to give you a specific solution here, but simply to get you
thinking about where the Holy Grail may exist? lol

IF there is a Holy Grail for shorter term trading; or scalping day trading.... then that Holy
Grail is to be found in the analysis of The Order Book, or Depth of Market, abbreviated
as the DOM. Analysis of the DOM will tell you where the market is moving on a short
term basis.

WHY? ...and here I'm just giving you some food for thought. Let's agree to stipulate one
assumption, for the purposes of argument. "Market Makers know where they want to move
the market; meaning that they have a Plan on any given day; and they use their own Bids
and Offers distributed on a constantly changing DOM, in order to maximiz(s)e their Profits,
as they use Retail Players to achieve their objectives."

When Market Maker wants to lift the Market Price, she simply removes her Offers, and also
then begins pushing her Bids, to simply "over-power, overwhelm" the Retail players'
buying and selling tendencies. When Prices rise, Retail players become Buyers; and when
the Price falls, Retail players become Sellers. Retail players are "followers" and Market
Maker is the Prime motive force for Price movement.

1) Time and Sales analysis. Here we see a Limited Value in looking at Buying and Selling
transactions. We can understand why all Markets move in a "sawtooth" fashion. It is because
Retail players BUY (from Market Maker) as the Price rises, and Retail players SELL (to Market
Maker) as the Price falls. Thus, some "Inventory Analysis" which involves tallying shorter term
"Net Market Maker estimated position against the Retail action" can help you to identify
the tops and the bottoms of the sawtooth movements. At the top, Retail players have been
(for the most part) Buying; so Market Maker has been selling to them; and thus Market Maker
becomes relatively "short"; and at the bottom, Market Maker has been buying from Selling Retail
players, and so has been shifted relatively "long" in Inventory.

SO TIME AND SALES ANALYSIS has a value in helping to provide what I would call a
"situational awareness" which may help us to measure a process responsible for the tops
and bottoms of the "sawtooth" micro movements in a Market.

....I'd better continue in another segment...

hyperscalper

Thanks hyperscalper good info

hyperscalper 

OK, I'd like to make some comments that could help. But I am biased toward an extreme degree of specialization; and also to custom coding of high performance algorithms; and toward the higher cost data feeds which may contain the hidden signals to give you Real Signals for Market direction. My work is solely focussed on Futures day trading, or Scalping; using NinjaTrader 8 with fully custom algorithmic indicators (nothing off the shelf is really good enough) and also the use of a dedicated server, situated fairly near to the Chicago area, which also presupposes that you either can system-manage, or you know somebody who can... Given these constraints, and the nearly impossible goal of predicting with high probability which direction the market will move in the near future.... given all of this, the only way I can help is by giving general advice on the setup which is needed to achieve consistent success. CONSISTENT success is the goal; so that, on a daily basis, you are profitable; and your Account Equity is not wildly gyrating from day to day, and you are not overly leveraging your buying power, thus putting your survival at risk... I am a Technical Trader, relying upon Real Time Technical Analysis. I don't do Swing Trades, and I might be involved in many hundreds of individual trades, which form part of a "Meta Trade" involving many Micro contract positions, all working together to allow me to be successful by controlling a couple of KEY FACTORS. 1) RISK CONTROL involves using multiple Low Risk positions, as a Group, so that both Cost Basis (your Trade Break Even price) and Risk Levels can be "modulated" as the trading action proceeds. 1a) ...essential to Risk Control is that you NOT be overly-leveraged; so you can add to your position size, or reduce your position size; without fully Stopping Out during Price Adversity, nor having to be All In with a position size that puts you at high risk. This may involve working with the Micro contracts (which are 1/10th the size of the Mini contracts) instead of the Mini contracts. By "spreading out" your Entry Price levels, your Cost Basis is the Volume Weighted Average Position Price; and also your Risk Level is your current number of outstanding positions which form a Macro Position. 2) LIFO Accounting for Partial Profits as the Macro Position proceeds. Most brokerages use a FIFO accounting method; but this is not desirable in helping you to know how much your Profit Taking is contributing to your Open Losses. A FIFO technique helps you to say "OK, My Macro position is losing $100; but I've taken $75 already in partial profits, so I'm really losing only $25 as I continue to 'work' the Trade". 3) You'll want to anticipate tolerating Price Adversity which may be in the range of 50 market ticks or so; in the normal course of your trading. You may reduce a portion of your position, but you must be ready to increase your aggregate position size whenever possible; and that will be directed by your Trend Direction analysis. The above observations are off-topic and don't address the usage of Time and Sales Analysis, nor Depth of Market Analysis; I realize that. I've already said that although Time and Sales (what I call "Inventory" Analysis) is valuable; it doesn't help you Pin-Point precisely when Trending is favorable to you. So we are left with what I regard as the best way to Identify "true trending" through usage of the Depth of Market, and developing a "bias" Indicator which will tell you when trend is favorable to your position (so that you can add to your position) and when you should possibly reduce your position size, or take individual Partial Profits to contribute to your "in pocket" cash, which offsets your open losses as the aggregate position proceeds. You'll need a platform which is programmable, such as NinjaTrader 8 which uses compiled very high performance C# code to develop Indicators. Also, you'll need access to a Market Depth feed, which is likely to be Rithmic at NinjaTrader brokerage. If you have a substantial account size, then you can tolerate the fact that your margin requirements could be very much worse, than with the normal data feeds; but you'll need that Market Depth from Rithmic to do analysis. Using the LeeLoo proprietary trading service, you will have access to Rithmic Data, and you may be able to qualify for paying performance accounts in that way. IN ANY TRADING, you simply cannot "flip a coin" and determine which direction to trade, either "long" or "short" as they say; and have any hope at all of surviving. ANALYTICS which are predictive of Market direction MUST BE the starting point for everything further down the chain, where Execution is the least important. Consider that Market Makers are NOT driven by "Retail Buying and Selling pressure" but are, instead, the prime drivers of all Market direction; where Retail players are simply followers. You'll constantly be told things like "Buyers are in control of the market today, which is why the price is rising." as though the Retail participants control Market direction. At least in Futures markets, this is Absolutely NOT True. It is what I'd call a "Convenient Fiction". Can you tell that I'm not going to give you a specific solution here, but simply to get you thinking about where the Holy Grail may exist? lol IF there is a Holy Grail for shorter term trading; or scalping day trading.... then that Holy Grail is to be found in the analysis of The Order Book, or Depth of Market, abbreviated as the DOM. Analysis of the DOM will tell you where the market is moving on a short term basis. WHY? ...and here I'm just giving you some food for thought. Let's agree to stipulate one assumption, for the purposes of argument. "Market Makers know where they want to move the market; meaning that they have a Plan on any given day; and they use their own Bids and Offers distributed on a constantly changing DOM, in order to maximiz(s)e their Profits, as they use Retail Players to achieve their objectives." When Market Maker wants to lift the Market Price, she simply removes her Offers, and also then begins pushing her Bids, to simply "over-power, overwhelm" the Retail players' buying and selling tendencies. When Prices rise, Retail players become Buyers; and when the Price falls, Retail players become Sellers. Retail players are "followers" and Market Maker is the Prime motive force for Price movement. 1) Time and Sales analysis. Here we see a Limited Value in looking at Buying and Selling transactions. We can understand why all Markets move in a "sawtooth" fashion. It is because Retail players BUY (from Market Maker) as the Price rises, and Retail players SELL (to Market Maker) as the Price falls. Thus, some "Inventory Analysis" which involves tallying shorter term "Net Market Maker estimated position against the Retail action" can help you to identify the tops and the bottoms of the sawtooth movements. At the top, Retail players have been (for the most part) Buying; so Market Maker has been selling to them; and thus Market Maker becomes relatively "short"; and at the bottom, Market Maker has been buying from Selling Retail players, and so has been shifted relatively "long" in Inventory. SO TIME AND SALES ANALYSIS has a value in helping to provide what I would call a "situational awareness" which may help us to measure a process responsible for the tops and bottoms of the "sawtooth" micro movements in a Market. ....I'd better continue in another segment... hyperscalper

that's very interesting, I can see that you have some very deep knowledge of the market. Can I ask if trading is trade full time? if so do you trade your own capital or for a prop firm? just curious... I am just wondering if this level of details is achievable for a retail trader who is not trading full time.

SBtrader82 

that's very interesting, I can see that you have some very deep knowledge of the market. Can I ask if trading is trade full time? if so do you trade your own capital or for a prop firm? just curious... I am just wondering if this level of details is achievable for a retail trader who is not trading full time.

If you are able to trade the U.S. morning session for a couple of hours, perhaps.

But there are many technical hurdles in achieving a level of precision that I was suggesting.

If you can code C# within NinjaTrader 8; or you dive in; then there is a chance you could
begin to do it...

Buying "off the shelf" indicators, for me at least, is just not valuable at all. You really need
to "dig" into the data to find the appropriate clues.

There are MANY alternative methods in trading; but they're just not for me.

Currently, my approach is to get a LeeLoo performance account with huge buying power
and suffer an 80/20 profit share; until I have the personal equity to switch over.
That's my "prop firm" plan; and there's probably no better than LeeLoo for Futures
trading, I'd say; but "your mileage will vary"

That's gonna work for me; but I refuse to trade without high certainty of Consistency
in the daily outcomes; since I am a highly technical scalper.

So.... it depends on your level of commitment and lifestyle; keeping in mind that
my personal journey won't be the same as yours... [EDIT] You could just
decide to commit ONE YEAR, EVERY DAY to the learning curve; and then
evaluate your situation then; you'd be surprised how much you could
achieve !!

Just find a "niche" and exploit that specialization... best advice there is.

hyperscalper

hyperscalper are you using a server at the exchange to trade if so what is the cost I have seen a wide price difference not sure if its worth it
I just started to look into that thanks