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Asked my fellow broker, Joe Easton, whom I like his market read what he thinks and he shared the following:
Good job doing your homework and asking the right questions. Part of being a good trader is to think rationally and independently. It is correct to search for information and be skeptical of the answers and test to see if they work in your experience. Every trader will have slightly different opinions and experiences and that is what makes a market.
To me orderflow is an outdated concept. Since it is a fact traders can hide order sizes and cancel bid or asks at anytime already pokes holes in the idea that this information could be helpful. I realize there are some successful traders that use orderflow but in my experience I do not find it helpful. I personally believe in technical analysis because you are using information that is a fact…prices traded. You cannot cancel a position already filled and printed on the chart. Using information that has already happened to me is more useful than using information that may or may not happen.
PM with any questions about Cannon Trading (800) 454-9572 (310) 859-9572. Trading commodity futures, forex and options involves substantial risk of loss. The recommendations contained in this post are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results.
First of all, orderflow is not a technical concept. It is based on fundamentals. When you look at it that way, your understanding of orderflow careens with a new angle. Yes, orderflow with technical mindset alone is an incomplete tool!
To say that the concept is "outdated" is certainly not true. It's still real data that has a significant impact on how an asset moves and should be factored into analysis. DOM trading also places an emphasis on the execution of a strategy, and that will always give you some edge.
But it is not nearly as reliable as we once held it to be. Part of it is just that a lot of moves are off correlation, and the order flow will be dead wrong when that happens. Part of it is that you're looking for such a short term trade that all it takes is a little noise to ruin the trade. Sometimes it will work for you every time, and sometimes it will fail every time. You have to know when the action is good which is something I've had a hard time consistently doing. So it becomes like everything else. Maybe you can find an edge in it, and that edge might not last forever.
I don't know if anyone's mentioned it yet but look up MBox on YouTube. [yt]https://www.youtube.com/channel/UCLKraR4UVif9dszy4DZLXtw[/yt]
This guy's system uses order flow and if there's a way to use order flow, it seems to me this is one way to make it work.
That guys seems to be onto something. It helps me that he posts live trades. Except he doesn't tell you how many he recorded and doesn't end up showing.
Disclaimer: I have no affiliation with this guy. I haven't even bought his system. What he says appeals to me though.
The whole notion of "order flow" trading deals with trades. Sure, the order book may be used, but I don't think it's implied that "order flow" trading centers around quotes.
I find these 3 paragraphs from the above are the most undervalued and underpriced by the amount of information contained in them. Speaking from the experience.
I have also been (from very beginning) very skeptical about ability of the traders to earn consistent profit using DOM. Don't get me wrong, this has nothing to do with my opinion being high or low about abilities of others to recognize the patterns on the DOM ladder. It is more to the fact that because of electronic trading, the nature of the markets have changed significantly in the past 10 years, causing live traders to loose whatever edge they may have had.
I come from the IT / programming background and it quickly became very apparent to me that my biggest strength is not in watching the screens whole day long trying to catch the volume bump to lean on, but rather in ability to spot and recognize context patterns, determine (in very detail) what the conditions are for those patterns and then writing my own code to hunt for these conditions in the market to simplify my job as a trader. In other words, I want my bot (algo) to monitor the market, place an order for me along with proper risk management when conditions line up and I can take over and manage that trade from this point forward.
I am not that smart or delusional to think that I can beat the algos and millions of dollars invested in the super fast hardware, but I am smart enough to employ computers to simplify my job and do the 70% of work for me so I can focus on discretionary trading.