Having spent well over a year now digesting a lot of information and playing around with demo, I’ve come to the stage that many people have probably been before.
First, I started out having finished the babypips school with popping as many indicators on my charts as possible. As time went on I learnt how indicators are for the most part useless as they lag behind what’s actually going on currently.
The next stage was to revert to pure PA - strip the chart and only place on lines of S/R and the occasional trend line. This provided me with somewhat of an improved picture - more success.
However, recently I’ve been thinking that unless an individual can fully understand the workings of supply/demand and what (more specifically WHO) moves the price then surely profitable trading for the most part will not be achieved.
Following a great trader on twitter (@50pips) I noticed that often he would talk about flows and issue cautions about stop hunts. After some googling this led me onto Order Flow trading. I dug up a fantastic thread from the forexfactory explaining some bits of order flow trading - thanks to the expertise of Darkstar and other forexfactory members.
It has really been an eye opener and helped me understand the workings of the market. Before, I didn’t know why the price moved by a pip (or many pips) - answer, due to liquidity. How limit orders provide liquidity and market orders consume liquidity. I also never thought about why the market would suddenly move in a direction etc… It’s changed my mindset somewhat.
Right, now I’ll try and stop the rambling and get to my point! I have decided to post here to ignite that discussion again about Order Flow trading and to learn more. Is there anyone on Babypips who is familiar with Order flows?
The question I’m trying to answer is… how does a retail trader (such as you or I) know when stop hunting is going on?How did 50pips know to (accurately) tweet cautioning people about a stop hunt (before the move occurred - and no, he doesn’t work inside a market mover, he’s an individual trader)?
Is it around whole numbers such as 1.4000? Is it historic S/R levels? Is it barrier option levels?
Sorry for rambling and I’m not sure whether this is the right place to post this as it’s not exactly nooby stuff.
Hope someone can add to the discussion!
I do not know what order flow trading is but I do know what stop hunting is about and how you can tell when you will most likely run into it. You got to look at it from the market makers point of view. He knows most peoples strategies we all trade about the same weather it be trading cross overs, using fibs, gartley patterns whatever. There are many times in the market where these will all come together. Essentially everyone is lookin to get in at the same place at the same time. Now if you are a market maker what would you do. If there are buy signals why not make price go down and take out everyones stops. Then once you do that reverse the price and take out all the band wagon jumpers to. Congrats you win everyone looses. Call it a day. See true market makers never really have to risk money to take you out of the market. they already are playing both sides of the field. If there long positions are making profits all they have to do is cash in on profit and price will drop. Taking out everyone behind them. Now there short positions are in profit since price just dropped all they have to do is lock in more profit. Must be nice but you also have to look at it as they are not out to get my stops (maybe yours depending how much money you got in the market) I just get caught in the cross fire from time to time.
So would it be better if we traded the opposite to what we feel?
I understand that often market makers will hunt our stops (the uninformed trader) in order for them to fill their positions as the limit orders (stop losses) provide liquidity that the market makers need in order to fill their order. Wouldn’t this indicate that at times the market makers will drive the market in the opposite direction to what they really want in order to trigger the stops - which they then jump on the other side of (every order needs a buyer & seller)? They then would drive the market in the direction they want.
Just out of interest, do you trade the flows from the market makers?
Market makers cannot control prices, in fact no single organisation or even group of organisations can. It may be true that stops are placed at significant levels like 00, 50, 10 but I think you are looking too much into conspiracy theories.
Price -> Order Flow -> Price Action -> Technical Indicators
Reality check: There is NO order flow trading for retailers
In order to trade order flow you need to know…well the flow of orders (mainly market orders or agressive orders) from huge institutional traders… those guys are the ones that move the market… I have read Darkstar, he understands pretty good how price moves and I guess he is a good trader… but what he trades is price action and S/R (remember that the guy at the end will try to sell his book)
So please focus on PA and S/R
About stop hunting… there is no way to know when will it happen… unless you are a friend of the trader who is selling/buying few yards
with stop hunting the big guys are aiming for limit orders (passive orders) in order to make a quick good profit
and I don’t know how accurate 50pips is to pinpoint stop huntings… but you can guess those levels in strong S/R areas, usually against the main trend
Market makers cannot control prices, in fact no single organisation or even group of organisations can. It may be true that stops are placed at significant levels like 00, 50, 10 but I think you are looking too much into conspiracy theories.
Are you kidding me? Have you been trading in 2011? How many times have we herd a country saying this is where they need there currency and it happened? I wont go into detail but a couple thing come to mind. G7/YEN for one yeah it take a bigger picture than just a single person. But dont kid your self there are lot of organisations that can move the market without even trying. Food for thought why do we see 200 pip spikes on a 15 min chart dont tell me because everyone bought in at the same time or that it was a spoof. No it was a market maker cashing out his short positions to move his money somewhere else. Instead of doing it gently they did it all at once. And most of the time reverses the market just to stop everyone out that jumped on board. Then leaves gently not to cause a stir. Think about it if you worked for a market maker and you were handed a billion dollar account to make X percent by the end of the month hoe are you going to do it trade the traditional way. Or take everyone out collect there money then watch the account grow. Look the way a retail trader trades is no secret but I love to say it the way a market maker trades is not either. They just have way way more money that I cant compete with so when they say I got to go guess what i am gone.
Depends on what you mean by retail trader. Most of us dont have enough money in the market for them to care (keep in mind the most part there are some that do) but with that in mind if enough strats put stops in about the same place now is it not worth collecting the free money. With that being said is it not worth justifying those strats to play into your hands. When you got that much money its not hard to do. Most of us retailers can dream of it (again most there are some that take the cake but they are far and few between)
yunny1 usually i agree with you but this time, not so much. Stop hunts are definitely trade able. And dark star does trade them. Also yes there are clusters of stops that attract price. Why because they are orders and price moves to size (ie liquidity). Because stop loss orders are just like any sort of limit order they will attract price. (i just think of it like magnets but that’s just for my own understanding) Are the market makers going to move 200 pips on their own maybe, depending on how liquid the market is. the more liquid the harder to move it. So USD/CHF just posted that type of move last night. was it a single market maker doing that single 200 pip spike then dumping down, no because it exposes them to too much risk. Even market makers are risk adverse, just because you swing multi billion dollar account doesn’t mean your going to risk a significant portion of that to hit some stops. Because there will be profitable trades going in your direction as well. And for each of those trades your going to have to expose each to a possible 200 pip profit. which of course as a market maker comes out of your pocket, since you are the person creating said spike you have to be on the other side of those orders. It really doesnt matter if its interbank or ECN or retail market maker. If they are creating a move they have to the other side on that creates significant risk.
Now about the gentle vs. slow. Why would a large institution decide to take a large range fill vs partial fill at the particular price they set at limit? they would increase their risk and decrease their profits. This is a large part of why price moves back to packs of orders. Because these institutions did not get complete fills. So what do they do. They can sell smaller sizes and try to “work the market”. (I cant say I have seen this in forex its possible but i know for a fact it happens in the commodities pits). in order to get their fill. If they are getting filled over a larger range then it was in most cases a market order, so either it was a dire emergency for an institution or it was a retail trader. Usually the later used more market orders.
Now when we think of the classic stop hunt price is already near their target, now with a smaller amount of capital and less risk the large institution or market maker can create a smaller spike (10-20 pips) into the stop losses. This creates a chain reaction, so they want to push price into the stop losses the stop losses trigger further pushing price in the direction they desire, there but increasing their ‘leverage/force’ with out having to increase the amount of capital at risk to create the move. So smaller moves to fill them selves are much more efficient than these ‘200 pip’ spikes.
Next the inside man to get that information. No you absolutely do not need an inside man to know where the order flow is. Order flow creates PA just like yunny1 said. Darkstar always posts next to his charts news like this execpt his has stop loss information in it usually. But there you go perfectly public information that states where institutional orders are. This was from earlier today.
Orders in EUR/USD
Bank sources note bids in 1.3680, 1.3660/50 and 1.3625/20.
Offers at 1.3720s, 1.3750s and more at Monday’s gap 1.3780s
i[U][I]n summary, is order flow tradeable in retail Forex. ABSOLUTELY. The trick is to know what is behind the candles.[/I][/U] If you can do that, you don’t need anything else. even the news i posted above.
(“this is for educational purposes only i do not take responsibility for and loss or damages for the use of the information contained int his post”)
I see that we have some conflicting views such as…
I believe that market makers can certainly move prices - hence their name. If a large bank was to suddenly place a huge market order, what would happen? Well… all the available liquidity near the current price would quickly be consumed and as a result the price would move in the direction of the order rapidly (leaving behind a temporary liquidity vacuum). This is not in the market makers interest for the large part as a huge market order will leave most of their position being filled at prices way above (or below if they went short) the price that they wanted to fill at - due to the lack of liquidity. So, in turn, the MMs go on a ‘hunt’ for liquidity and where they find large amounts is where the limit orders are placed - at our stops.
In a way yes, however they are only out to “bust” them as they need the liquidity that our stops offer. These can be retail traders or institutional traders - however they are the ‘uniformed’ trader. The banks clearly know where the stops are located and therefore actively hunt for them if you like when they need to fill a position.
My question is how can we spot this before it happens (know where large volumes of stops are placed) and essentially front run the big boys?!
I guess as some have said it’s to do with S/R levels and confluence when uniformed traders get certain signals.
However, I do believe it’s far more complex than this and we’re only scratching the surface… hence why I started this thread to see if there are people out there who are familiar with Order Flow trading and can share some knowledge!
Thanks MeiHua - your post was informative. I have seen from your other posts that you had an internship in a big bank? Did you get to talk to the guys executing these large orders?
Also - where do you find the news/info feeds about SLs/bank interest/barrier options ? I know you can get this info via paid sources such as reuters IFR, but can you get access to this info for free?
Actually Cuddy i worked on the floor of CBOT part of CME group on a large futures dealing desk dealing with institutional and retail order flow. I used to work that desk and be a floor reporter.
I said, you as a retailer never know for sure when a stop hunt is going to happen…if it would be so easy to spot then nobody would place SL near the reach of institutions…
I happen to be a friend of trader from a big bank in my country, so I kind of know what they usually do…
That being said… I agree with you 100% stop hunts are [B]tradeable[/B] when you wait for a candle signal, and after a while just by looking PA and strong S/R areas you can forsee where a SH “[B]might[/B]” take place…
MeiHua, don’t be fool by that kind of information. Sure some bids may be noted…but what size??? and what about offers in the same area?? and its size?? remember what moves the market are market orders or agressive orders…
And also note that they say [B]“bank sources”[/B] those are the guys you are trading against so would you really care for that info???
but the rest it is a nice explanation, MeiHua. :35:
Your absolutely right about that news. It’s got going to be reliable honestly I don’t trade using those reports . You can look I’m those area and if the set up looks like it’s going to be a stop run great but you have to have everything line up. But truly the system I am trying to build is solely order flow from the charts. But yeah I have found the new reports like that as secondary or tertiary information sometimes it’s helpful but usually don’t use it at all. But for the OP there is info out there that can point u in the right direction if your clueless.
I’m pretty new to this concept, still reading the ‘mindset’ thread in FF. Seems to me different pieces scattered all over the place. I feel good to discuss with you all who has experience in this concept. In my posts and opinions I could be disagreeing and challenging your thoughts but I’d try not to be offending.
But, is it possible to take positions on inter-long duration (say 4H and higher) using this concept?
I find there are too many loose ends in this concept. Or maybe I’m wrong, however the market mechanics could be of this sort:
Order Flow -> Price -> Price Action -> Technical Indicators
Since price won’t move all by itself BUT by certain quantity of orders at certain levels. Everything else is just shadow. What I don’t understand is that how’s one justify where’s these order levels be met? DS doesn’t take input from level II or market depths, so lets not discuss that else we’d be diverted.
I’m not sure if I’m talking right or just blarbing crap, but I don’t know much on this.
I myself enjoy DS posts but hardly adhere to them 100%. Can Order flow be used for 4h TFs absolutely. Actually I personally believe I can be used on anytime frame. I have traded it from 5min to the daily and weekly charts all with success. Though for personal comfort I stuck to 4h 1h and 15 min. It’s just where I find my groove.
Your right about this shadow, some people refer to it as market noise. But it’s absolutely the same thing. I believe from what I have understood from DSs posts is that he uses orderflow to trade with the stop hunts. I use the orders differently, this could be due to my previous work experience. Though fundamentally the same using the orders and liquidity as a magnet and barrier to which price will move to and away from is the key. Levels in my experience will always be revisited it’s pretty much obligitory. It’s just a matter of when days weeks years it will happen.
No level two or market depth is not required. But as I said this just fits in to my method to see how the bids/asks are working at the current moment. I can trade orderflow straight from the chart obviously since spot forex is OTC.
I understand that is very attractive the term “order flow” and DS uses it as marketing weapon BUT there is NO ORDER FLOW TRADING unless you work for a CB, a sovereign or in one of the top banks…then you can frontrun orders
just focus on PA… with correct PA, S/R analysis you might be able to spot the flow of orders of the big guys…
What made all the difference with my trading is learning this…and hopefully it’s relevant. When large amounts of professional money are flowing in from banks, large companies etc. it is done in smaller spurts when the OPPOSITE direction is happening in price. That’s right, so if the EU is trending up they (computers mainly at this point) can figure how much they can sell without turning price downward…yet.
This gives them many adantages. Firstly, it gives better entry prices. Putting it all on at once would drive the market down so fast it would literally move down in order to fill the order…giving worse prices.
Secondly, it is hidden as far as price change and we know average Joe likes to go in the direction price is currently moving, giving the pros better prices over time that they are happy to accept.
Thridly, it creates false breakouts…those pin bars we often see. For example, the professionals get that high price of the day when resistance is broken and it’s an opportunity to SELL more. Meanwhile averge Joe picked a reversal trade with his stop 5 pips above that resistance and it got hit (stop hunt by market not broker in this, and most cases). Then average Joe jumps in long to take the breakout trade…back with the trend. After all, it’s his friend.
Then comes the inevitable. There is no one left (or dumb enough) to buy and the reversal begins. (no more demand, prices drop). The higher price went the more the pros sold, as it begins to move down they are perfectly positioned and then create the mark down in price. This creates a cycle as Joe will eventually wise up and short. Question is, is he just giving the pros lower price to TP and start buying against him.
This is why 90% lose. Not 50% or 60%. When most of the herd is finally in position, the opposite move must begin. Ok, they are coming for me now…gotta go! lol.
BTW, Todays G/U 1hr shows a perfect example of this, and it’s a text book trade for me. Down to the 5 min for entry, watching this all playout in detail…naked chart with volume.
Sometime stop hunting has nothing to do with making money, but SAVING money.
The “real money” factor is often overlooked. Not everyone in forex is there to speculate.
If you were an American airline company, and you needed a few billion euros to make a payment to Airbus, or the like, would you buy at market?
Those big outfits have trading desks too, to move money in and out both ways. But they aren’t speculating, they just need more bang for the buck one way. They buy futures, or whatever it takes to insure that the price they pay will be there for them when they need it.
They will move the market looking for stops the same way the speculators do, only there is a bit more purpose to it.
Saving a penny per euro doesn’t sound like an overwhelming thing to a vacationer who swapped out maybe a couple thousand at the most, but if you had 6 yards moving, that $48,000,000.00 or so saved sure adds up to something more than a missed cup of coffee…
Thanks for the informative post, I hope you won’t mind kids like me bugging you with questions in this context.
I made a trade recently in the EUR/USD pair, I made it from 4500 to 3700 level in approx duration as mentioned in the chart.
