Okay guys i have just taken profit 1.5 minutes ago.
It took me 1 hour to take a 20 pip profit
Ladies and Gentlemen, this is the power of orderflow.
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I think AUD bears are taking over again. The rate cut was not a āshockā, but most analysts expected the RBA to keep rates unchanged + their comments were also pretty dovish. We broke below the 1.0220 key technical level and it seems very likely now weāre heading for a test of the yearās low. There is a lot of selling interest above 1.02 and joining them makes sense. I donāt see any event in the near future that could lead to a serious short squeeze.
Dali i want to short AUD at level 1.01640 and also if it shoots up i want to also short at 1.02050 area
The option barrier has alot of force behind it Dali. Keep pushing! Lets increase our position size =)
@ omg: Iām pretty sure weāll break below it soon.
I just bought GBP/USD @ 1.5455 as this move was solely driven by stop hunting. Stop is at 1.5420, definitely great risk-reward on it.
Thursday, May 9, 2013, 01:30GMT: AUD - Employment Change
240 minutes printed itās first doji since RBA rate cut. It took the bears all day to absorb the bids (0.85% net gain). Thatās hard earned money for a days work.
Option traders defending the 1.0150 barrier, but I doubt it will hold for too long with AUD sentiment being negative. Once weāre through it, everything is set for a test of the yearās low.
AUD/USD used to be more volatile with clearer trends, but perhaps it is the fact that everyone is doing aggressive QE and large traders are not willing to short a high yielding currency as much as they were before. But just a theory of mineā¦
Iād like to share some of my experiences in the trading business. Like most people do, I got into trading with the āGet rich quickā mindset. The world of trading is exciting, it is easy to get lost in emotions. Prices moving rapidly, news coming in every minute and tons of various chart patterns - I tried to get as much information together as I could, with the belief it will not take too long until Iām making serious money. We all know how these stories end - with a blown up account! I didnāt lose all the money in my first account, but I was pretty close. Iām thankful for this experience, as I got at least rid of the āget rich quickā mentality. I decided Iāll simply get rich slowlyā¦
As I mentioned in the opening post, I started trading in the stock market. I wasnāt really an active trader, doing some simple technical analysis, combined with some fundamental analysis and holding trades for at least a few days. When I got out of equities, it was the forex market that got me all excited about markets & trading and made me decide that I want to build a business out of it. We all felt that excitement about trading currencies, right? The largest market in the world and a truly global one - open 24 hours, 5 days a week.
I started applying various forms of technical analysis, from indicators to chart patterns. I thought this has to be the key to successful trading - an approach that rationalizes price movements with all availaible information included in the charts. Why use fundamental analysis? It was all in the candles, I thought. For some time, I went through the highs and lows of trading - being overexcited when hitting a winning streak and frustrated as I realized that my strategy ādid not seem to work anymoreā.
Like most traders, I then removed all the indicators and traded the naked charts. This gave me a little better understanding about the markets, as I focused on price action, not on indicators. I did better than in the first stage of trading, but still lacked consistency. I always felt that Iām missing a piece of the puzzle and it kept on bugging me. This prevented me from strictly following my rules and achieving the consistency I was seeking.
However, I had that deep felling in me that trading is what I want to do. Iām sure many of you had the same feeling at some point? I HAD to succeed in this, not because I desperately seeked a way to accumulate wealth quickly, but because Iāve found something I love to do. So, I did not rest and continued to do research.
After spending some more time with price action trading, modifing various strategies, I stumbled upon a few threads about order flow on FF. The topic seemed a bit complex on the first look, but I felt that Iāve finally found the missing puzzle piece I was looking for. See, itās not just the order flow strategies Iāve been applying that turned me into a consistent and successful trader. It is the way of thinking - the mindset - of an OF trader that was a game changer for me. Instead of rationalizing everything through technical analysis, I chose to study what other participants operate in the marketplace and what characteristics they share. I see the markets completely different now and I can get a feeling for market bias much easier. My knowledge about market microstructure help me understand events that occur in the market in a clearer way. It is a constant seek for liquidity and clearing out the weaker side of the market. This is no overstatement - your loss is somebody elseās gain.
Trading is not my primary source of income, but it provides a nice, additional flow of money and I love to trade. Not depending on the money allows me to trade stress free. If you want to be successful over the long run, you have to stop thinking about the money. I know itās very hard. It took me years to achieve it. But after you calculated your risk and reward on the trade, stop thinking about the money! You have to think objectively about your trade and focus on your plan. As soon as you start to think about the cash, stop the thoughts! Furthermore, you have to find a strategy that suits you. You have to feel comfortable applying it and you need to have confidence in what you are doing. Doubt can be very costly in trading. Follow your trading plan stricly after you have a strategy that youāve tested and feel comfortable with.
We all go through tough times, I still have them too. But you have to stay calm and think about your long-term goals. Joining a trading group can be very helpful. I joined Darkstarās chat room as I started with OFT and the folks there have supported me through the rough times. Any chat room where you can find experienced traders that are willing to help is fine, even a single trading buddy can be of great help, giving us advice or stopping us from doing stupid things like overleveraging and so on.
Also, donāt compare your results to those of others. I couldnāt care less if there is a guy making millions with system āXYZā, I got a trading style that suits me and Iām the only person responsible for the risks I take. When youāre in a trading room, stay honest. You will gain nothing if you act like a pro trader. Be honest to yourself in trading and accept temporary defeats. Be honest when you need help. If some people make stupid remarks about the mistakes youāve made, ignore them, they are likely people without self-confidence, acting likely they are perfect traders and trying to hide that theyāre actually losing.
Truth is, trading is a tough game. Like every other profession in life, it takes time to get to a pro level. YOU will be your biggest enemy as it is unavoidable that youāll be driven by emotions from time to time. It is key that you keep a cool head and think long-term. I wrote all my trading rules (analysis, strategy, entry, management, exit, money management) on a paper sheet and sticked it on the wall, so I can always see it from my trading desk. When you find yourself tempted to break a rule, keep an eye on the plan and do the right thingā¦
I cannot say if Order Flow Trading is something for you, or not. You will need to find that out by yourself. But what I want you to understand is that if you study OFT and apply it, it is not limited to a specific strategy. It does not mean you have to trade stop hunts. Like I described earlier, it is a mindset and you can combine it with other strategies, which do not have to be directly OF-related. Start by studying market microstructure. You will great info in Darkstarās book, Carol Oslerās academic papers and the various threads on the internet.
To conclude, trading is a lot about psychology and no method or strategy can guarantee you success, but you will see that through the OF mindset, youāll be able to see the markets from a different, more advanced perspective. Iād love to hear the experiences from other traders here that just started with OFT. 
Ben
The large fix order into the 4PM New York fix is set to do the job - until they hit the bid clusters down there.
Dali what is your nickname in that room. SO that i can say hi to you when i am inside? Thanks
Hi Dali,
Iāve been read this thread twice, and DS book but I wonder why I am still not understand. I believe actually OFT is very simple. But maybe because of lack of real chart examples.
I learn price action trading and I can understand easily.
Would you please, please give me a stop hunt strategy and fade stop hunt strategy in a chart? where you spot the stop and when you enter the entry.
Thank you so much.
Lydia
Applying Order Flow Techniques on the Charts - Part I
Understanding the importance of liquidity and what role stops play in the markets, you can now apply it directly in your trading. While there are several services that report where stop loss orders reside, it should be your goal to learn it yourself. After all, we want to make sure we are not too dependent on any news service or similar in our trading.
There a few key things you need to keep in mind about the accumulation of stop loss orders in the markets:
-
The higher the timeframe, the higher the number of market participants being aware of a certain technical pattern and placing orders based on it.
Simply, more traders will notice a pattern on a 4-hour chart than one on the 15 minute chart. There is a lot of noise on the minutes charts and not many traders will bother with interpreting too much into it. -
The larger the number of confluences, the larger the size of the orders
If a key resistance level happens to be near the 200 simple moving average and the 50.00 % Fibonacci level from a key market swing (i.e. drawn from the monthly high to the monthly low), it will get even more attention and orders around it will be larger. -
The longer a pattern exists, the larger the size of the orders
Letās say we have an established range in EUR/USD between 1.30 and 1.32. Limit orders will start to cluster at both levels and stops will be placed below 1.30 and above 1.32. The longer the range exists, the larger the stops will grow until one side finally cracks and triggers the stops.
We can see in the example above that GBP/USD traded within a 1.5450 - 1.5600 range. Stops were growing larger on both sides as price remained within the range. There were two things telling us that the downside was more likely to crack than the upside: 1) Weak UK fundamentals combined with USD strength and 2) the way price action reacted as it tested the lower range, we actually took out the stops below 1.5460, a sign that buyers arenāt as strong as the sellers ahead of 1.56.
Remember what I taught you about market psychology. Once traders start feeling uncomfortable with their position (at least the professional oneās), they will look to cover. GBP/USD was just not able to break convincingly above 1.56 and on every failure, which was followed by a downmove, there were some longs covering. The sellers were able to play this game for quite a while and they finally gained the upper hand on Friday, being able to push the pair into the weak sell stops.
Applying order flow trading is considering the technical picture and taking advantage of the weak side of the market.
How to Mark Large Stop Clusters on your Charts
- Open a blank chart - start with the Daily chart
- Note key support and resistance levels on the Daily and note at which price level the 200 SMA is trading. If you wish, draw a Fibonacci retracement from the latest major swing low to the most recent major swing high.
- Move down to the 4H chart and again note the key S/R levels. Mark them in a different color
- Switch to the 1H chart and repeat the process, noting minor S/R levels. Again, draw them in a different color than the previous ones, so you can regonize them more easier.
Here is an example (EUR/USD):
I started with the Daily and moved then to the 4H chart, noting key support and resistance levels. Repeat the process on the one hour chart. I did not mark the Daily 200 SMA and the Fibs on the example above, but feel free to do so if you consider it helpful.
Stops are building below major support levels and above major resistance levels with limit orders very likely ahead. Your task is now to get a feeling for market bias and read price action to recognize the weaker side of the market and take advantage of them.
This is it for Part I, stay tuned.
Nicley explained ben . But do institutions use movng average ? And why :7:
Very awesome explanation Dali, thank you very much. Its very clear with a chart.
@ Lydia: Thanks for the feedback, glad you liked the post. Feel free to ask any questions.
Yes, Iāve read that even the hedge fund guys watch the 200 SMA. I donāt know the exact reason, but my guess is that it is because a lot of technical traders pay attention to it.
Will wait for Part 2 ļæ½ļæ½ļæ½ļæ½ļæ½ļæ½
While Iām writing part II, feel free to ask me any questions about order flow trading or trading in general.
I need feedback or itās impossible for me to know if my articles are understandable or if I should change something in my approach to teach OFT.
Donāt be shy, ASK!
Hi Dali
Short AUD. 170 pips over 4 days
Disclaimer: To the rest, because this trade was not called live, please take my results with a grain of salt. My purpose of posting this is to show Dali my gratitude to him.
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nice trade. whats the reasoning behind this trade?
Hi Dali, I have a question for you (and other order flow traders).
I am a psychologist, interested academically in modeling the behavior of traders, and Iām trying to get insight into order flow traders. In other words I am not trying to make trades myself but to characterize trading strategies and infer about the psychology of market participants.
The model I am building is a simplified one. I was wondering if you could give me some insight into how you would behave in a hypothetical market with the following characteristics:
- Market open 24/7 with no particular cycles of activity
- Access to price history and volume
- No options or other derivatives
- [U]You can see all current limit orders[/U] (and this information is correct, though orders may be canceled) but stop orders are hidden from you.
- No news or fundamental information.
How would you adjust your strategy under these circumstances? In simplest form, my question is: If you had perfect and complete access to the order book (excepting stop orders) but other information was limited, how would you use that information?
Thanks in advance and sorry if this is a strange request.