Hi Dali,
I am troubled by a trade that i took last night. After my 170 pip win i took a trade in which i lost about 30 pips on it. I will go through my thought process and set up and if you can pick anything i did wrong that would be great. I was abit sleepless thinking about it last night.
Also i am abit annoyed at myself that after that trade i became careless and complacent. SOmething that i will note down in my Journal.
ānice trade. whats the reasoning behind this trade?ā
I am exploiting the sentiment. I live in Australia and at the moment we have high unemployment rate in the manufacturing sector and the property prices are sky high and no one can really afford it unless you are on double income.
I am very annoyed at myself. I made 2 critical mistakes and it cost me about 60 pips over 2 weeks.
Mistake 1: Trading late on Friday night before the market closes as the liquidity slowly dries out and I am stuck in a position and weekend risk
Mistake 2: Not paying attention to the economic calendar and got caught myself in a deer in a spot light
I would have 60 pips in my pocket if not for these newbie mistakes. I have noted them down in my trading diary.
I need to learn to move on, let go and avoid that 2nd dart when I mentally punish myself over such mistakes.
Hello dear traders!
Dali, thank you for doing this thread! I am all ears 
It is very helpfull for me as a beginer to listen to somebody who soaked up and digested this OF approach.
Omgwen3rds, thank you for your input. Take care. Wish you all the best.
Hi omg,
Are those the two mistakes you also wrote in your earlier post?
Donāt worry too much about it. The most important thing is that you recognized that you made a mistake and wrote it down in your journal. The next step would be to include it in your trading plan, making it a rule not to trade late Fridays because of poor liquidity and weak trade opportunities. Also, check the economic calendar each morning before you start your trading operations. Make it a habit and the problem will not occur anymore.
Your previous AUD/USD was great! I think you are making good progress and are on the right way to get the mindset of an order flow trader, just stay focused on your long-term goals.
Also, I think it would be interesting for other OF newbies to hear your story of what changes youāve noticed in your trading since you started trading order flow. Would you like to share it?
Good luck to you buddy
Hi Jim,
Welcome to the thread, let me know if you got any questions and feel free to share any ideas/concepts youāve got. Order Flow can be applied in many different ways, so it would be great to hear experiences from other traders.
Not a strange request at all, but a great question!
Now, assuming neither I or anybody else in the hypothetical market do not have access to any kind of fundamental information, everyone would focus on technicals. Traders, especially less experienced, would likely look to employ a support/resistance strategy, where they would sell at key resistance levels (+ seeing large offers in the book) and buy at key support levels. If an enough large number of traders employ such a strategy, it would become a self-fullfiling prophecy. However, I do believe that the smart money would be quick to take advantage of such a situation and I would join their side.
My knowledge about metagame analysis would lead me to the conclusion that the sophisticated traders - or the smart money - will target the stops below support/above resistance, as this is the most likely place where traders who employ the elementary strategy (S/R trading) would place their stops. I would look carefully at volume and go with the flow. Sometimes the support/resistance level would hold of course, but there is also a good chance large traders would put up a lot of fake orders around those price levels just to confuse less experienced traders.
What most retail traders do not understand about the market, is that it is a game where one side is constantly looking to screw the other side. This has nothing to do with any conspiracy theory or a few banks āruling the marketsā - it is a fact, because traders are in a constant search for liquidity and profiting from the mistakes the other side makes. For example, if I accumulated my position as stops from other players got triggered, I took advantage of their weak positioning to gain a more favorable entry and higher liquidity.
In the real markets, some participants have an advantage if they have more information than the rest of the market. In your hypothetical market, there is no fundamental data or news, so the market would be even more driven by the āeat or be eatenā mentality.
For you research, you might want to look at the Bitcoin market. There is no fundamental data or news, exept if some government tries to shut it down or they having technical problems. A perfect example of a market completely driven by fear and greed.
And please, feel free to share any of your research here if you like, I would be very interested in reading some of it.
I also suggest checking the bitcoin market. It is the perfect BID and ask market.
āAlso, I think it would be interesting for other OF newbies to hear your story of what changes youāve noticed in your trading since you started trading order flow. Would you like to share it?ā
Hi Dali,
Once again thank you for your advice. I would definitely would like to share my experience trading orderflow with other newbies here and my thoughts on it. But this week i have identified a few key mistakes in terms of bad habits that i want to reflect on and correct over the weekend. Friday trading avoidance is one the things i need to work on and now i start to understand when people talk about self control and discipline. My friday trading is linked to revenge trading that after making that great trade on the AUD, i lost some money not paying attention to Economic calendar and it set off something in my head wanting that money back.
Once i have improved and have better mindset i will share my experiences here. Once again thank you Ben for your support/advice and Thank you everybody for your understanding. Have a good weekend.
Here is a great quote from the book āLiarās Pokerā:
āThe market, he had learned, was like the sea, to be respected and feared. You sail on its smooth surface on a placid mid-summer day; you were borne along by a favoring breeze; took a pleasant swim in its waters, and basked in the rays of the sun. Or you lolled in the quiet currents and dozed. A cold gust of wind brought you to, sharply - clouds gathered, the sund had gone - there were flashes of lightening and peals of thunder; the ocean was whipped into seething waves; your fragile craft was tossed about by heavy seas that broke over its sides. Half the crew was swept overboardā¦you were washed upon the shoreā¦naked and exhausted you sank upon the beach, thankful for life itselfā¦ā
Hey Dali,
Youāve got a kul thread going on here, good stuff!
Cheers
Thanks Dali for the interesting answer. I hadnāt thought about fake orders - thatās definitely of interest from a psychological / game theory perspective, and adds a twist thatās tricky to mathematize.
Iāll definitely check out Bitcoins. How do experienced forex traders view that market? Anyone dabbling in it? I didnāt realize how big they had got, hadnāt thought about them since I first heard of them a year or two ago.
Iāll post again if more questions come up, and Iāll share the model at some point, if Iām successful at all. Iām really just getting started in this, doing preliminary reading. I had previously studied the microstructure of human movement (e.g. tiny fluctuations in your posture as you stand āstillā). I kept discovering new timeseries analysis techniques, and pretty much all of them come from finance or econometrics, so I started to get pulled in that direction in order to be on the bleeding edge. Iām a strange sort of psychologist, not many of us could moonlight as mathematicians.
Anyways, thanks again.
Asymmetric information flow - a situation in which one party in a transaction has more or superior information compared to another - would drive price.
Retail traders have no avenue to access asymmetric information flow. It is as simple as that.
True in the āreal marketsā, but in Observerās hypothetical market there is no news or fundamentals and all participants have access to the same order book. Now, he didnāt specify whether the market is a dealers market (where the dealer could gain valuable information handling customer flow, info not availaible to retail traders), but I assumed it is not.
Thank you, Dali!
What I am seeking is a descussion of potensial setups happening in Forex.
I donāt want to contaminate your thread with my newbie charts but if people want they can have a look here
www_screencast_com/t/9jgXVqILs08
This is AUDUSD chart from today before US open. It looks like somebody is driving the market to fill huge sell limit orders at 0.9800-20. Taking into account AU negative sentiment I would sell at around 0.9810 (SL-20, TP-0.9730) if PA is right. What do you think?
I donāt know whether those offers are huge or not, but what you wrote makes sense. Given most are waiting for the RBA minutes, weāll likely stay within a narrow range and fading any larger moves (preferably fading rallies) seems like a good idea.
But what do you mean with sell stop -20? If you plan to put your stop at 0.9820 with a entry at 0.9810, Iād say thatās a bad idea. 10 pips is just too tight and youāre not giving the trade a good chance to succeed in my opinion.
Best luck to you
I wish also best luck, aud/usd I prefer more. I do only algorithmic trading using raw data from ampere-data.com, but the system is similar. i dont prefer the systems like MT4 or othersā¦ what do you use?
Thank you very much, Dali, for your wonderful comment.
Sorry for confusion. SL-20 - 20pips stop (I mean).
Cheers
Thank you jeremy776. Yes, I use MT4 trading OTC forex. I am a beginner.
Here is an illustration for asymmetric information flowā¦
the trader hits a quiet market with a very large āsell at market orderā and runs the stop loss orders on long positions. And also triggers margin selling by longs.
As the sell orders and any associated selling abates, which is generally rather quickly, the trader quietly buys back contracts and gets long āon the cheap,ā and allows the market to run higher and book a profit.
The objective is to take out long positions in a quiet period and put them in your own pocket at below market prices. This is one of the classic market cons based of the lag between order confirmation reporting - millisecond delays in the confirmation to the trader versus to the public.