From what I have understood, the why is sentiment right? but I do not know how to go about the where (possibly round numbers or options barriers?) and the who. 
Yes, combined with fundamentals and short/medium term outlook.
but I do not know how to go about the where (possibly round numbers or options barriers?)
Entities who move markets (known as the âThe Moneyâ) are zooming in on
- prev. quarters high / low levels
- prev. months high / low levels
- prev. weeks high / low levels
- major quarterly swing levels
Add in big (00) figures and you got your WHERE.
âThe Moneyâ will always sniff out the obvious levels first. The way it behaves when it gets there will tell you a lot about the strength of the level and who is holding the ace card (long-short).
and the who.
âThe Moneyâ - entities who move markets because of the money - expressed in order flow - at their disposal.
You - as a retail trader - can shadow âthe moneyâ if you can recognize the levels on a technical chart they are interested in. âThe Moneyâ is looking for the obvious levels where they can lay their high probability bets with low risk outlay.
As a an excercise to see what I mean:
Take a 240 min EUR/USD chart and scroll back to the 29th of May. The second 240 min candle for that day shows you the start of the USD order switch from short into long.
Follow price up to last friday and tell me WHERE would âthe moneyâ most likely
a. placed their stops
b. looking to bail
c. compound their position.
From what I saw, the levels that seemed to attract price were 1.3050, 1.3100 and 1.3200. They decided to to compound their position between 1.3050 and 1.3100 and bailed at 1.3300 (which I forgot to draw a line at) . This is all just guess work, but if I am correct, then why did they decided at these levels? is this where they are most likely to find the most liquidity? How can you see this unfolding before it happens?
Edit: That screenshot is probably too small to see the levels properly, but the top horizontal line is the 1.3200 level, then below that is the 1.3100 level and below that is the 1.3050 level.
I am not too sure about it but it is all about perception. I think it is about compounding the position.
Something im always curious with. How do we identify/ or know ââthe moneyââ is actually entering the market? PA?
Well done. Above levels are spot on.
and bailed at 1.3300 (which I forgot to draw a line at) .
They didnât bail.
Last friday they probed the offers sitting at c13306 (4th quarter 2012 high). On monday the stuck an Option at c13170 (April 2013 highs) and compounding their longs driving price to fresh current quarter highs.
Options sitting at c13300 and 13250 protecting their downside risk going forward.
c13382 (1st quarter 2012 high) and c13363 (2nd quarter 2011 low) are the next major points. Itâs last years c13488 high after that.
This is all just guess work, but if I am correct, then [B][I]why[/I][/B] did they decided at these levels? is this where they are most likely to find the most liquidity?
Read above and post #322 again.
How can you see this unfolding before it happens?
Look at the levels you have identified. Since 29th of May EUR/USD printed higher swing highs / higher swing lows attracting bids at every key level it touched for support.
That is called orderly peak-through behaviour. This is the type of behaviour you want to look out for starting to get your feet wet in this enterprise called trading.
Add order flow to it and you got a solid foundation.
I have given you the next major levels above - What would you need to see in order to consider laying a bet in line with orderly peak-through behaviour?
What would you need to see to invalidate the above?
You look for the strength of the candles and time of the day when price approaches key levels (post #322) or moves away from it.
They move orders across major trading-hubs to cover their tracks. They are doing it right now with EUR/USD.
Thinking of buying the Order Flow book from Darkstar. Is it worth it or what you providing enough coverage of it?
Hi guys,
Iâve been around for a bit on Babypips. I have traded using the infamous ICT techniques and have traded other methods such as Volume Spread Analysis and used DeMark indicators. I have a degree in finance so I know the backbone quite well. I have been trading for 1 year and 3 months. I wouldnât really call it trading though, more like losing. So far in my journey, I have lost 50% of my account.
I am pretty good with key support/resistance levels and want to take a more manual approach. My problem is determining whether price will reverse at a key level or blow through it. I know that news, momentum, time of day are just a few examples of what can influence this. However, Iâm thinking that maybe with Order Flow, I can get a better understanding of when to go with and when to go against the market trend.
For me, trading is a game of probabilities at itâs heart. People say itâs like flipping a coin, I say itâs like flipping 2. 1 coin for timing and the 2nd for direction. I see you discuss (I have read the articles) that sentiment (in my head, direction) is what gives you a general bias (long or short). Then you wait to either fade against the market or flow with the market.
My question is if you fade, do you look at a key level and check the reaction by looking at next candle (I use 4h and 1h TF) or do you look for an immediate reaction?
Do you place an order slightly below a key level or at a key level or above a key level (when buying)? (opposite for selling)
Also, how far away from a key level can you flow into it? Letâs say key level is 99.00 (USD/JPY - currently the only pair Iâm looking at to not jump around too much) Would you short at 99.50 until 99.00? (Does previous move have to do with that) Or do you only go from one extreme to the next?
What about profits? Are they take partially? All or none at TP?
You see the problem is not with my discipline or my emotions⌠I donât risk too much and donât revenge trade. The problem is that my entries totally and clearly SUCK.
Any help would be appreciated⌠I guess better examples of previous trades (not only winners) would help me out.
Thanks again!
Ok I can see that right now as Im typing this, price is stalling just under 1.3360, for the above to be valid I would have to see price break through the 1.3363 level you talked about, and come back to test it as support, where a lot of bids should be waiting.
How do we incorporate order flow into this though? This to me just seems like basic support and resistance
If I were you I would start going through the order flow threads at forexfactory, there is one called â[B]finding clusters of stops on charts[/B]â which darkstar has made a few posts on, giving some very good information, and another thread which I am reading right now called â[B]Order flow - Achieving the mindset[/B].â Check them out before you make any decisions about purchasing the book, because darkstar himself said that the book wonât really give you any new information if you have already read through the order flow threads on that forum. In saying that, there are more threads about this topic in that forum, youâve just got to dig around.
Yes, it depends on how much time and effort you are willing to spend. Basically, the book sums everything up, gives you a clear overview and saves you time. I went through almost all the threads on FF and it is doable to learn from them, but you have really to think hard about all the stuff. Most of it will seem cryptic to a beginner, so you have to take enough time to study it and ask yourself a lot of questions. The advantage of that however is that you are more ready then for the hard work that is required for trading and you have internalized the theory better.
Hi,
When fading, I wait first for a reaction to the level. Even if sentiment is in our favor, we must keep in mind that orders can be withdrawn or that a sudden turn in flow occurs and the levels breaks without much effort needed. A good example is currently AUD/USD. While sentiment remains negative overall, there was quite some short-covering going on today and it took out the 0.95 and 0.9550 resistance levels easily. Look how price acts once it has broke a major technical or large order level. Assuming a large resistance level where offers in good size reside, you donât only want to see price slowing down, but also how it reacts later. In this example, rallies should be small and downmoves larger. For this, I switch to the small timeframes (M1, M5) to see the PA more clearly. If the dips ran into good buying interest and the rallies seem stable, you donât want to fade the move.
It all comes down to risk-reward, when there is clear sentiment, you can go sometimes ahead and fade it, but the most important thing is that you accept when you are wrong. For example, if someone focused on the AUD-negative sentiment and forced himself to believe the Aussie has to trade lower, he would have got hurt today. If you fade and the trade goes wrong, accept it and either a) go with the flow or b) stay out of the pair. The point of order flow trading is going with the overall flow and taking advantage of inefficiencies and not fighting the strong flow.
Go ahead and compare two pairs.
AUD/USD as it broke above the key resistance level at 0.9550 today:
What do you see?
- Price broke above pretty clearly, taking out the offers without much problem
- More importantly, the dips remained well-bid
- Price broke back below the now-support 0.9550 level, but strong buying interest at the dip to 0.9535
This is how a well-bid pair looks like and something you donât want to fight. As you can see, AUD/USD broke above 0.96 later.
Now, GBP/USD:
See how parabolic that move was? Not only that, but how little support it found after that stop hunt? Combine this with mixed sentiment and you have a good fade trade.
Now, I hope you can understand what I mean by reading price action. It becomes much easier with time and youâll start to see things much more clearly as you gain experience. I trade quite often on intuition, because Iâve watched markets for so long.
Let me know if I can be of further help.
Good luck
I understand what you mean by reading price action, I think I can do that relatively well. The thing is that I was looking at that GBP/USD trade and was thinking of shorting however I would have shorted at 157.00 and put a 30 pip SL, so I would have been blown out of the water. How would you have managed that? Waited for price to come back down to 157 and then short? Short at 157.10? What is the TP target on this trade? Also, Iâve been looking to long USD/JPY. This one seems to have run away from me. I was eyeing the 93.50 level but it got to 93.80 only. I noticed key points are 00âs, 20âs, 50âs and 80âs⌠Any ideas?
EDIT: added question
Also on that AUD/USD example, would you then long at retest of Resistance turned Support? You canât really short so⌠do you stay out?
As I mentioned in the earlier post, you want to wait for a reaction. Simply setting limit orders at the key supply/demand levels might work sometimes (low volatility), but many times it will not. I would have short the GBP/USD after Iâd seen that PA is indicating 5735 was a top, after the third lower high at 5710. Regarding, A/U, I wouldnât have traded it because I see overall sentiment still as negative. Since I donât want to go against the flow and short it early, I stay out of that pair.
The best tip I can probably give you is to test different OFT approaches. If you are not risking real money yet, just try out the stop hunt strategy and the fade strategy. See what suits you better and which you feel more comfortable trading.
You can add your own rules to the strategies, but I would suggest keeping it simple, especially in the beginning. Donât try to make huge number of pips, focus first on smaller profits, as your main goal is to get a feeling for the trading method.
I am risking real money because I have been trading using PA, my charts are naked apart from key sup/res levels. Iâm just using the order flow data as confirmation of my trade ideas. I havenât taken any trades yet though. I was looking at shorting U/J at 95.80 yesterday and that short would have been perfect. Also, I placed a limit short on G/U at 1.5720 (when it re-tested) and closed it before I got filled. But that trade would have yielded 100 pips. So, Iâm not a complete newbie. I can spot the PA pretty well. My problem I think is more âfearâ than anything else. My confidence has been low although my ideas are good.
I will try the stop hunt strat. The missing link for me for this strat is something you mentioned. The stop hunt will be in opposite direction of the main sentiment direction. i.e. if the sentiment is negative, a small rally stop hunt could be a good trade. I will try these anyways and let you know how it goes.
P.S. I was also looking at going long U/J at 94.50, so my U/J analysis yesterday was spot on! Now I just need to grow some balls and pull the trigger haha. I wonât be trading today since the weekend is near, but next week, I will use the order flow info.
I wanted to thank you Ben. You have been awesome at explaining it!
An imbalance (one or more bars/candles) at a particular level indicates the order book is weighted heavily in favor of one side, or there is a distinct lack of contrary orders.
The result of that imbalance would be a sharp and aggressive move away - order flow - from a level and you would be seeking a repeat of the directional behavior next time it revisits, providing of course the imbalance still exists.
As opposed to price moving into a prior area of support/resistance,
where if there exists a large build-up of contrary orders into a possible resistance zone for instance (offers tiered into and above the zone/limits/buy stops above the outer edge of resistance/trailing profit and sell stops leading into the zone) you would expect price to slow and consolidate whilst it absorbs the orders before the majority camp orchestrates the next leg (up or down).
Bottom line;
Read (order flow) what you can, where you can, when you can - develop an approach that offers you a really simplified, basic yet logical view on order flow and frame it with a sensible technical structure (post #322 for an example).
Repetition and practice will offer you the opportunity to either accept or reject a particular technical structure. But you have to go through the testing phases to get to the end result.
No-one else (or their results and experiences) can help you with that part because youâre all different in your outlooks, experience levels, risk appetites and objectives.
Got some insight about order flow last night and this morning: Took a short u/j at 94.5 but got out at BE, didnât like the PA on that one. This morning took a short GBP/USD at 1.5750 since there was a barrier option at that level. It touched, I had 0 drawdown and then fell out of the sky. Thanks for this Dali. Order Flow might be my missing link.
Good to hear Sageone, keep it up. And feel free to share your future OFT trades if youâd like.
If I didnât already know the title of this thread before browsing your post Iâd have been convinced I was reading a snippet from the Technical Templates threads.
In fact itâs virtually a word for word description.
Currently have a short open on E/U at 1.3395 but Iâm not liking the PA on this one. Hopefully, looking to get out at BE. Still looking for some nice opportunities but itâs quiet now⌠We will see what happens. In case any of you are wondering the pairs I trade itâs E/U, G/U, U/J and E/J (although I havenât looked at this one for a bit)