Well said, Particularly what you said about having a deeper understanding of what is really happening at an RS level. When a price level holds, where do more orders jump in or out? What could we possibly see that would give us a hint? One of the simplest lessons my mentor taught me was just “wait for strength”. When he would want to short after a bull rally he would always say this. It’s not good enough that the bulls fail to make higher highs, the bears must come in and take over. In other words, watch for the buys (sl) above price to not be taken out, and for new sellers to appear and make a move. A bit abstract if you ask me, tricky to see, but if you can manage to visually see it, it’s invaluable.
You didn,t get my point pal.I didn,t say that fundamentals are not driving the market offcourse they are moving the price up and down? But how the hell you can get into a trade by using those hundreds of news everyday,meetings,political disasters etc How do you know price go up because of this and that? You can,t learn trading that way but if you want to gamble in the markets than thats pretty good idea) One way or the other you can,t neglect the price action and the technical analysis it is obvious.
Reading Order Flow
There are several services that provide real-time flow information like the one’s I mentioned above. Again, they have to be used with caution as orders can get cancelled or can have little or no impact. Also, we don’t want to get too dependent on them. Imagine a service get’s discontinued - you want to be able to do your own order flow analysis and not let yourself be distracted by this. Reading order flow is possible on charts and you don’t need the flow info services necessary.
This is how the standard flow info looks like:
Bids at 1.3000, 1.2980, 1.2950
Offers at 1.3050, 1.3080, 1.3100
Most of the reported levels are one’s that have cluster of orders at or near it. From the above mentioned info we could say that there is buying interest (demand) at 1.30, 1.2980 and 1.2950. The further the level, the more interest we can expect, as traders will feel comfortable buying “very low” or selling “very high”. Remember that price action can influence sentiment too. If we see EUR/USD breaking below a key psychological and technical level, some traders will sell on the break (i.e. momentum funds) and with stops getting triggered on the way, this will drive price further lower.
Orders can either:
[ol]
[li]Get “eaten” along with little or none impact (this is common during a stop cascade/squeeze)
[/li][li]Cause a slow down in momentum; price will consolidate
[/li][li]Cause a reversal (common during times of low liquidity)
[/li][/ol]
When trading of reported orders, I recommend waiting for a reaction and not putting a limit order ahead. See how price reacts to the level and how it behaves it after it hits it. Let’s say price trades down to 1.2950, where we have reported large bids from various participants. We see price stops at the level and retraces back up. Now, how does it behave on the way up? Does it seems that there is real momentum building to the upside or are rallies hitting quickly into fresh selling? Reading the order flow directly is a bit tough in the beginning and it is hard to explain it in words. You have to monitor price action as it happens and take notes. Combine this with sentiment and you have a real advantage.
Sentiment will give you the biggest advantage. Like I mentioned in my last post, you don’t have to make it complicated. Note key factors that are driving price action currently, analyze price action itself and keep track of how they correlate. Let’s take the Aussie Dollar as an example. Sentiment is positive as the RBA indicated it will not cut rates in the near future and on better economic data. Price action confirms this, so we want to look for reported bids and wait for a reaction. Nothing works all the time, but with sentiment on your side, you’ll go with the side of least resistance.
What really turned my trading into a profitable business was focusing on the high probability trades. They don’t require a huge stop and the reward is clearly worth the risk.
Market profile is another factor. During times of low volatility, playing the range is the best strategy. Let’s say we are trading in a 1.2950/1.3020 range in EUR/USD and there is no clear sentiment. You can anticipate a reaction to the reported levels and fade any rally or drop back to the mid range level. When volatility is high, bids/offers can get consumed along the way quickly and that is an environment where you definitely don’t want to pick a top/bottom. When there is real strength behind the move, look to join the momentum and not fade it.
In combination with the reported levels, you can identify key supply/demand levels on the charts. Previous day high/low, previous week’s high/low, previous week’s close level and psychological levels (big figures - i.e. 1.30, 1.31). Start to “read the flow” on the charts and you’ll get better at it with time.
Stops are also easily identified on the charts. Just think what the technical analysis guides taught you. They taught you to place your buy stop above the big figure (i.e. 1.30 -> stop at 1.3010) or your sell stop below the big figure (i.e. 1.30 -> stop at 1.2990). Or, above resistance/below support.
Above is an EUR/USD chart that will serve as an example. Demand at 1.2920 was large and there were first sovereign names reported as buyers and leveraged funds later joined the move. Obviously, sell stops were building above 1.30 and 1.3080, which flow info services later confirmed. As we moved up, they came more and more to the attention of other traders and of dealers, so it was only a matter of time. In my opinion, it is better to enter on momentum and push into the stops, than try pick a perfect entry when you have missed the chance.
Obviously, some of those concepts will be familiar to you from some of the technical analysis concepts. So what is Order Flow Trading about and how is it different? What I learned from Darkstar in his book and in the chat room is how to think differently about the market. It is a mindset that will give you a real advantage in the market as you focus on the core mechanism of the markets and on sentiment. As I mentioned, markets are a great deal about psychology. I will be honest in saying that my capabilities in explaining some of those specific concepts are not that wide and for more detailed education, I can only recommend joining Darkstar’s community. This is no advertising, but giving credit where credit is due.
Order Flow Trading can be applied in many ways and the above mentioned are just the basic examples. I have some more article coming soon, then I will try to make the concept more understandable through trade examples and similar.
yes again thats very logic !! thx 
Hi Dali,
Did I understand it right:
When you studied and learned Order Flow Trading in Forex, you had to implement it in your own strategy?
You can not trade Order Flow on its on?
2.) As a price action trader, is it really important to know Order Flow very intense like you? Because the price action pattern like Pin Bars, Englufing Bars etc are telling you what Order Flow is doing etc… So it is not necessary to know all about Order Flow…
I do not have a lot of knowledge about Order Flow Trading, that’s why I ask you this 
Hope you can answer my questions.
Regards
Thanks Dali, I’m currently trading with vsa methodology but after all my experience I have noticed a key similarity with all good trading methods which is plotting support and resistance areas.
I am looking forward to your following posts to get more detailed info it sounds like order flow is something that will jell well with my current trading.
Cheers,
Tave
That does appear to be the point of the thread.
Congrats Darkstar you managed to land one.
if the man has mentioned dark star , that doesnt mean he is advertising his book , second thing if the topic is not intresting for you please dont troll around spamming threads :60:
You are a king of understatement.
Hi,
Price action patterns can be traded successfully without the knowledge about order flow, but knowing the OFT concepts will give you an advantage, as you are more aware [U]why[/U] is it happening and you will understand better the factors driving PA. As I mentioned, it is part a collection of methods based on market microstructure, but also part a mindset. It encourages you to think more about other participants and how they may act.
My path was the following: Technical analysis (the common indicator-loaded stuff) -> Price Action -> Order Flow Trading
I see OFT as the final step that helped me transform my trading into a successful endeavour. It might seem a bit complicated to some in the beginning, but IMO it is worth the effort. However, it is important to suit your trading strategy to yourself. If you’re doing fine with your PA strategy and are building consistency, stick with it and only modify your approach if you are feeling comfortable with it.
I hope my answer helped you a bit
if i am a S/D trader that doesnt mean i dont have to mention sam seiden in my posts , because all credits goes to him… unless my ego does not permit me…
There is giving credit which is good, proper and right.
Then there is thinly veiled advertising.
Thanks a lot for your answer.
How much time a day do you spend for OFT?
Regards
Dali,
Just another question I have:
I read that with OFT you have some Flow information for example from hedge funds etc and so you know where some big orders are… But this will not work very good because there is no way to tell where all the big money is and what it is doing.
Example:
Business one may be looking to trade a large parcel of pair xyz. That’s all good and a trader may use this information to trade in-line with this. If then a large business like Apple for example needs to do business in another country they need to exchange their currency over and this gets pushed through the market.
There is no central exchange and there are many different liquidity providers. That’s why I still don’t understand how this method should work etc…
PA trading is reading the Order Flow that is printed on a chart. By trading the patterns we are trying to get on the right side of this market. We are taking advantage of the orders in-balance.
What do you think?
Regards
Order flow trading does NOT exist at the retail level, period. OFT is when you can see and quantify the flow of orders.
DS uses this name as a selling strategy for his book.
This is just plain S/D plus some Market Talk.
Now, what is “Market Talk”? simple, just Rumors, and who spread those rumors? you already know it… Banks, Sovereigns, HF, etc the very same people you are trading against when they need more liquidity to fill their orders. Other rumors are just made up by the news services using simple S/D theory.
It is good DS book? Yes it is filled with nice info but NOTHING new, and is very pricey in my opinion. Nearly all the info is available free over the internet. just search for Market Microstructure, Order Flow Analysis, Price Formation, Exchange Rate Dynamics, etc.
The info in this thread is very well presented, something that all here appreciate but seems that the OP is starting to promote DS book and website
Order Flow Trading may not be the perfect term in the literal sense, but it is not limited to the order info provided by some services. This is just one way someone could use it and I think I warned people enough about the limitations of this and that it must be used with caution. What makes OFT valuable is the combination of market microstructure theory, sentiment analysis and market psychology. Like I said - it’s part a method and part a mindset.
Stop hunting occurs on a daily basis in different markets and this alone provides plenty of opportunities in form of either accumulating a position to go with the flow and target the stops, or fading a stop hunt that went against current trend/sentiment. This is exactly what you talked about the smart money needing more liquidity, yunny1.
Regarding the accusations that I’m promoting Darkstar’s book here: I learned most about OFT from him and I have to give credit where credit is due. Apologies if it seemed like advertising, but I wanted to make sure that it doesn’t seem like I’m just copying his work, so I made it clear from the beginning that I got most of my knowledge about OFT from there. I put a lot of effort in the articles and I appreciate the feedback, so I will continue to publish them. I think things are clear now, I won’t have to reference it anymore and I hope we will be able to get back to the main topic.
@ aserafino:
When using the order info, I would concentrate on the reported levels and combine it with your PA analysis and sentiment analysis, rather than focusing too much on who bought/sold. When there is talk of sovereign (i.e. BIS, ACB) buying/selling during illiquid times, it can have an impact, but most of the times it is already old news. If we hear a large hedge fund has bought EUR/USD this morning, it won’t matter much for us. We do not know what the size was, what is the trade idea behind it and it is already old news.
Regarding your 2nd question: I can only reference back to my previous response to you. What changed OFT for me, was that I could better determine the forces that were causing the PA pattern. Together with sentiment analysis, I can focus on the high probability opportunities and learning OFT also improved my skills in reading PA. There are a lot of inefficiencies one can exploit in the market once we get more familiar with market microstructure.
Sorry if this questions is out of topic, could you please tell me how do you analyze market sentiment.
Yea Dali,
Combining Order Flow mindset with other tactics, sometimes the most difficult for me is to determine the market sentiment. I mean how do you define the current market sentiment? Are you reading based on news, order boards or any other resources that provide this valuable info?
Jack
Identify any particular currency dominance.
For instance, if you got a weak Yen story entering the market (current market sentiment) via the data and/or newswires, you want to start matching it up with the technicals to try narrow down a likely higher probability/better value bet.
Best way to go about that would be to start checking out support and resistance levels on the USD/JPY…EUR/JPY and for a confirmatory check, the EUR/USD.
Preferably you want to see USD/JPY and-or EUR/JPY at support levels, or exhibiting lower low failure (reluctance to print new lows) and maybe EUR/USD at resistance.
Line up USD/JPY…EUR/JPY and EUR/USD and you see what I mean. Above scenario played out again today - the ongoing forex theme since December 2012.
That’s all what current market sentiment is - any particular currency dominance - money flows - a footprint of the money.
.