Scalping

This is a discussion on Scalping within the First Steps forums, part of the Reception category; Originally Posted by DionysusToast Why not step up and give some advice, then? It's a discussion forum, posts like the ...

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Old Mar 6, 2012, 12:08am   #46
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Re: Scalping

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Originally Posted by DionysusToast View Post
Why not step up and give some advice, then?

It's a discussion forum, posts like the one above add nothing and they sure don't show that you have anything to add yourself. They are as much noise as the posters you are mocking.

I do agree with the sentiment but it should be backed up with something of substance.

Otherwise, what you give is just noise. Lots of people on here have opinions but very few care to explain why they have that opinion.

OK, fair enough.

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Originally Posted by DionysusToast View Post
Duh - ya think?

That is the whole point. If you want to build a large long position, you need less astute traders to sell. Otherwise, you will show your hand. If you want to long 20k contracts, then you have to finesse your way into that position. To do this, you need people to sell.

When this large position is being built 99% of traders will be looking at what they think is a weak market and selling into it. More informed traders who understand the game will be joining in long for the ride.

That is why the game is somewhat counter-intuitive. That is also why you need to get trained so you know what to look for.



Flipping is only a part of what you see on the DOM/T&S. There are other subtle ways people build positions without the stacking of bids/offers.

On top of this, there are also times where there are no games but the order flow changes and it tips your hand that the current move/pullback is done. This is something that occurs with much higher frequency than the gameplay. Gameplay will occor at different points in different markets.

The fact is, the order flow changes before the price. You might for instance see lots of large sell market orders as you go down to a prior low. Selling may continue but you do not see the participation of large players any more. Retailers are still piling in, price is still moving down but participation of large traders has dried up.

Whichever way you look at it, the order flow changes will ALWAYS preceed the changes in price. The chart will ALWAYS give you a later entry. The order flow lets you drill down to a level of activity that cannot be seen on the charts.
You are very down on charts. Do you really think there are no professionals making serious money off charts alone (if you do, you are wrong).

It is pointless saying that orders change before the charts. Obviously they do - the charts are a just a visual record of executed orders. To be fair to you, the obvious seems to need pointing out round here.

DOM can be very helpful, but it has its drawbacks, in exactly the same way as a chart.

You need to be very fast and very focussed. You're trading against computers for the most part, and they have an obvious edge.

Add to that the amount of fakery going on which is simply phenomenal. And the speed, which is often dazzling. At the micro level, there are traps all day long, and people getting washed as a result all day long.

Yes, the orderflow can get you in early. This can obviously be both a blessing and a curse. Markets display extraordinary inertia in all phases, a bit late is going to be better than a bit early in the long run. Most people in the real world are going to do better entering a little late based on a chart than a little early based on orderflow

DOM is a good tool, and plenty of professionals use it exclusively. The same can be said of charts, and then there are people who use both. And so on.

I understand that you want to promote your business, but a bit more subtlety wouldn't go amiss. To people who understand these things, some of your posts are very good but others are so clunking, obvious and simply wrong that they act upon the retina in the same manner as would a scouring pad.
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Old Mar 6, 2012, 3:10am   #47
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Re: Scalping

errr..might be a bit more discussion than he was looking for.

This could be the beginning of a good cat fight.

subscribed.

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Old Mar 6, 2012, 3:10am   #48
 
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Re: Scalping

Thanks Leopard.

I use charts and I also use a Cumulative Delta. I am not down on charts, I am down on a lot of the nonsense that has been spawned from trying to mathematically analyse charts. I hold the belief that very few markets can be traded by the DOM alone. My belief is that the more intra-day swings a market puts in, the less you can rely on just a DOM with a volume profile.

Now - in terms of the DOM:

- you are not trading against computers, they are not your competition. For example, it is clear that liquidity providers have algorithms to ensure that they don't go offside too much. These people are not really your competition most of the time.

- The fakery is there, it is real but the sort of 'flash fakery' where spoof orders would appear for less than a second - well, that's dead now. 9 months ago, sure, you'd see those crazy bids/offers come up for a fraction of a second, blink and think you'd seen a ghost. I presume they were predatory algos. They don't appear any more. Not on the ES, anyway. The fakery you see on the DOM is there specifically to get PEOPLE to go offside and as such, it is not coming & going at dazzling speed. It's there for minutes, not micro-seconds.

- Order flow does a lot more than get you in late vs early - but I think you underrate the value of a good fill. With a good fill you can turn a bad trade into a break-even trade. Not all the time and not in all markets but it can be done.

- The fact is that most of the 'signals' off the DOM/Tape are just the drying up of order flow. It is not rocket science. The 'setups' which allow you to spot someone building a position are relatively rare in comparison to the 2 obvious reversal signals which are...

1 - Someone steps up and absorbs the market orders - sometimes with an iceberg, sometimes with a big old order
2 - Market orders just drastically reduce in one direction.

- Order flow stops you from going offside when there is immediate buying/selling pressure that cannot be seen on the charts.

The fact is that large players know how people analyze charts. As such, they can exploit that and make a market look weak to entice sellers in. This is how they build long positions. This can best be seen on the DOM. It can also be seen on footprint charts and can be seen to a lesser extent on Cumulative delta (CD) but that has it's issues in that respect.

Now - in terms of your side-swipe about me promoting my business, it's a nice try. You have made your first contributory post to this forum after a bunch of "that's crap that is". I see reversion to mean is the order of the day. Feel free to take my posts point by point and point out the stuff that's 'simply wrong' if you like. It is a discussion forum, so why not discuss? On the other hand, baseless accusations and "dat's wrong dat is" is without substance and to be honest, anyone can do it, it takes no special skills, does it?
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Old Mar 6, 2012, 3:11am   #49
 
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Re: Scalping

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errr..might be a bit more discussion than he was looking for.

This could be the beginning of a good cat fight.

subscribed.

Peter
I wouldn't put the popcorn in the microwave just yet, Gloria.
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Old Mar 6, 2012, 3:20am   #50
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Re: Scalping

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Originally Posted by DionysusToast View Post
9 months ago, sure, you'd see those crazy bids/offers come up for a fraction of a second, blink and think you'd seen a ghost. I presume they were predatory algos. They don't appear any more. Not on the ES, anyway.
Why is that? I don't keep up with some of the regs anymore since they are all convoluted anyway. Has this stopped due to some rule changes or just market dynamics? I rarely trade ES anymore. The small intraday range doesn't appeal to me.

Peter
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Old Mar 6, 2012, 3:35am   #51
 
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Re: Scalping

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Originally Posted by wackypete2 View Post
Why is that? I don't keep up with some of the regs anymore since they are all convoluted anyway. Has this stopped due to some rule changes or just market dynamics? I rarely trade ES anymore. The small intraday range doesn't appeal to me.

Peter
There are a few plausible explanations.

These algos are obviously not there to get human traders offside, the orders flashed up for a fraction of a second. Long enough for you to see them momentarily flash up and disappear. Their purpose presumably was to somehow sniff out other algos to trade against.

I would imagine such strategies have a finite shelf life. Their success would be a factor. If a predatory algo is succesful and it manages to exploit another program trading algo out there, then the latter algo would at some point either be pulled or tightened up so it's not exploitable any more.

Another possibility is that the flash crash last year killed a lot of algos off.

Competition is stiff too and at some point must become cost prohibitive. Look at the 'famous' S&P premium arb. Take these 2 correlated instruments and trade a divergence. Sounds great. Then you have computers doing it. Then you co-locate them to get a head start. What's the next step when someone else competes with you and has the same latency edge? Surely the next step is to trade a smaller divergence than the other guy. It's like a lot of hi-tech businesses - you start off with a neat product but over time it becomes a commodiry and you end up competing on cost (or smaller profit). At some point the costs exceed the profits you make.
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Old Mar 6, 2012, 4:47am   #52
 
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Re: Scalping

Leopard, so true @ computers, especially related to Asian and European markets. Huge % of all volume is bots eating each other nowadays.

But that has it's benefits too.

Because bots act always the same and over time you can read them and make them provide you profits (because bots never give up and keep doing what they are programmed for as soon as they are started).
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Old Mar 6, 2012, 5:27am   #53
 
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Re: Scalping

Seems to often be an assumption that as stated here "The fact is, the order flow changes before the price", and so the charts will be late. This is really just the assumption of cause and effect as you personally see it, and you believe the tape will be the cause and the charts will only show the effect. But this isn't fact at all, only your interpretation. Before you see whatever it is you look for on the tape, there will be price movement, all kinds of orders being placed long before or shortly before and all manner of other influences. It's not as simple as "this is the cause, and will lead to this effect". A cause leads to an effect, which leads to a cause (yes an effect gives rise to a cause! Which in one way makes it also a cause, lol), which leads to another effect, and on and on. Is what you see on the tape a cause or an effect (or both)?

When you talk about large traders manipulating the order book, and you spot it, don't you wonder why they do it then and there? What caused them to do that, because what is causing you to follow them, isn't what caused them to do this, otherwise you'd have noticed it before. They're entering then and there for an entirely different reason, and it's not something you've been able to spot in the order flow, otherwise you'd enter before it happens.
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Old Mar 6, 2012, 5:31am   #54
 
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Re: Scalping

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Originally Posted by Shakone View Post
Seems to often be an assumption that as stated here "The fact is, the order flow changes before the price", and so the charts will be late. This is really just the assumption of cause and effect as you personally see it, and you believe the tape will be the cause and the charts will only show the effect. But this isn't fact at all, only your interpretation. Before you see whatever it is you look for on the tape, there will be price movement, all kinds of orders being placed long before or shortly before and all manner of other influences. It's not as simple as "this is the cause, and will lead to this effect". A cause leads to an effect, which leads to a cause (yes an effect gives rise to a cause! Which in one way makes it also a cause, lol), which leads to another effect, and on and on. Is what you see on the tape a cause or an effect (or both)?

When you talk about large traders manipulating the order book, and you spot it, don't you wonder why they do it then and there? What caused them to do that, because what is causing you to follow them, isn't what caused them to do this, otherwise you'd have noticed it before. They're entering then and there for an entirely different reason, and it's not something you've been able to spot in the order flow, otherwise you'd enter before it happens.
You have a point here.

Indeed, order flow may change, but whenever there is a real change in supply/demand balance, which leads to one side "eating up" bid or ask volume at the closest price available, that causes movement in price and thus is clearly visible on the chart.

So if we see just the order flow changing, we try to predict, if we see price changing, we know that supply/demand surely has changed, at least short-term.
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Old Mar 6, 2012, 7:08am   #55
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Re: Scalping

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I understand that you want to promote your business,
The Toastman and myself have gone head to head on couple of isuues but one thing you cannot accuse him of, is promoting his software here.
He has his ideas which he vigorously defends, but he does not promote his business here.
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Old Mar 6, 2012, 7:34am   #56
 
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Re: Scalping

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Originally Posted by Shakone View Post
Seems to often be an assumption that as stated here "The fact is, the order flow changes before the price", and so the charts will be late. This is really just the assumption of cause and effect as you personally see it, and you believe the tape will be the cause and the charts will only show the effect. But this isn't fact at all, only your interpretation. Before you see whatever it is you look for on the tape, there will be price movement, all kinds of orders being placed long before or shortly before and all manner of other influences. It's not as simple as "this is the cause, and will lead to this effect". A cause leads to an effect, which leads to a cause (yes an effect gives rise to a cause! Which in one way makes it also a cause, lol), which leads to another effect, and on and on. Is what you see on the tape a cause or an effect (or both)?
Interesting question...

With the way I trade, I have a view on the market and that gives me a bias. There's lots of ways to look at the overall structure of the market but mine is based on order flow and for the order flow 'bigger picture' I use cumulative delta.

So if I see a large shift in the delta accompanying a move, I will shift my bias that way.

Also, if I see a large shift in delta in the direction of my move after the market has put in a good move already, I'll be thinking we've seen the end of the move. Those volume blowoffs at the end of up moves and down moves effectively give larger players a chance to unwind their positions or take opposing moves. In addition to that, those large high-volume blow offs also put liquidity providers in a position where they need to get the market running the other way.

So - I have bias. Let's say I have a new long bias. I know the up moves are caused by active buying. I will also have an idea of the size of pullback I am expecting based on todays volatility. I know we will have a 'liquidity vacuum' created by the move up and some additional reactive selling and so I expect a pullback, have an idea roughly how far it should go and will trade it as long as I do not see active selling.

I see a market moving up. I know this will cause a pullback. I know that when buyers step back in at the bottom of the pullback, it will cause those reactive sellers to bail and people will jump on board and we'll see another push up.

Of course, at this point, this is my expectation but I want to confirm it & that is why I will use the DOM/Time & Sales.

What I will expect to see is one of the following as it moves down.

1 - Someone to step up on the bid and start absorbing the selling, preferably with an iceberg order.
2 - Someone to put in a large bid and to see the impact of that being that no-one wants to go near it with a sell order
3 - Selling to simply dry up OR selling to involve only the 1 lot warriors
4 - Active buyers stepping in with large market orders (although this leaves you with a poorer fill)

I want to see this around my expected pullback end point. If it happens earlier, I tend not to take it.

So - it is not one over the other. Chart gives me context. It tells me where to expect a move. The DOM/T&S simply tells me if what I am expecting is actually happening.

For instance, if on the down move I see 500 contracts hit the bid, tick down, 600 hit the next, tick down, 550 hit the next, tick down - etc. etc. etc. then that is real selling pressure and if that happens where I expect the pullback to end, there's no way I'm going to go long.

Neither chart nor DOM/T&S takes precedence unless it's a low volume day where the vultures are out.

Quote:
Originally Posted by Shakone View Post
When you talk about large traders manipulating the order book, and you spot it, don't you wonder why they do it then and there? What caused them to do that, because what is causing you to follow them, isn't what caused them to do this, otherwise you'd have noticed it before. They're entering then and there for an entirely different reason, and it's not something you've been able to spot in the order flow, otherwise you'd enter before it happens.
Well - they don't do it all the time on the ES. A lot of the time, the ES is a freight train and it's simply not possible to manipulate it.

On a low volume day where the market is in a range, then it becomes a safe thing for them to do. On range days, a lot of people sell the high of the range but it's not a freight train. The same happens with channels. What you see is that the market will move down a little and then the manipulation begins. The market looks weak but someone is absorbing all the selling and after a while, they will start pushing the market up and forcing the sellers which allows the manipulator to exit his new longs at higher prices. He'll be stopping the shorts out to force them to buy at higher prices and he'll also be benefitting from the breakout traders entries.

Sometimes this starts a whole new uptrend but often it just fades & dies.

People reading the charts will simply short the top of the range/channel. It's the smart thing to do until someone decides to sucker punch them. You can't tell where/when someone will begin that manipultive move but you can see when they start to engage. You also don't know if a larger player will come and swat them. It's rare but it does happen. Those playing these games are also just as susceptible to unexpected news as the rest of us. It doesn't go there way all the time.
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Old Mar 6, 2012, 7:36am   #57
 
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Re: Scalping

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You have a point here.

Indeed, order flow may change, but whenever there is a real change in supply/demand balance, which leads to one side "eating up" bid or ask volume at the closest price available, that causes movement in price and thus is clearly visible on the chart.

So if we see just the order flow changing, we try to predict, if we see price changing, we know that supply/demand surely has changed, at least short-term.
This is true - but there is much, much more to it than that because it is a 4 way auction.

For instance, there is no forex chart that will tell you that buyers are active but their buying is being absorbed by someone offering all they can buy. The Forex chart would just show you no price move.

The order flow is an additional dimension to the chart. The information is distinct and seperate and has a slightly different purpose.

For sure, it shows you things that simply do not appear on the chart.
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Old Mar 6, 2012, 7:39am   #58
 
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Re: Scalping

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Originally Posted by MoonRocket View Post
The Toastman and myself have gone head to head on couple of isuues but one thing you cannot accuse him of, is promoting his software here.
He has his ideas which he vigorously defends, but he does not promote his business here.
Cheques in the post, Sir.
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Old Mar 6, 2012, 7:42am   #59
 
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Re: Scalping

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Originally Posted by DionysusToast View Post
This is true - but there is much, much more to it than that because it is a 4 way auction.

For instance, there is no forex chart that will tell you that buyers are active but their buying is being absorbed by someone offering all they can buy. The Forex chart would just show you no price move.

The order flow is an additional dimension to the chart. The information is distinct and seperate and has a slightly different purpose.

For sure, it shows you things that simply do not appear on the chart.
Yes, of course no information is ever harmful, including the DOM.

But my typical analysis is: if even someone buys actively, but all his volume is absorbed by the sell side, it just means the balance is not skewed to the buy side yet, hence there's no entry for me as I am a momentum trader and want to exploit inertia of the market.

Saying it all not to critique your approach, but just to present an alternative view on the market's action.
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Old Mar 6, 2012, 7:45am   #60
 
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Re: Scalping

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Originally Posted by cornixforex View Post
Yes, of course no information is ever harmful, including the DOM.

But my typical analysis is: if even someone buys actively, but all his volume is absorbed by the sell side, it just means the balance is not skewed to the buy side yet, hence there's no entry for me as I am a momentum trader and want to exploit inertia of the market.

Saying it all not to critique your approach, but just to present an alternative view on the market's action.
It depends where it occurs...

In my experience, on the ES....

If the market is in an uptrend and you see this occur, you might see the start of a pullback but chances are the market will just steam on ahead.

If the market is in a downtrend and you see this occur in a pullback up, this will generally stop the pullback.
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