Best Thread The Order Book - Why Bother?

[SM_1]

Yeah - I ended up making my own so I could better see the trades hitting the limit orders...

Are you serious? You made your own?

I don't really use setups as such, although I am a fan of the "No BS DayTrading" book. The 'setups' there are mostly about ways a guy will try to build a position without moving the market too much.

For me, I do use these but really they are a part of being able to read the flow. What you see most of the time is that buying in an up move just loses steam. Sort of dies out. Either that or it gets absorbed. Then it's just variations on that theme.

Those are the most common things I look for and then if we see sellers pile in after that point, I will join them.

I also don't mind jumping on obvious buying/selling pressure wherever it appears. I think one of the misconceptions is that you always need to look for a reversal, whether that is in the form of a trend reversal or the end of a pullback. If you watch the DOM often enough, you get a feel for when a move takes off and has some 'wind' behind it. Like on the ES - you might see 500 hit the offer, tick up, 600 hit the offer, tick up, 550 hit the offer, tick up - and that's something you can jump on.

Yeah going with momentum is quite good, I was curious if you know/see any other "setups" I know I don't use setups in the general sense either, but idea's/things you see that are fairly common(can PM if you want), as there isn't much else that I have seen other than the refreshing bids/offers/bergs, other than that and the whole momentum thing.

Agreed.... On the ES, it wont stop an uptrend as quite often what you are witnessing is one side of an index arbitrage program (according to an ex floor trader I met a few weeks ago) and so I tend to take these as 'the end of a pullback' and ignore them for 'end of a trend'.

Interesting, good to find out these little things, I've often wondered the same thing, so you would rather get in on a pull back during an uptrend when you see the berg on the bid side, then get on the trend, is your ideal scenario?

When the ES went dull a 4-5 weeks ago (churning for an hour after the open), I switched off the charts and I haven't switched them back on. I do have a look before the open and mark up a few levels on the DOM but after that, I just go with the flow.

I should switch the charts back on but to be honest, I am in no hurry to do so as it's working ok right now.

Yeah good to know, I've often wondered what other traders that trade this way do, because it seems kinda pointless to draw lines/patterns etc. all over the chart if you don't really watch them, I have charts up but never actually really look at them, just staring at the order book the whole time really. Do you know much about month-end book balancing? It's things like this I think I need to learn more on, I knew a prop guy in London that used to go on about this month-end book balancing by firms etc.(I guess), but never really got much more out of him, but it seems really hard to find out information on, basically they balance their books at the end of the month, sometimes it can create a big move, sometimes not, but there was somewhere he checked that released it, but can't remember Also the effect of auctions, particularly before they are released(I trade the Bund a bit) can have some effect too, but again, I don't really know enough about it to know what they do when say there is a spanish auction coming up?(spread it with the bund, so bund does opposite? or bund does the same on expectations of a good/bad auction?)

I think it pays to watch the opposite side. If you see spoofing on the bid and refreshing on the offer, then it's probably the same person absorbing the buying and spoofing the bid. So - on it's own, I don't really come to any conclusion about a large qty at any level. I try to get other clues - like what happens when price actually gets there.

Agreed, I tried it a while ago, that whenever I saw the spoofing I would instantly go against it, even if it wasn't on the inside market, just to see if it would eventually go against the spoofing, and it seemed to only work when what you describe happens, when the spoofing is near/at the inside market and the offer/bid is refreshing.

Do you usually set targets with this kind of trading? I find it so easy to get out too soon just because it's in profit, rather than getting out when you have a reason to, so easy to do, because you get in when you see something, yet want to jump out straight away, and then usually watch it keep going for a while longer, need to make myself get out when I see a reason to be the opposite way in the trade, ideally.

 

[DionysusToast]

Are you serious? You made your own?

Yes - but I'm an evil vendor of such things, so it's in my evil blood....

Yeah going with momentum is quite good, I was curious if you know/see any other "setups" I know I don't use setups in the general sense either, but idea's/things you see that are fairly common(can PM if you want), as there isn't much else that I have seen other than the refreshing bids/offers/bergs, other than that and the whole momentum thing.

Not really, it's more of a 'go with the flow' thing for me. I do watch the Time & Sales too, to see when large traders pile in but really it's all about seeing momentum wane.

Interesting, good to find out these little things, I've often wondered the same thing, so you would rather get in on a pull back during an uptrend when you see the berg on the bid side, then get on the trend, is your ideal scenario?

Absolutely - if the ES is putting in nice moves regularly (signs of that coming back the past few days, hopefully), I will put up a chart - anywhere between 500-900 ticks and watch the cumulative delta on the pullbacks too. If the ES is generally putting in weak moves, I'll switch the charts off - they definitely do more harm than good for me in that sort of market.

Yeah good to know, I've often wondered what other traders that trade this way do, because it seems kinda pointless to draw lines/patterns etc. all over the chart if you don't really watch them, I have charts up but never actually really look at them, just staring at the order book the whole time really. Do you know much about month-end book balancing? It's things like this I think I need to learn more on, I knew a prop guy in London that used to go on about this month-end book balancing by firms etc.(I guess), but never really got much more out of him, but it seems really hard to find out information on, basically they balance their books at the end of the month, sometimes it can create a big move, sometimes not, but there was somewhere he checked that released it, but can't remember Also the effect of auctions, particularly before they are released(I trade the Bund a bit) can have some effect too, but again, I don't really know enough about it to know what they do when say there is a spanish auction coming up?(spread it with the bund, so bund does opposite? or bund does the same on expectations of a good/bad auction?)

That's a new one on me - there's so much going on, you can only hope to scratch the surface. Anyway - I guess there's no need to know everything. Analysis paralysis and all that.

Agreed, I tried it a while ago, that whenever I saw the spoofing I would instantly go against it, even if it wasn't on the inside market, just to see if it would eventually go against the spoofing, and it seemed to only work when what you describe happens, when the spoofing is near/at the inside market and the offer/bid is refreshing.

Yeah - going against spoofing regardless is a bad move! I think that unless they actually get people running away from the spoof, they don't accumulate the position they need to run the market - so best to just pull the spoof and try again later.

Do you usually set targets with this kind of trading? I find it so easy to get out too soon just because it's in profit, rather than getting out when you have a reason to, so easy to do, because you get in when you see something, yet want to jump out straight away, and then usually watch it keep going for a while longer, need to make myself get out when I see a reason to be the opposite way in the trade, ideally.

Sure - I generally start with a 4 tick stop and then my first target is 4 ticks and second target at 8 ticks at the moment. I have a final target that I try to manage out but I can close the trade at any time. I try not to get too spooked once I am in and I try to hold trades. Once I am over the 'danger period' and I have 4-5 ticks clearance, I tend to let it run more. Until that point, I'm more likely to close based on the flow alone.

 

[DionysusToast]

BTW - Today I can't read anything - marvel at my bandwidth....

I'll be trading Mexico Peso futures if this keeps up...

 

[SM_1]

Haha WOOOW, blistering speed you have there!

Thanks for the replies

 

[DionysusToast]

LOL - I know....

Funny thing is - I was just on hold with True Internet support for 30 mins... Then I got through and they said "Sir, that accounts with TOT Internet, this is True"...

What an idiot...

 

[NasiWarrior]

I've got a 315ms ping, to IB market data server (Greenwich) or 215ms to their swiss server, via CAT Telecom Cable.
Pretty stable but only 0.3Mb/s during peak hours. Get the full speed in the small hours.

BTW: nice thread!

 

[SM_1]

Hey DT,

Something I wanted to ask you about on the Emini S&P, was watching it couple of days ago and it was quite tricky, it would print decent size into the offer, say 1200 or something, wouldn't go bid, would still be about 200-400 left on the offer(or refreshed, whatever) which would normally have me thinking weakness, I tried it with just a 1 lot to see what would happen, but then it just kept going up, did all the above so it looked weak, if it can't go bid when 1200+ prints into it, that's weakness right? But no, it kept going, it would just slowly take out the other 200-400 and go bid on, then do the same on the next price, then kept doing that and eventually had a bit of a push/pop higher. Do you see this much? Where it looks like weakness(or strength) but it just keeps going that way, if so what's the difference between when it actually is weakness(or strength) and when it does what I've described? Sometimes I can read it pretty well, but times like this has me baffled a bit, because it shows what I see as weakness but then just keeps going anyway, it's like well who was selling/refreshing the offers? Are they just getting massively screwed right now or what? If I go 1200 long and its still offered at the same price, I would be crapping my pants, unless its someone who just has thousands and thousands at their disposal, and if so why not just hit it all, as in why not take out the entire offer and bid that much again, instead of doing 1200....then 200....then 200.....then....400 and bid on.

 

[wekim]

SM_1,

Good questions. I'm curious what DT thinks as well. I think what you're describing is an iceberg order on the offer, if 200-400 keeps getting refreshed while 1200 prints through it. But then you say the offer eventually gets eaten through and it goes bid. I would think weakness as well and probably try to jump on board with him short.

Here's my take on what actually happened. Seems like these iceberg orders are pretty much gonna define whether the resistance holds and indicates weakness like you anticipated, or whether prices breaks out. Consider the trader who had the iceberg offer and is now short 1200+ contracts. Price breaks through and now he is crapping himself and he needs to cover. His buying pressure alone will help push price up. Whether the breakout continues or whether its a false breakout then depends on how many more people hop on.

btw, anyone know where i can get the vids that were prevoiusly posted in this following thread?
http://www.trade2win.com/boards/day-trading-scalping/143504-orderbook-observations.html

 

[SM_1]

Yeah it was around 1200 hit in one go though a couple of times, so it was like around 1400 on the offer, 1200 hit at once, and then its just left with 200 or so on the offer, not really like a usual iceberg where it starts at 200 and 1200 ends up printing into it as it refreshes, this was like one hit then just left the 200 on the offer which would slowly start getting thicker again(this was when I was thinking weakness) but then bam it would take the rest out and do the same again on the next price, was strange and tricky to read. Seemed like it was struggling a fair bit at first, but once it got higher it was a smooth run/pop higher, just the early stages where I was sure someone was selling.

I guess if you were getting long it would make sense to do it slowly, rather than smash/sweep each level, why not wait until it refreshes a bit and then hit that too, more lots per price level doing it that way I suppose. It was the whole looks-like-selling thing that threw me off, offers that are getting some decent size printing into it but sticking and not going bid straight up has always been weakness in my books, but it just kept going despite this. Weird

Yeah I saw that thread too mike, it's a pity he took the videos off, doubt we'd be able to find them as it looks like he has taken them off YouTube itself, rather that T2W.

 

[DionysusToast]

Hey DT,

Something I wanted to ask you about on the Emini S&P, was watching it couple of days ago and it was quite tricky, it would print decent size into the offer, say 1200 or something, wouldn't go bid, would still be about 200-400 left on the offer(or refreshed, whatever) which would normally have me thinking weakness, I tried it with just a 1 lot to see what would happen, but then it just kept going up, did all the above so it looked weak, if it can't go bid when 1200+ prints into it, that's weakness right? But no, it kept going, it would just slowly take out the other 200-400 and go bid on, then do the same on the next price, then kept doing that and eventually had a bit of a push/pop higher. Do you see this much? Where it looks like weakness(or strength) but it just keeps going that way, if so what's the difference between when it actually is weakness(or strength) and when it does what I've described? Sometimes I can read it pretty well, but times like this has me baffled a bit, because it shows what I see as weakness but then just keeps going anyway, it's like well who was selling/refreshing the offers? Are they just getting massively screwed right now or what? If I go 1200 long and its still offered at the same price, I would be crapping my pants, unless its someone who just has thousands and thousands at their disposal, and if so why not just hit it all, as in why not take out the entire offer and bid that much again, instead of doing 1200....then 200....then 200.....then....400 and bid on.

Indeed, it does seem odd that there is a seemingly endless supply of liquidity all the way up.

The market can churn up and it can move up rapidly. What you are seeing is a churn up. That churning action is (in my opinion) a sign of strength. When you see the spikes up, that to me is a sign of impending doom.

In market auction theory, a lot of trading at higher prices is price acceptance. 1200 contracts isn't a great deal. If it was 5/6000 at an offer, I'd be more inclined to think someone was trying to hold the market. In terms of "why not hit it all", well I guess you never know if this is one player or many throwing these market orders in but if it is many, then again you are seeing multiple people accepting higher prices.

For me, I stay long biased until I see something really meaningful. As I mentioned before, I was always confused as to why icebergs stopped pullbacks but never stopped trends. The answer in the end was that those icebergs where you see a market moving up and 3-4000 contracts trade at the offer and then just plough through - that's just the 'other side' of an index arbitrage program. It's not a directional trade on the ES. I guess you'll see the same when people spread trade the big/small contract.

Stuff like this makes it hard to pick an exact top, that's why I don't try to do that (any more). I'd prefer to let the market show it's hand and then get in at the second best entry.

For scalping, you can always look for continuation. I think we talk a lot about short term reversals and that's what most people look for. In this context, by reversals, I just mean buying when price is moving down - like a pullback in an uptrend. If you watch the DOM for a while, you can see moves that are bound to continue. If you can see that, there is opportunity there too. On the ES, you have to be fairly nimble jumping on a momentum move but in other markets - such as Corn, you can get on quite a bit later.

 

[DionysusToast]

Yeah it was around 1200 hit in one go though a couple of times, so it was like around 1400 on the offer, 1200 hit at once, and then its just left with 200 or so on the offer, not really like a usual iceberg where it starts at 200 and 1200 ends up printing into it as it refreshes, this was like one hit then just left the 200 on the offer which would slowly start getting thicker again(this was when I was thinking weakness) but then bam it would take the rest out and do the same again on the next price, was strange and tricky to read. Seemed like it was struggling a fair bit at first, but once it got higher it was a smooth run/pop higher, just the early stages where I was sure someone was selling.

Odd behaviour indeed.

Thing is though - let's say you have 1400 offered and you want 2000. You can buy 1200, then watch the offers. If the offers stack up some more, you can maybe buy another 4/500 at the same price. If the offers don't get refreshed, then you can just scoop up the other 200.

[/Quote]I guess if you were getting long it would make sense to do it slowly, rather than smash/sweep each level, why not wait until it refreshes a bit and then hit that too, more lots per price level doing it that way I suppose. It was the whole looks-like-selling thing that threw me off, offers that are getting some decent size printing into it but sticking and not going bid straight up has always been weakness in my books, but it just kept going despite this. Weird

Yeah I saw that thread too mike, it's a pity he took the videos off, doubt we'd be able to find them as it looks like he has taken them off YouTube itself, rather that T2W.[/QUOTE]

Good points

 

[DionysusToast]

lol - @ that blog... "JamesBund007" - brilliant...

 

[SM_1]

Indeed, it does seem odd that there is a seemingly endless supply of liquidity all the way up.

The market can churn up and it can move up rapidly. What you are seeing is a churn up. That churning action is (in my opinion) a sign of strength. When you see the spikes up, that to me is a sign of impending doom.

In market auction theory, a lot of trading at higher prices is price acceptance. 1200 contracts isn't a great deal. If it was 5/6000 at an offer, I'd be more inclined to think someone was trying to hold the market. In terms of "why not hit it all", well I guess you never know if this is one player or many throwing these market orders in but if it is many, then again you are seeing multiple people accepting higher prices.

For me, I stay long biased until I see something really meaningful. As I mentioned before, I was always confused as to why icebergs stopped pullbacks but never stopped trends. The answer in the end was that those icebergs where you see a market moving up and 3-4000 contracts trade at the offer and then just plough through - that's just the 'other side' of an index arbitrage program. It's not a directional trade on the ES. I guess you'll see the same when people spread trade the big/small contract.

Stuff like this makes it hard to pick an exact top, that's why I don't try to do that (any more). I'd prefer to let the market show it's hand and then get in at the second best entry.

For scalping, you can always look for continuation. I think we talk a lot about short term reversals and that's what most people look for. In this context, by reversals, I just mean buying when price is moving down - like a pullback in an uptrend. If you watch the DOM for a while, you can see moves that are bound to continue. If you can see that, there is opportunity there too. On the ES, you have to be fairly nimble jumping on a momentum move but in other markets - such as Corn, you can get on quite a bit later.

"The market can churn up and it can move up rapidly. What you are seeing is a churn up. That churning action is (in my opinion) a sign of strength. When you see the spikes up, that to me is a sign of impending doom." - I love this, good way of thinking about it, often too with a bull move, it will be a lot more dragged out than a sell off(up the stairs, down the elevator type thing) where it seems to always just push a little further than you expect it to, but it still seems kinda odd that churning = strength, why would it churn if its strong, you would think it would be quite smooth and push hard, but that is what happens when its nearing the end like you say, quite often impending doom around the corner(last push up effect).

Interesting that you don't trade reversals, or try to pick tops and bottoms anymore, how come? Become too unpredictable? One of the strong points I thought was being able to get fairly close to spot on with the turning points because you can see at the exact price levels where someone is doing something unlike a chart. What are some signs of continuation that you look for with order flow? Just when it's consistently hitting one side, like you were saying earlier? If it just keeps printing into the offer, goes bid, prints straight into the offer with a decent chunk etc etc. you would join that?

Good point about the size too, it can be quite tricky to get used to the different sizes in throughout the different markets, 1200 although significant is probably not THAT extreme on the Emini(or tnote), it was more the fact that it was 1200 in one lot and that the offer stuck initially, rather than the size itself. What markets do you find the easiest to read DT? You mentioned Corn before, do you read the order flow on that, if so what's it like? Often thought about these markets other than the big "mainstream" type ones.

Another thing, do you stick to just 1 or 2 markets when you're reading the order flow? I can find it pretty distracting to have more than that up anyway, trying to concentrate on the trades/order flow in more than 1 market, can miss quite a bit?

Cheers

 

[SM_1]

lol sorry about the enormous novels that are my posts! my fingers just keep going uncontrollably, worn down to stumps soon

 

[DionysusToast]

In terms of a churn vs a rapid price move... The rapid moves seem to exhaust themselves. On a rapid move up, there's no time for liquidity to build up behind the move. So there's not much liquidity to eat through to the downside. With a churn, there's more time for this to happen.

In terms of reversals, I don't try to catch the end of trends right now. Of course, I do trade pullbacks and try to get in at the best price. The end of a pullback is a sort of reversal too - and I'm happy to take those. I just stay long biased in an uptrend until I see some serious selling and then I'll change my bias and look for a short.

I trade 1 market at a time.

If I get time, I will trade CL from 5am EST -> 8am EST. This is only 2 days a week usually. I started this because I wanted to get some experience with thin markets. I'm marginally profitable on this. It's almost not worth doing but I do want to give myself time to develop the skill.

I trade the ES from 9:30am EST -> lunchtime.

Sometimes the ES is dull though, so I also keep up a DOM on Corn. If the ES is in one of it's tight ranges, I'll trade the Corn open, which is at 10:30 EST. It's more forgiving than the ES too. Obviously, there's less people trading it and you don't have people trading it for such a variety of reasons as you do with the ES. It's a nice market to trade.

 

[SM_1]

Had a proper go on the treasuries yesterday, mostly just ZN but had ZF and ZB up too. I've never really watched these properly before, they are actually pretty readable. I just use X_Trader, didn't have any charts up, just the 3 ladders, No BS style. It seemed easier for me than the ES, it's more order book orientated and not so stop-start-stop-start as the ES, the ES tends to mess with my head sometimes when you see strength/weakness and it goes in the direction you think, but then it'll swing back all the way to where you started, which makes you second guess yourself etc etc. but the ZN seemed to be more go to a point, lots of size comes in, which makes it hesitate or come back off.

Noticed yesterday too that it was more an area than a set price where things get done, like yesterday on ZN there were thousands that were being traded at say 2 or 3 price levels when it was making highs around 180's. I got short but it takes patience to hold it, for me anyway, especially if you're used to thinner markets because so much size trades on the treasuries its easy to read too much into it. It ended up coming back off to 105's I think, quite a decent move, it's quite amazing when you just purely concentrate on the order flow, then check the chart and check where you saw things, very good spots, it's just having the balls and confidence to give it a go and then the patience to let it play out.

Haven't got my head around how they spread things and how that tips their hand, from JG's book I understand that they might offer in one to buy in another, but didn't really see any of that, not yet anyway, obviously need to get my eye in more and used to them(I have looked at them more than just yesterday haha), I did notice that the 10yr was stronger than the 30yr at times, then it would seem to "wait" for the 30yr, then the 30yr was up more than the 10yr and they both would resume the uptrend kinda thing.

 

[DionysusToast]

Good stuff SM_1 !

 

[SM_1]

Also it takes guts to be the first one, a couple times last night when big size was hitting into the offers but it was being absorbed, I was the first(or one of the first) to hit the bid and get short, which is a very weird feeling, it feels like you're the only one that can see this going on? But it's probably also the most ideal point of entry, react as soon as the voice inside your head says "yes here's a trade" otherwise if you delay, you only worsen your entry or miss the ride, both of which end in scratches at best.

I think this is where the patience comes in too, because most of us are very small size relative to those we're trying to catch a ride with, it's bang, one click and we're in, maybe 2 lots, 10 lots, whatever, but for those whose hand we are trying to see, they have to accumulate, or work an area so it can take a little time, which means we have to wait, which is why it's strange being one of the first to react, then we just sit there and nothing happens but we could still very much be right, have to let it play out. They can't get into or out of their positions in one click, they have thousands to get into or out and obviously you can't do it all at once when it's that big.

Just a few things that help me anyway, 2 cents worth. Take what you will if anyone still checks this thread haha.

 

[Zmark-trader]

Have not been here in quite some time, but the research of "Order Flow" has led me to this thread.
I have been trading order flow concepts in the last few months on a higher level, and have found this channel rather interesting. it is free, so I thought I would share: Nindicators - YouTube

 

[schoe]

Is there any way of learning to trade using the order flow without actually paying for software?
I would love to practice but i'm currently only papertrading.
Thanks.