Dissecting the markets
There are multiple ways how to approach the financial markets.
The goal is to recognize a certain market behavior, then receiving a trigger if something occurs that puts us in a favorable position to enter a trade. We focus and manage the trade depending how it plays out. This means that ideally, we get out of a trade if chances for a continuation become lower, respectively if chances increase that it moves against us.
At OrderFlowViz.com we mainly believe that we should keep the time when our money is exposed to the markets as small as possible. It is like crossing through a jungle river knowing there are all kinds of dangers in it. Reading the markets well, understanding what’s going on, let the opportunity present itself, then take action with intention and get out from the danger as things start to shift.
Obviously, this principle can apply to any approach to the financial markets. We also don’t want to say that one approach has to be preferred over another. It is just our preference, that whenever we have a position on, we want to be able to monitor it. Therefore, our tendency is to be in trades shorter than longer and going heavier into analyzing order flow than the other using the other approaches.
In general, it is the case that order flow is more relevant to short term trading (day trading) than to longer term trading. That being said, it can be relevant as well to swing traders on longer time frames in the case where they are looking for better entries and exits. Markets are also fractal to some degree which means that signatures of the markets and rotational behavior repeats in similar fashion on various time frames. Many of our tools that we developed and that are still under development also give great insights on longer time frames as well.
Let’s compile a list of reasons “Why order flow?” and why we are having our focus on it:
- Fundamental analysis
- Technical analysis
- Order flow analysis
The goal is to recognize a certain market behavior, then receiving a trigger if something occurs that puts us in a favorable position to enter a trade. We focus and manage the trade depending how it plays out. This means that ideally, we get out of a trade if chances for a continuation become lower, respectively if chances increase that it moves against us.
At OrderFlowViz.com we mainly believe that we should keep the time when our money is exposed to the markets as small as possible. It is like crossing through a jungle river knowing there are all kinds of dangers in it. Reading the markets well, understanding what’s going on, let the opportunity present itself, then take action with intention and get out from the danger as things start to shift.
Obviously, this principle can apply to any approach to the financial markets. We also don’t want to say that one approach has to be preferred over another. It is just our preference, that whenever we have a position on, we want to be able to monitor it. Therefore, our tendency is to be in trades shorter than longer and going heavier into analyzing order flow than the other using the other approaches.
In general, it is the case that order flow is more relevant to short term trading (day trading) than to longer term trading. That being said, it can be relevant as well to swing traders on longer time frames in the case where they are looking for better entries and exits. Markets are also fractal to some degree which means that signatures of the markets and rotational behavior repeats in similar fashion on various time frames. Many of our tools that we developed and that are still under development also give great insights on longer time frames as well.
Let’s compile a list of reasons “Why order flow?” and why we are having our focus on it:
- We believe it is the area where we can get the most cost effective gain in market insight over other market participants.
- Every movement, rotation, or level break serves a distinct purpose. Relying solely on technical and price action analysis often results in vague or entirely inaccurate explanations. Order flow analysis provides clarity in understanding why trades succeed or fail.
- Understanding order flow concepts, the fundamental workings of the order book, and level 2 data presents a significant challenge for many market participants. However, those who overcome this hurdle undoubtedly gain an advantage, moving closer to the winning side compared to those who neglect it.
- Through years of analyzing order flow, we've observed that candle bar patterns can appear identical but exhibit entirely different order flow behaviors, leading to a different outcome after the pattern. Therefore, it is important to know on which side the stronger sellers or buyers are.
- Thorough analysis of order flow enables us to identify when the strong hands assume control and when the market entices the masses, including weaker hedge funds, to enter trades. Recognizing these dynamics empowers us to make more informed trading decisions.
- Although there is a decent selection of order flow tools accessible to retail traders, we perceive a deficiency in tools capable of keeping pace with the rapid movements of today's markets.
- The price ladder/depth of market and the footprint chart often have limitations in displaying historical data. For example, in a tight trading range, if we have only 20 bars visible on a footprint chart, crucial information such as a strong directional push that occurred 25 bars ago might be overlooked. Consequently, we might be caught off guard when the market breaks out strongly in the same direction. This is even more challenging when only looking at a DOM.
- We've recognized untapped potential in the computing power accessible to less sophisticated (retail) traders. Our PC's can do more than what they are currently doing! We may not attain the levels of exchange co-located million-dollar, low-latency infrastructure running HFT software. But, we can undoubtedly enhance our use of available systems through optimized software. This includes careful selection of the trading platforms, data feeds, order routing providers and last but not least: Well coded studies/indicators. This will give us an advantage over other competing low-latency participants.
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