Order Flow and Taking Positions……
There are a number of systematic approaches that now incorporate Order Flow as a means of determining where likely turning points are in the markets and how to gage market sentiment in real time. As I am not necessarily a short term e-mini trader or standard account trader of the indexes, stocks or futures I would not purport myself to be an expert on this area at all. Nor should one look at me as being such. My experience is with Forex and that is the market that I have studied for many years. In how I do my analysis it does take into account cash flow and of course this does involve looking at some highly traded exchanges like the YM or the SP. However I am once again not the expert here in relation to futures trading.
What I was looking at is how expensive some of these systems of order flow really are. Typically they seem to average around $2-5000.00 dollars depending on where you take your course from. I find this a bit mind boggling as there seems to be a number of unKnown variables that come into play around order flow.
1) The first being do you know the nature of the order? In other words why is it there? Who took it? For what purpose and how long? You don’t know any of these answers really do you? In the essence of market set up, I would likly want to know the answers in these markets.
2) Is it high frequency trading where a number of orders are dumped on the market in milli seconds only to be pulled moments later at the cost of the traders who took positions based on the amount of orders entering the market? It has another name, and that is “pump and dump”. Just a fancier way of saying, stealing. I still don’t know how traders compete with these guys and their enormous resources in those smaller time frames. Those that do, well I tip my hat to you.
3) I think I would have more faith if we knew what entity it was that was buying or selling. If we knew ahead of time that it was the institutional traders buying in to the market which takes them a number of days to scale in or out then I suspect this would be extremely valuable as these are the entities that set major trends in motion. You might be able to enter at the beginning of the move instead of waiting to catch the middle of a move where most traders make their profits, when they do, in a mid-term sense.
Statistically we know that most traders still fail at the market, not because of the system but because of themselves.
Defining core trading values and knowing how to remove your emotons is the key to being able to make the system work. If you still grab small profits without letting your positions run you are still part of the losing 95% that comprise the markets. No one said it would be easy and this is the point. Before you run out and buy a 5K system learn what sort of trader you are. Learn the way that you trade successfully and then repeat and rinse over and over again. In other words don’t try to be a short term trader when your constitution dictates that you are a longer term trader. How many traders define this before they plow head long into the markets?
However it is the most critical tool to your profits as a trader that you can have. So take the time to really find out who you are as a trader. As Socrates said, “Know thyself”.