AlgoFutures

Below are my Top 10+ Core Principles Regarding How Changes in Order Flow Affect Changes in Price: 1. Price is always a function of Supply & Demand - Regardless of the market. 2. Changes in Supply and/or Demand effect changes in Price. The futures markets are no different from a widget market or the Ice Cream market. 3. Changes in Order Flow precede changes in Price. 4. Program Trading is the Primary Cause of changes in Supply & Demand. 5. Buy Programs Usurp Supply - Thereby increasing price. 6. Sell Programs Increase Supply - Thereby decreasing price. 7. Increases in Price momentum will fade if they are not backed by substantive Program Trading 8. As changes in Order Flow precede changes in Price, it is advisable to always enter each trade via a Stop, this way, Price activity confirms the Order Flow information. Long trades are entered via a Buy Stop one tick above the most recent pivot, and Short trades are entered via a Sell Stop one tick below the most recent pivot. If after a Long Entry Stop is place, price moves down and breaches the most recent low pivot, the Entry Stop is to be removed. If after a Short Entry Stop is placed, price moves upwards and breaches the most recent high pivot, the Entry Stop is to be removed. 9. Software can monitor this activity in real-time thereby creating ongoing opportunities to follow and feast off of the Big Money just like a Pilot Fish follows and feasts off of a Shark. 10. 'Smart Money' really does exist. For Smart Money to profit from their insight, they must trade. When they trade in an electronic market, their transactions get recorded in real-time. Thus, they leave a footprint that can be, and is, monitored by custom TLA software. 11. There are really, really sophisticated trading entities thriving in today's electronic marketplace. They exist and thrive because the microprocessor is at the heart of today's electronic futures markets and it enables them to write algorithms to take advantage of any, and every, discrepancy in the market. 12. Stop Losses are the bread and butter of short-term algorithmic trading shops. They 'know' where the stops are and can fire off Program Trades with sufficient force to trigger a bucket of stops. By doing this they create immediate liquidity which allows them to close out their positions. 13. You can use software to tell when a market is tired and is likely to turn. 14. The Forbes 400 List is wholly inaccurate. In my opinion, If the truth be known, the Forbes 400 List would be littered with the Managing Director's of small trading enterprises that fire off thousands of trades a day using sophisticated software that is plumb smarter than the man on the street's. 15. You can increase your percentage of winning trades by incorporating Order Flow monitoring and interpretation into your analysis...primarily by having the real-time information which offers you the ability and skill to never fight the tape. If you are interested in monitoring order flow for the S&P 500, Crude, Dow 30, and STOXX 50 futures markets you can do so for free, in real-time at Algo Futures Hope this helps. Carl

Hi idetsc, Counter-trend is brutal....If the program trading, which IMHO, is the dominant factor in price discovery is dominated by Buy Programs, and you are trying to scalp each new high...that is simply not going to work. You can write a strategy and back-test it and tweak it so that it shows you a decent P&L...but, once you put this strategy into production, your fills will be very challenging if you are fighting the tape....and your P&L will erode. We do this by monitoring order flow within the electronic futures markets...This information will tell you what the longer term trend is (we define longer term trend as 2-3 days). This may shed some light. Don All the best, Carl

Hi Electronic Local, I think that you bring up a very important point....Codifying whether buyers or sellers are in control has a dependency on the time frame in question. What is important is to understand what time frame a trader is comfortable trading, and making sure that they are aligned within this time frame. There are so many valid time frames to trade...Swing Trading over a couple of days, day trading from 2 minutes to 2 hours...or scalping within 2 - 20 seconds. All work and all are great...but it is important that you and your software is attuned to the appropriate time frame. That being said, if the larger time frame shows an up trend, and I was scalping...I would not want to counter-trend short scalps. Carl

IMHO, it is critical to trade congruently with Order Flow. If you don't trade with Order Flow, you are fighting the tape...and that is never fun. Here are some free real-time charts that publish Buy Program & Sell Program dominance in the electronic futures markets...there are also lessons on how to interpret this information and also free real-time trading signals that are generated by divergences between the Micro-Momentum of price and Order Flow Momentum. Hope this helps.