About Algorithms

Algorithmic trading (automated trading, black-box trading, or simply algo-trading) is the process of using computers programmed to follow a defined set of instructions for placing a trade in order to generate profits at a speed and frequency that is impossible for human traders.

The defined sets of rules are based on timing, price, quantity or any mathematical model. Apart from profit opportunities for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out emotional human impacts on trading.

The greatest portion of present day algo-trading is high frequency trading (HFT), which attempts to capitalize on placing a large number of orders at very fast speeds across multiple markets and multiple decision parameters, based on pre-programmed instructions.

High-frequency trading (HFT) firms represent 2% of the trading firms, but account for 73% of all trading volume. HFT has been a subject of public focus since the U.S. Securities and Exchange Commission stated that HFT contributed to volatility in the 2010 Flash Crash.

Order Flow Review

On this review, let me tell you what order flow trading is not. Order Flow Trading is not technical analysis or fundamental analysis, although both of those certainly do play a part in order flow analysis. Why? Because technical and fundamental analysis do not always move the market because they do not always generate the necessary order flow to move the market.

Sometimes they can move the market, and other times they cannot. Technical and fundamental analysis are not the foundation of every market. Order flow and liquidity is the foundation of every market.

Order Flow trading seeks to correct the deficiencies in both technical and fundamental analysis in order to come up with high probability trading based on the very foundations of every market: order flow and liquidity. It's the most profitable way to trade as long as you're willing to learn the art of order flow trading.

Try without charts

Peter Davies from JigsawTrading shows us in this webinar how to use the intraday volume profile to determing trade entry and exit points as well as WHY it works. The idea behind using volume profile is that one of the most important factors in future price movement is not where the market has been as much as where traders are positioned right now. Price charts show the result of trading but volume profile is better at highlighting positions currently held by other traders.

Trading without charts isn’t some advanced set of techniques for super-traders. In fact, this is the way that most prop traders start out teaching their interns to trade this way simply because it is the fastest way to get them profitable. This is not terribly complicated and this doesn’t mean you need to throw away charts either. You can incorporate this sort of analysis into your chart based trading too.
It’s just another way of looking at the action.

Trading Execution

Trading Traps

Scalping Basics

As with any other style of trading, there are many different methods of scalping. The most well known scalping technique is to use the market's time and sales to determine when and where to make trades. Other scalping techniques are similar to other trading styles in that they use charts, and determine when and where to make trades using price patterns, support and resistance, and technical indicator signals.

Scalping using the time and sales is referred to as tape reading but there is no tape itself anymore. It has been replaced by a scrolling Times and Sales and the OrderBook. But the term and the principles are still alive and are as useful as ever based on two aspects that will never change: The Human Psychology and Supply/Demand rules.

Scalpers must be very disciplined to follow their system no matter what. Scalpers must be able to make decisions without any hesitation, and without questioning their decisions once they have been made. However, scalpers must also be flexible enough to recognize when a trade is not proceeding as expected, and take action to rectify.

Trading Exercises

If you were to join a Proprietary Trading firm starter program you might be surprised to find out that you they won’t teach you ‘the’ strategy they use for making money. They will instead teach you some foundations of trading – mainly money management, organization and an overview of various trading methods such as interpreting the DOM, Spread Trading and maybe some Technical Analysis. If you are lucky you will also receive some insights from experienced traders on the market structure, how value is determined and some basic order flow analysis. The majority of trader development is achieved through trading exercises and review through which traders start to find their own particular edge in trading the markets. Trading exercises are the key to understanding market behaviour and uncovering your weaknesses and exposing your strengths. For those familiar with the trading classic book by the late Mark Douglas – ‘Trading in the Zone’, this fascinating look into trading psychology has one simple conclusion to resolve most trading issues, and that is, successfully complete a trading exercise.

Source: PriceSquawk Audible market Technology

Using Order Flow

Price does not move because of some magical technical indicator on your screen, or moving average combination.

In order for price to move, market participants need to execute enough orders to consume the liquidity at the best bid/offer.

If no orders are going to be executed, then price is not going to move. That is the hard truth in trading.

If your analysis does not actually result in the needed order flow, in the needed transaction flow to move then the market, then the market is not going to move in your direction.

Successful traders are successful because they know that the outcome of their trade will be determined by the behavior of other traders, by all the order flow generated by other traders. That's all.