Understanding Participant Type

Many traders really get the advantages that our orderflow and tape reading software AlphaReveal provides with little effort on my part. Even so, I still get emails from traders on a semi-frequent basis who are interested in trying our software but are unsure of how to use it. I encourage those traders to take our free trial and discover for themselves how it can benefit their trading. Our free trial usually proves very effective at resolving the doubts.

AlphaReveal essentially allows the trader to see the underlying limit order and market order dynamics that drive price in ways never before possible. AlphaReveal processes the information in very intelligent ways and makes activities that were once almost impossible like "reading the tape" actually easy. Our PressureVolumeTM reveals, at a glance, who's in control of the order flow and from what levels. This is not possible with traditional tools, and that's just one of the many tools in our arsenal. Every tool was developed and refined under real world trading conditions with a results oriented focus.

In the last post, I encouraged traders using our software to think beyond simple setups. One of the advantages that our software provides is the ability to gain a better idea of the type of participants active in the futures market. Understanding the dominant participant type can provide a significant advantage when attempting to forecast price. There is more then one way to break down participant type. But, the simplest way is simply to divide all traders into either liquidity providers or price drivers. Liquidity providers will attempt to take the opposite side of market order traders while price drivers attempt to drive the market toward new highs or lows with market orders. Often, the dominant price driver will sit slightly off market and for example attempt to drive the market to new highs from minor lows. At other times, the dominant price driver is willing to pay up in price.

AlphaReveal surfaces key market order and limit order information that helps traders to understand these dynamics in ways that are simply not possible with price only charts. An example that highlights just a few of the advantages that our software enables follows.

  1. A determination is made that the dominant participant is buying. This may be gleaned from correlated order flow across 5K OrderFlow BarsTM.
  2. The trader waits for transient selling to come into the market, i.e selling that pushes price lower but that is anticipated to be preceded by a higher high.
  3. The trader waits for a buy limit order imbalance to develop. That's an area in the market where resting buy orders outnumber resting sell orders at a significant level. LimitResistanceTM highlights these imbalances with easy to see colors using user defined thresholds.
  4. The trader executes at market.
Wednesday, March 27, 2013 8:09:00 AM Categories: education


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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

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Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.