I've spent the last five years trying to forget everything I know about technical analysis🙂...which is a lot.
I'm not talking about fundamental trading. Although, if you're a position trader, you should probably have a very good feel for the fundamentals. I'm talking about the importance of being able to read the price action when day trading.
A person can look at a chart for about 1 minute and make a note of major levels. Knowing where the numbers are is not the problem. Not knowing how to read the order book is the problem. Making an entry or exit decision just because the price is a level on a chart is the problem. A scalper knows where the number is but he also has a really good feel for whether the level will hold or not because he knows how to read the volume. There are plenty of times when it's pretty obvious which way the market is going. You certainly can't know if it's going to go another 20 ticks but you can see that's it probably going to move another 3 or 4 ticks, at minimum, and there's no reason to buy at 20 if you're pretty sure you can get 16s.
If a big day trader is long 500 contracts and the market is 4 ticks against him, he is dying. His stomach is churning. He doesn't care what the charts or indicators say at that point. He's down 4 ticks and he's not losing 8. If the market continues to break, he is going to dump his position. When he dumps, he has an impact on the market. Will his selling move the market down a lot? Don't know. Depends on whether or not anyone wants to buy 500 here. If they don't, he moves the market. When he moves the market, you want to be on the right side of that move or at the very least, you want to stand aside and not be going against it. Knowing where major levels are is fine but understanding what's actually happening in terms of how many contracts are being traded at what price is much more important. Understanding the mindset of huge scalpers is more important.
Plus, while a technical trader is sitting around waiting for a certain price to get hit, scalpers might see three different good opportunities to make money just by reading the order flow.
SFL,
Your post and the case you are putting forward is an old concept at least as far as the traders on this BB are concerned,, . If you search for some of the 1999-2000 posts you will come across many of arguments both pro and against .
In light of your argument I have the following to say.
1) Scalping is NOT risk adjusted and dangerous and MUST be avoided at all cost. Scalping is gangster trading . Did not use to be before decimalization .
2) The zero profit rule applied by VWAP codes makes market very efficient and hence those who are not algorithmic scalping eventually LOSE to program traders.
3) Order book analysis is not useless but does not justify the time and effort.
4) VWAP codes can populate, de populate, spoof the order book in nano- second which a trader has near to zero chance of recognising the true flow.
5) The dual sided algorithm are extremely intelligent to fake the order flow . The buy and sell programs are not that difficult but as I said dual vwap based codes warp your trading model..
6) The tell tale traces are there but before you identify and capitalise on them other program trades trade them and an average trader is left guessing .
7) Iceberg orders are no longer a key in identifying the flow as they are intelligently distributed by third party buy/sell codes/
8) Even program traders get caught scalping if a new information( all categories of NEWS ) HIT the market
ALL IN ALL.. forget it ,,
I realise you are here to sell your E BOOK and get a donation but my interest is to tell the whole story/
Now if you think I AM WRONG AND YOU CAN CALL THE MARKET THEN I AM RUNNING MY MONTHLY LIVE TRADING SEMINAR 24th SEP ,,, come and show me LIVE how you do it.
Of course you can claim you are making a million here and a million there using order book analysis which in this case I would say GOOD LUCK BUDDY because i cannot do what you do ...
Grey1
