Seems to often be an assumption that as stated here "The fact is, the order flow changes before the price", and so the charts will be late. This is really just the assumption of cause and effect as you personally see it, and you believe the tape will be the cause and the charts will only show the effect. But this isn't fact at all, only your interpretation. Before you see whatever it is you look for on the tape, there will be price movement, all kinds of orders being placed long before or shortly before and all manner of other influences. It's not as simple as "this is the cause, and will lead to this effect". A cause leads to an effect, which leads to a cause (yes an effect gives rise to a cause! Which in one way makes it also a cause, lol), which leads to another effect, and on and on. Is what you see on the tape a cause or an effect (or both)?
Interesting question...
With the way I trade, I have a view on the market and that gives me a bias. There's lots of ways to look at the overall structure of the market but mine is based on order flow and for the order flow 'bigger picture' I use cumulative delta.
So if I see a large shift in the delta accompanying a move, I will shift my bias that way.
Also, if I see a large shift in delta in the direction of my move after the market has put in a good move already, I'll be thinking we've seen the end of the move. Those volume blowoffs at the end of up moves and down moves effectively give larger players a chance to unwind their positions or take opposing moves. In addition to that, those large high-volume blow offs also put liquidity providers in a position where they need to get the market running the other way.
So - I have bias. Let's say I have a new long bias. I know the up moves are caused by active buying. I will also have an idea of the size of pullback I am expecting based on todays volatility. I know we will have a 'liquidity vacuum' created by the move up and some additional reactive selling and so I expect a pullback, have an idea roughly how far it should go and will trade it as long as I do not see active selling.
I see a market moving up. I know this will cause a pullback. I know that when buyers step back in at the bottom of the pullback, it will cause those reactive sellers to bail and people will jump on board and we'll see another push up.
Of course, at this point, this is my expectation but I want to confirm it & that is why I will use the DOM/Time & Sales.
What I will expect to see is one of the following as it moves down.
1 - Someone to step up on the bid and start absorbing the selling, preferably with an iceberg order.
2 - Someone to put in a large bid and to see the impact of that being that no-one wants to go near it with a sell order
3 - Selling to simply dry up OR selling to involve only the 1 lot warriors
4 - Active buyers stepping in with large market orders (although this leaves you with a poorer fill)
I want to see this around my expected pullback end point. If it happens earlier, I tend not to take it.
So - it is not one over the other. Chart gives me context. It tells me where to expect a move. The DOM/T&S simply tells me if what I am expecting is actually happening.
For instance, if on the down move I see 500 contracts hit the bid, tick down, 600 hit the next, tick down, 550 hit the next, tick down - etc. etc. etc. then that is real selling pressure and if that happens where I expect the pullback to end, there's no way I'm going to go long.
Neither chart nor DOM/T&S takes precedence unless it's a low volume day where the vultures are out.
When you talk about large traders manipulating the order book, and you spot it, don't you wonder why they do it then and there? What caused them to do that, because what is causing you to follow them, isn't what caused them to do this, otherwise you'd have noticed it before. They're entering then and there for an entirely different reason, and it's not something you've been able to spot in the order flow, otherwise you'd enter before it happens.
Well - they don't do it all the time on the ES. A lot of the time, the ES is a freight train and it's simply not possible to manipulate it.
On a low volume day where the market is in a range, then it becomes a safe thing for them to do. On range days, a lot of people sell the high of the range but it's not a freight train. The same happens with channels. What you see is that the market will move down a little and then the manipulation begins. The market looks weak but someone is absorbing all the selling and after a while, they will start pushing the market up and forcing the sellers which allows the manipulator to exit his new longs at higher prices. He'll be stopping the shorts out to force them to buy at higher prices and he'll also be benefitting from the breakout traders entries.
Sometimes this starts a whole new uptrend but often it just fades & dies.
People reading the charts will simply short the top of the range/channel. It's the smart thing to do until someone decides to sucker punch them. You can't tell where/when someone will begin that manipultive move but you can see when they start to engage. You also don't know if a larger player will come and swat them. It's rare but it does happen. Those playing these games are also just as susceptible to unexpected news as the rest of us. It doesn't go there way all the time.
