Full MBO Orderflow Guide [Complete Beginner Course EP3] — Transcript

Full transcript

1. 0:00I am paying $1,400 per year for only to
2. 0:03buy this trading data that gives me a
3. 0:05full understanding on every single order
4. 0:08in the markets if it's one big order or
5. 0:10if it's more small orders this is not
6. 0:12just any orderflow data this is what is
7. 0:14known as a market by order data feed and
8. 0:17if you have a platform that can properly
9. 0:19interpret these data it can give you a
10. 0:21huge informational advantage on all
11. 0:24other price action retail Traders out
12. 0:25there let's see how this works uh by the
13. 0:27way this is one of a series of videos
14. 0:29I'm making about orderflow it's a full
15. 0:31course so I'll leave you the playlist
16. 0:32down below I hope everything was clear
17. 0:34if it wasn't go back and see the First
18. 0:36videos that I made about this orderflow
19. 0:38course if you like this video leave a
20. 0:39like and a comment if you have any
21. 0:40question And subscribe to the channel to
22. 0:42see the next videos and that's it ciao
23. 0:45just a quick recap on Market mechanics
24. 0:47we have two types of liquidity the one
25. 0:48in the order book is passive liquidity
26. 0:51buy limits in the bid and sell limits in
27. 0:53the ask the first two levels are the
28. 0:54best bid and the best ask then you have
29. 0:56aggressive liquidity which is basically
30. 0:58Market buyers and Market sellers
31. 1:00aggressive buyers and aggressive sellers
32. 1:02which buy or sell at the best bid or at
33. 1:05the best ask the contracts that are
34. 1:07available in the book once this
35. 1:09liquidity has been consumed the new best
36. 1:11bid and best ask can vary and this is
37. 1:13how price eventually moves and price
38. 1:16moves exactly where the last orders are
39. 1:18executed so if five more contracts were
40. 1:20executed here right now the candle will
41. 1:22turn green so with this visualization of
42. 1:25order flow we already have a deeper
43. 1:26layer of information than pure price
44. 1:28action but still we're only scratching
45. 1:30the surface of the information that
46. 1:31orderflow can actually provide because
47. 1:33with this form of orderflow we're just
48. 1:34seeing the market in every price level
49. 1:37that's why this form of order flow is
50. 1:38also known as Market by price because
51. 1:41you're seeing the market per every level
52. 1:43of price so Market by Price order flow
53. 1:46only shows us the total number of
54. 1:48resting orders at which price level and
55. 1:50the total number of aggressive orders at
56. 1:52which price level but if say we have 100
57. 1:54contracts here and 100 contracts here we
58. 1:57don't know if it's one big order for 100
59. 1:59contracts two big orders of 50 contracts
60. 2:01or 100 different orders worth one
61. 2:03contract each because we only know the
62. 2:05total number at a price level Market by
63. 2:07orders data feed instead doesn't only
64. 2:09show us the market per every price but
65. 2:11also the market in every single order so
66. 2:14maybe for those 100 contracts there's
67. 2:15going to be another 40 contracts order
68. 2:17here plus a 10 contracts order here and
69. 2:19another 10 contracts order here so with
70. 2:21Market by order data feeds we have a
71. 2:23granular understanding of order flow and
72. 2:25we can see with a much higher accuracy
73. 2:27how big participants how smart money are
74. 2:30manipulating order for but in order to
75. 2:32understand how this can actually help us
76. 2:34you should first know about matching
77. 2:35algorithms every exchange matching
78. 2:37algorithms are basically automatic rules
79. 2:40that determines the interaction between
80. 2:42aggressive orders and resting orders and
81. 2:44these are all the orders in the best bit
82. 2:46so say we have 15 contracts here five
83. 2:48contracts here and 35 contracts here
84. 2:51which means we have one order for 15
85. 2:52contracts one order for five conss and
86. 2:54an order for 35 contracts and there's a
87. 2:5623 contracts order that was just s sent
88. 3:00to the exchange and now matching
89. 3:02algorithms has to pair with all the
90. 3:04contracts available in the resting
91. 3:05orders here the first and most common
92. 3:07matching algorithm is known as fifo or
93. 3:10fifo or fifo which stands for first in
94. 3:13first out so the first contract that was
95. 3:16put in the book is going to be the first
96. 3:18order to be executed as soon as someone
97. 3:21buys or sells so in this case
98. 3:23chronologically speaking first this 15
99. 3:25contract order was placed here then this
100. 3:27five contract order and then this 35
101. 3:29contracts order so if this aggressor
102. 3:31comes in who has the right to be
103. 3:33executed first of course this one
104. 3:34because it was put here before the rest
105. 3:37of the orders so 15 contracts of this
106. 3:39order will be executed here which means
107. 3:42now there's still 18 contracts in this
108. 3:44order that needs to be processed at the
109. 3:46best bid now five of these contracts
110. 3:48will be paired with these five contracts
111. 3:50here which leaves us with 13 contracts
112. 3:52now these 13 contracts will be mesed
113. 3:55with 13 of these 35 contracts in dis
114. 3:58order so regardless of the size of the
115. 4:01aggressor order the first resting order
116. 4:03which was put in the bit is going to be
117. 4:04executed first this is the most common
118. 4:06matching algorithm then you have also
119. 4:08fifo with lmm which means fifo with lead
120. 4:12Market maker this usually which means
121. 4:14that the exchange has a deal with the
122. 4:16particular operator that operates in
123. 4:18that market with one or more Market
124. 4:20participants that are acting as a lead
125. 4:22Market maker and what they do is
126. 4:24basically being sure that every level of
127. 4:26the book has liquidity so they Place
128. 4:28their orders in in every level of the
129. 4:30book to ensure that all aggressors are
130. 4:33going to find liquidity so since they
131. 4:35provide this service to The Exchange and
132. 4:37they help make the market more liquid
133. 4:39and more easy to trade they have the
134. 4:41right to be executed first at least at s
135. 4:43LEL and you could ask yourself what is
136. 4:45the business why do they provide
137. 4:46liquidity because the business model of
138. 4:48a market maker is to earn one tick for
139. 4:51every transaction that is happening so
140. 4:52basically they are buying here they are
141. 4:54selling here this is one tick so if for
142. 4:57example we're talking about the es
143. 4:59contract they're going to earn
144. 5:01$12.5 for every contract they bought and
145. 5:04sold every time the price moves at least
146. 5:06one tick so the best Market condition
147. 5:08for a market maker to be in the market
148. 5:10is when price is basically still and
149. 5:13when price does this or in a bigger
150. 5:15picture if price consolidates they're
151. 5:18mostly in profit the worst moment for a
152. 5:20market maker to be on the market is when
153. 5:22price is extremely directional and
154. 5:25extremely volatile that's why market
155. 5:28makers usually withdraw their order from
156. 5:30the order book in the milliseconds right
157. 5:32before and right after a macroeconomic
158. 5:35data release so when NFP when CPI comes
159. 5:37out one of the reason why price moves so
160. 5:39high it's not only because there's a lot
161. 5:41of aggression and a lot of new position
162. 5:42being taken but also because there's no
163. 5:44market makers there's no liquidity and
164. 5:46if you normally would have a very thick
165. 5:48book both on the bid both on the ask in
166. 5:50the seconds before and after news you
167. 5:53will see the book almost completely
168. 5:56empty and this happens in every Market
169. 5:57if we're talking about Market that has
170. 5:59FIFA with lead Market maker the market
171. 6:02maker is allowed to withdraw their order
172. 6:04from the book just in that very small
173. 6:06window of time if you want to get deep
174. 6:08into the technical details you can check
175. 6:09more in the CME website now back to our
176. 6:11Market by order data feeded with Market
177. 6:13by order we can access this level of
178. 6:15information so the relationship with
179. 6:16every single little order this happens
180. 6:18because every aggressor order has an ID
181. 6:21and every resting order has an ID so we
182. 6:23have aggressor orders IDs and resting
183. 6:25order ID which is a little code that
184. 6:27identifies that particular order and the
185. 6:29best example to understand why this can
186. 6:31be useful is when an iceberg order is
187. 6:33put into the market now what is an
188. 6:34iceberg order you might ask an iceberg
189. 6:36order just like an iceberg is an order
190. 6:38where you can only see the tip but you
191. 6:41can't see that actually it's a huge
192. 6:43piece of order so an iceberg order is a
193. 6:46really big order we can say a 2,000
194. 6:48contract order but if a big Market
195. 6:50participant would put One Singular 2,000
196. 6:53contract order on a price level the
197. 6:55market is very unlikely to try and
198. 6:57attack it it would scare all Market
199. 6:59participants So to avoid this they only
200. 7:01put say 20 contracts just the tip of the
201. 7:04iceberg and every time those 20
202. 7:06contracts are executed by an aggressor
203. 7:09they immediately pop back up and they're
204. 7:10constantly being reloaded every time 20
205. 7:14contracts are executed let me show you
206. 7:15an example this is an example of an
207. 7:16iceberg order I have recorded in my
208. 7:18orderflow platform and as you can see
209. 7:20when price reaches this level there is
210. 7:22exactly 30 six contracts here in the
211. 7:25book but we can already see that
212. 7:26hundreds of contracts has been executed
213. 7:28at this level so as you can can see more
214. 7:30and more orders are being executed here
215. 7:32but still in the book there's very few
216. 7:34contracts and as sellers keep pushing
217. 7:38and selling of that level all the
218. 7:39contracts here are constantly being
219. 7:41added and reloaded again and again and
220. 7:44again and again more and more contracts
221. 7:45are executed at this price level this
222. 7:47shows that there is a big Market
223. 7:48participants behind this level
224. 7:50constantly reloading orders and
225. 7:52absorbing all the sellers pressure in
226. 7:55every Iceberg it's very typical that you
227. 7:56will find a bunch of small bubbles then
228. 7:58Market eventually will give up on
229. 8:00attacking that level because there's a
230. 8:01wall and price will eventually move back
231. 8:04up in one of the next videos we will go
232. 8:06deep in also how to trade this pattern
233. 8:08so in that level of the book this big
234. 8:10Market participant is constantly
235. 8:11reloading orders and there is two types
236. 8:14of icebergs so let's say that behind
237. 8:16here we figure out that there might be
238. 8:17an iceberg order and we want to sell
239. 8:19this there's two way to do it we can
240. 8:21whether sell Market on this level or put
241. 8:24a sell limit on this level if we sell
242. 8:26markets we are guaranteed to be filled
243. 8:29if if we put our sell limit here so we
244. 8:31want to sell exactly at the level where
245. 8:33this big participant is selling there is
246. 8:35two options whether this iceberg is the
247. 8:38same order so it's the same order ID
248. 8:42just quantity is constantly being
249. 8:45updated in which case we're talking
250. 8:47about a native Iceberg or it's a bunch
251. 8:49of different resting order that have
252. 8:52different order IDs which is also known
253. 8:54as synthetic Iceberg native icebergs are
254. 8:56usually provided by The Exchange
255. 8:58synthetic Iceberg are usually the ones
256. 9:00that these big Market participants build
257. 9:02for themselves and with the native
258. 9:04icebergs you are being more easily
259. 9:06seable by other Market participants
260. 9:08because they can see that it's the same
261. 9:10big order being constantly updated in
262. 9:13its quantity but the other participants
263. 9:14can be immediately sure it's an iceberg
264. 9:16order with synthetic icebergs you can't
265. 9:19be 100% sure it's an actual Iceberg
266. 9:21order because it's not the same order
267. 9:23being reloaded it's different orders
268. 9:25that are being added to the queue so
269. 9:27this information can be useful if you
270. 9:28trade BS because if there's going to be
271. 9:31a native Iceberg you're not going to
272. 9:32want to put yourself behind it because
273. 9:34you're probably going to be in the back
274. 9:35of the queue and you're never going to
275. 9:36be executed so if you want to bounce
276. 9:38this down you should sell Market with
277. 9:40synthetic icebergs instead you can
278. 9:42easily put a limit order here because
279. 9:44the rest of the synthetic Iceberg orders
280. 9:45are going to be reloaded in the back of
281. 9:47the quebe so you have more chances to
282. 9:48get infilled and this will earn you a
283. 9:50one tick difference which can seem like
284. 9:52it's not a lot but if you place your
285. 9:54stop loss right at the tick above and
286. 9:55say you're going to put a take profit
287. 9:57here this trade will be like 1 to 31 to
288. 9:594 this trade will be a one to two this
289. 10:01is one way in which MBO data can help us
290. 10:04the biggest real concrete help it can
291. 10:06have is in this little detail of Iceberg
292. 10:09orders so it can give you a higher
293. 10:10advantage on trading icebergs and
294. 10:12absorptions so if you are a book scalper
295. 10:14or a micro structure orderflow scalper
296. 10:17this can be useful if you're a beginner
297. 10:19in orderflow this probably is not the
298. 10:21first thing you want to focus on I
299. 10:22mainly explain this to you so that you
300. 10:24really understand every granular detail
301. 10:27of Market mechanics before we move on
302. 10:29with the of course but for the price you
303. 10:30pay to get this information you already
304. 10:32need to be an experienced Trader and you
305. 10:34specifically need to be a scalper a very
306. 10:37short-term Trader otherwise if you
307. 10:39simply want to use orderflow and volumes
308. 10:41to get higher probability triggers for
309. 10:43your intraday strategy I would say that
310. 10:45investing $100 per month just for this
311. 10:47data feed is a bit excessive not really
312. 10:49useful so platforms like these ones
313. 10:51which I will present to you very soon
314. 10:53with MBO data feed can summarize all
315. 10:55these information with you in a chart
316. 10:57that we will learn how to use in the
317. 10:58next videos so remember to subscribe to
318. 11:00the channel