Module 8 Wrap Up

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The Order Flow

Playbook
Module 8: Wrap Up

Michael Valtos – www.orderflows.com


Disclaimer
This presentation is for educational and informational purposes only and should not be considered a
solicitation to buy or sell a futures contract or make any other type of investment decision. Futures
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.

CFTC Rules 4.41 - Hypothetical or Simulated performance results have certain limitations, unlike an
actual performance record, simulated results do not represent actual trading. Also, since the trades
have not been executed, the results may have under-or-over compensated for the impact, if any, of
certain market factors, such as lack of liquidity. Simulated trading programs in general are also
subject to the fact that they are designed with the benefit of hindsight. No representation is being
made that any account will or is likely to achieve profit or losses similar to those shown.
In trading nothing is simple in the sense that everything is black and
white. Each trader is made up differently from a mental stand point. If
something works for you, either mechanical or discretionary stick with
it. You have to suit your trading approach with your trading personality.
Remember, markets are not price movement. A market moves based
on traders making trading decisions.
Weakening then strong then last ditch
Continuous thought process: step 1: Determine order flow sentiment.
Is delta positive or negative, POC going higher or lower? Is the market
in balance? Step 2: Put order flow in context of market structure. Is
order flow acting as expected? Step 3: If I am in a trade, does the
order flow support my trade?
Multiple imbalances at swing
In the markets and trading, just like in life, anything can happen at a
given moment that you have no control over. We have all crossed the
street many times without a problem, yet there are people killed
everyday doing something as simple as crossing the street. Why?
Because of the unexpected happening. It could a car coming around
the corner that the pedestrian failed to see. It could be a car pulled out
right at the moment the pedestrian stepped in the street. In trading it is
kind of like, getting long in a market then a trader a JP Morgan selling
800 contracts immediately after you got long.
Failed trend
Trapped traders
Last ditch
Delta extreme last ditch
Weakening then last ditch
Weakening at high then last ditch
Forging market
Recovery and extreme
Last ditch buying opportunity
Extreme delta, multiple imbalances into last ditch
By now, you should appreciate that order flow has nothing to do with
math other than, at times, basic arithmetic, but is based on
observation, interpretation and market context.
People try to make trading something more than it really is and come
up with all sorts of theories as to why a market does what it does. But
the fact is this: buying and selling volume is what moves prices. If a
trader really wants to get into a position he buys and if his buying
volume is more than the volume on the offer, the market will move
higher as he continues to buy. The opposite is true when a seller wants
to sell and starts hitting every bid in the order book. As the supply
reaches the market, and bids are being hit and bid volume is
decreasing, buyers who were bidding start removing their bids or
lowering them hoping to buy at a lower price. The bottom line is clear,
buying and selling activities leaves patterns and footprints in the
market. While the actual volume numbers involved may be random,
the general patterns are not.
Thin prints
Trapped traders
Last ditch
Thin prints
There is a lot of information available to traders nowadays. Random
walk theorists believe all the information is in the market, but what they
fail to understand is that traders, human beings, weigh the information
differently based on their own best interest.
Recovery bar, PPC trades to extreme deltas
Failed trend with forging bars
Double top with last ditch effort
Trading is a job, just like any other job where you collect a paycheck.
You have to put in your time, and you have to work hard. The
difference is, it is a job you enjoy doing, rather than a job you have to
do. And that is a very important difference.
In this day and age of computerized trading we have to be careful
against becoming slaves to the computer, forgetting that is only a tool.
We must use our human computer, the brain, to find unknowns and
solve trading opportunities. I have seen system traders who get so
caught up in numbers generated by their computer that they have
spreadsheets and printouts with so many numbers they lose sight of
reality.
Breakout institutional push
Forging market
Double top
Recovery or extreme
Remember, Order flow is not a computer trading system, where the
computer is telling you where to buy or sell. Order flow is an in-
depth guide to what is currently happening in the market, and as
such it requires a great deal of thinking when applying the data it
generates.
Series of last ditch efforts
Recovery bar on the low
Keep telling yourself: Stop. Slow down. Look deeper. THINK. Don’t just
blindly look at the numbers until you can’t see straight. Make each
decision a rational, thoughtful one. When you make a good trade, take
time to sit back and see just what you did right. Savor the moment, let
your subconscious absorb the pattern of success.
Thin prints but take context
Bounce
Traders work and live in a climate of ever-present ambiguity. There is
no assured, predictable financial return or guaranteed fringe benefits to
foster a sense of security.

Its hard to explain the pressures of trading for a living. In most jobs you
can take it easy, do average work, and get a steady paycheck. In
trading you have to be on your toes all the time. It’s simple – if you
don’t produce those winning trades you don’t eat. There’s no paid
health insurance, retirement, sick days, or dental plan. You’re on your
own without a safety net. It’s an awful lot of stress to deal with.
This concludes The Order Flow Playbook.

Thank you and happy trading!

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