Pay attention first and then appreciate it, so as not to find it later
Order flow traceability
Looking back at the history of trading, order flow trading can be traced back to Jesse Livermore's "Memoirs of a Master".
Now, my ** cost price is almost 300. They got rid of another 500 shares at 299 — and I mean the whole share, of course. The next one is 1,000 shares, which are sold at 299%. Then, 100 shares, 299;200 shares, 299;200 shares, 299;The last remaining ** was out at 298. ”
Of course, there is always a reason for the fluctuations, but the deal details don't care about why and don't explain it. I didn't ask why when I was fourteen, and I don't ask why I ...... when I'm forty today”
Jesse Livermore uses the tape to trade. In 1891, at the age of 14, Jesse Livermore was trading with a speculator, and from then on he began to learn to analyze the details of deals. He was so good at manipulating ** and made millions of dollars in profits thereafter that these speculators started kicking him out. Jesse is a genius who has insight into the market, and we didn't react until today, it turns out that Jesse also uses the order flow to see through other people's hole cards!That's why Order Flow Trading uses Jesse Livermore as the cover image to honor this great pioneer.
Luo Wenquan, the youngest tenured Chinese professor at MIT and the founder of AMH theory, once wrote the book "A Brief History of Technical Analysis - The Past and Present of Market Methods", in which he wrote:
We should recognize that these past, traditional long-term investors are living in a completely different environment than today's intraday speculators"Birney added,"We still think that charts and indicators still work, but now they work differently. (Berini is the president of the Berini Group and a legendary investor).
There is also a passage in the article that also reflects the exploration of the order flow theory in the context of the limited technical level at that time. Here we can already see the prototype of the modern order flow theory system.
Laszlo Birinyi said: "In 1979 I presented our research on tape analysis. This was a very useful indicator when the method was first studied. At the earliest we only used it in large transactions. We use this method to determine whether each large trade is in an uptrend or a downtrend, and it turns out to be very useful. And then we thought, because every time we have to ask if each transaction is a large transaction, why not analyze each transaction further?We then developed this approach and called it "money flows". ”
Observing charts is a must-have need for every professional investor, for subjective investors and small and medium-sized investors, it is unrealistic to analyze the market through cold data, and visualization is the only way to analyze.
In 2018, Mr. Gao Zijian, chief of the metalworking group of Soochow **, proposed the concept of "low-frequency of high-frequency factors". In addition to theoretically processing high-frequency data in accordance with scientific logic, the open source intelligent investment team will turn theory into practice, truly allowing investors to "zero distance" from quantitative trading.
Before talking about the order flow system, we should first review the entire history of the development of technical analysis in order to understand the order flow system more comprehensively.
Three Ages of Technical Analysis
The history of the evolution of technology can be broadly divided into three phases, namely technical analysis 1The Structural Era of 0, Technical Analysis After the Popularization of Computers after 1950 20 indicator era, and after 2000 financial market data and computing power greatly improved, the development of technical analysis 30 order flow era.
1.Technical Analysis 10 era (before 1950).
Technical Analysis 1The 0 era can be traced back to before 1950, the era of structural theory based on traditional charts, in the centennial special of the American Journal of Technical Analysis, five great masters of technical analysis of this period: Charles Dow, Eliot, Merrell, Gann, and Wyckoff, are commemorated in the centennial special of the American Journal of Technical Analysis.
The criterion of a great master is: a master trader who has left behind great achievements in theory. The author here focuses on four of them that are widely used in trading software.
Charles Dow. 
Elliot. 
Wyckoff. 
Gann. It all starts with Charles Dow: at the heart of the Dow Theory is the understanding of human psychology and its impact on the market. In the United States in the early 20th century, this kind of thinking was far ahead of its time. A considerable number of domestic traders understand the Dow Theory through John Murphy's "** Market Technical Analysis", and the classification of trends is the essence of the Dow Theory. In the era before computers, it was a great innovation to be able to find a hierarchical structure of trends through charts and graphs, and to divide the market into two states, equilibrium (consolidation) and imbalance (trend).
Subsequently, Wyckoff cleverly expanded the Dow Theory, which makes a complete structural division of how the market operates, the details of which can vary from person to person, and the important thing is to form the Wyckoff structure and put forward three laws.
Supply and demand: When demand exceeds supply, it will, and when supply exceeds demand, it will. The relationship between supply and demand was observed in 1930 by a dot-and-figure chart, and later generations have greatly expanded and made a more sophisticated evaluation mechanism.
Effort versus results: When volume and diverge, the trend may change directionDavid Weiss has made outstanding contributions to measuring the relationship between ** and volume, and has quantitatively measured the strength of the structure by establishing a series of indicators for WIS W**e. In fact, the oft-said divergence, or the famous saying of the breadwinner, "Buy in disagreement, sell in agreement", can be traced back to the second law of Wyckoff's theory.
Cause and effect: The degree of accumulation or distribution in the trading range (cause) is directly proportional to the degree of subsequent trend movement (result). One of the traditional applications is "how long is the horizontal and how high is the vertical".
Note: Here is an explanation of the translation of the three laws. In microeconomics, the demand curve and the supply curve determine equilibrium**. The first is uncontroversial. Second, effort versus results, translated as effort and results, or the law of input and output, when the law of effort and return is interpreted as the corresponding input does not get the same results as expected, the occurrence of changes should be considered. The discovery of the three laws is great and complete, and the problem of space and time (cause and effect), motion and rate (supply and demand), direction and transition (effort and return) of motion is a great one, and Wyckoff's theory has influenced a generation. The third cause and effect, cause and effect is one of the core concepts in Western education, everyone will practice cause and effect writing before they start to write, find the origin of the problem, and properly attribute it to its effect or effect, so it is more appropriate to translate it as cause and effect.
Another milestone in wave and cycle theory is the wave principle. It was developed by Eliot, who began his research in 1932, who hypothesized that the market follows a basic cycle pattern, with each cycle consisting of 8 waves (5 waves in one direction and then 3 waves in the opposite direction). Eliot's thinking was influenced by the Dow Theory, and Robert Jr., an authority on the "Elliott Wave Principle", noted that although Eliot was "initially guided by the principles of the Dow Theory," his final discovery was entirely his own. Eliot himself considered his wave principle to be "a necessary addition to the Dow Theory."
Note: Eliot's idea is to apply the principle of natural growth to the financial market, Eliot and Wyckoff both carried forward the Dow theory, if according to the author's understanding to distinguish the difference between Elliot and Wyckoff is in the figure below, the bottom of the wave theory is Fibonacci base, Wyckoff's bottom is binary, both of them have built structural theory from the bottom according to their own logic, and both are complete.
Gann is well-known for his view of time and space, and all trading software to date still retains traces of Gann. Predecessors evaluated Gann's trading methods based on his personal belief that everything in the universe exists in a natural order. In Gann's own words: "Everything that exists is based on precise proportions and perfect relationships." "The highest mathematical principles in nature are the basis of all things. Although Gann is well-known for his view of time and space, Gann's 24 rules cover the essential laws of trading, and most trading systems do not violate Gann's rules.
Gann likes to quote a quote from the Bible: "The thing that hath been, it is that which shall be;." and that which is done is that which shall be done: and there is no new thing under the sun.”
Time and conditions change, and you have to learn how to cope. Human nature does not change, which is why history repeats itself and behaves very much the same year after year, in different time periods, under certain conditions.
2.Technical Analysis 20 times (1950-2000).
In Technical Analysis 2After the advent of the computer age, Kaufman (adaptive**), John Bollinger (Bollinger Bands), Appel (MACD), Granville (OBV), Wilder (RSI, ATR), Larry Williams (inventor of William's indicator) and other trading masters invented classical technical analysis indicators according to the mathematical characteristics of the relationship between volume and price, which is also the starting point of modern quantitative research market.
And in the ** of trading theory, Robert Jr prechterjr.) is recognized as an extension of wave theory. Wyckoff's theory, on the other hand, is more widely disseminated, and there are three main follow-up ideas from the author's perspective:
The first is David Weiss, the founder of Weis W**E, who quantitatively expands Wyckoff's theory
The second is Dr. Hank Prudden, who has long lectured on Wyckoff theory at Golden Gate University and serves as president of the San Francisco Society of Technical Analysis
The third is Tom Williams, the founder of Volume Spread Analysis, who created the VSA Theory and further developed the Wyckoff Theory.
Behind each classic technical indicator there are a series of stories and books, in addition to technical indicators, the formulation of trading systems, the principles of entry and exit risk control, the demonstration of mathematical probability advantages, and the scientific method of processing data, all in technical analysis 20 period refined. Due to space limitations, the content of this stage will be introduced in the column later.
3.Technical Analysis 30 times (after2000).
After 2000, under the condition that the quality, quantity, and computing power of data have been greatly improved, technical analysis has entered 3The 0 era, that is, based on high-frequency data, derives an orderflow analysis system.
The order flow system is to make a real visual display of the transaction-by-order and transaction-by-transaction, and the transaction-by-transaction can be attributed to the DOM system, which is usually referred to as the handicap, but due to the high-frequency application scenarios and the increasing popularity of algorithmic order splitting, the significance of the transaction-by-case transaction is far less than the transaction-by-case transaction (pending orders can be cancelled, and the transaction is really to pay a handling fee), the real transaction can reflect the essential intention of the market and funds, and the two most important tools to depict the transaction-by-transaction are the order flow footprint map and the volume distribution.
In 2003, Market Delta, founded by Trevor Harnett, began offering a new type of charting software, the Footprint chart. After the Footprint is registered by Market Delta, different companies display the Footprint chart in different ways, such as Numbers Bars for Sierra Chart, Volumetric Bars for NinjaTrader, Volume Imprint for Motive W**E, Volume Increment for Multicharts, etc.
It was also in the same year that the epoch-making trading software NinjaTrader was born. Since then, the order flow analysis system was born, and major trading platforms have competed to design order flow analysis systems, and NinjaTrader's powerful visualization capabilities and advanced design concepts based on C have made it the first place in the entire trading terminal. Focusing on China, almost all trading software follows the chart design of Tongdaxin, and still stays in technical analysis 20, technical analysis 3Advanced features of the 0 era.
The main tool of the order flow system
1.Footprint
The essence of the order flow footprint map is to display the data of each transaction in the chart. And according to the transaction attributes of each transaction.
There are only two properties of orders in the market, namely active orders and passive orders, which can be boiled down to four identities:
Active** + Active Sell = Volume.
Active = Passive Selling.
Active Sell = Passive**.
Active ** - Active Sell = Delta (Money Flow Indicator).
Subsequently, according to the standard statistical method, it is the essential concept of the market to show "when and what price" and in what way the market moves.
At present, all the capital flow indicators, main forces, and monitoring indicators in the market are part of the order flow system. In the Chinese market, the so-called "main capital indicators" and "* capital indicators" are all obscenity products of software companies, which are not scientific, and will be answered one by one in the future.
2.Volume profile
The volume profile was formerly known as the Market Profile, which was developed by J., a trader at the Chicago Board of Trade (CBOT).Designed by Peter SteitlmayerThe market distribution itself is to slice the time according to the stage and accumulate it on the corresponding ** (this depiction seems to be a bit obscure). This was done due to the fact that under the conditions at that time, the technical conditions did not support the accumulation of volume on a tick basis. The volume distribution is to accumulate the volume of each transaction on the corresponding **, and derive a series of indicators.
In addition, the open source intellectual investment team has also independently developed the structure of the anchored VWAP as an important yardstick to depict the market, based on the Mandelbrot fractal market hypothesis, the pioneering instrumentalization of fractal theory, to the majority of investors to bring new technical tools and perspectives. In the following column, we will explain the specific logic and design principles of these tools.
Kaiyuan has long been committed to the research and exploration of advanced trading concepts and the development of financial technology. As a pioneer in the Chinese market, Kaiyuan Robo introduced NinjaTrader and order flow analysis system to China as early as 2017, and has many successful trading practices in the Chinese market. In addition, it also has a wealth of trading theory and practice development in indexes, commodity options, quantitative CTA strategies, and artificial intelligence pattern recognition.