148: John Grady – The Order Book—What Traders Must Know About Supply and Demand

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What's going on, folks? Uh it's nice to have you with me. I know I say that quite frequently, but I do mean it. It's great to have you here. Uh, this is episode one hundred and forty eight with a my guest, a guest, my guest, John Grady. John is an independent futures trader who primarily trades Treasury bonds. He lives in Florida. His trading is purely discretionary. Based upon his read of order flow, essentially he's a scalper.

So let me tell you or let me share with you the reason why I asked John to come on the podcast. And I'm a little bit embarrassed to say this, but It's only recently okay, let me re let me rephrase that. Until recently, I'd never really taken the time to understand the order book or watch and make sense of order flow, etc. Sure, I mean I understood the order book at its most basic level, but really not much beyond that point.

Through this exercise of learning more, I came across a few videos of John's which did a brilliant job of explaining things and were very helpful, for me at least, to grasp things on a deeper level. So I now I kinda have this view or I'm fairly convinced whether you use the order book as a part of your trading decisions or not. It's valuable as a trader to at least understand what's going on there. And that's why I brought John here to share some of his insight and experience with you. Okay.

So throughout this episode we go over the basics, the value of the order book, some of John's trading methods, order types and managing positions, how to build skill at actually reading order flow. as well as the impact of high frequency trading and what's commonly known as spoofing. So with that being said, let's cut to my chat with John Grady. I'm pretty much open to talk about whatever you want, dude. So, um I mean if if you hit on a topic that I'm not, I'll tell ya but

Uh feel free to ask any questions and then you can obviously edit it as you see fit for your uh your podcast. Excellent man. Cool. Well let's uh let's get this going. I mean we'll probably run for around about sixty minutes or so. Uh but let's let's start with

a little bit about how you got into trading. I mean we probably won't spend too much time on this because there's a whole lot of things I want to ask you surrounding the order book and related topics. But How did you get into trading and also when did you get into trading? Okay, so I'll give you the the short version. I

Discover trading when I was twelve years old. I met a guy who was a stockbroker and retired at thirty five. And this is the joke that I share with people. I made the mistake of wanting to become a trader and not a stockbroker. Um that that yeah, I I which it it wasn't a mistake for me, but I joke about that because he wasn't a trader, he was a broker and he made a a lot of money doing that. Um but it piqued my curiosity in

the markets. So I actually started studying the markets literally when I was twelve, thirteen years old. I discovered futures when I was about sixteen. Uh my grandfather had a bit of an interest in them. He didn't really trade, certainly didn't day trade. Uh we're going back Many years. I'm forty one, so I mean we're going back to the nineteen eighties. And

Ultimately the interest in it led me to open some accounts. I of course lost money like everybody else did or everybody else does when they first start trading. And so I started pursuing jobs. I landed a job at a uh an equities firm briefly in Colorado and it was right around the Nasdaq boom and bust.

And unfortunately for me, um they started this prop firm And it was right at the beginning of the bust. So they brought in some guys who had been trading the boom aspect of it. And what I didn't know then, which I know now, is pretty much all of these guys were order flow traders. They all watched level two.

They all watched the time and sales and the size, and it didn't make much sense to me because I'd only been studying technical analysis as retail traders are prone to do. Um so the market started to tank. And some of these guys got out of the business and that prop firm didn't last very long. The guys that started it weren't really prepared to invest much money in it.

But I did learn a a little something, um, certainly a little something about level two and and order flow from a guy that befriended me there. He was a very good trader. Uh and that was my first real exposure to Okay, I kinda see how, you know, when twenty thousand shares move, it moves the market ten cents or twelve cents or fifteen cents. And then I landed a job at a prop firm in Chicago. And they traded

Um primarily Treasury futures. They did have some people trading European futures and eventually they put some people on grains and energies. A little something your listeners might like to know is that there was no department for stock indexes. So you're talking about a group of professional traders that started a prop firm, backed it with several million dollars, and they had their traders on fixed income

uh or grains or energies and nobody was allowed to trade stock indexes. That doesn't mean there are an opportunities of stock indexes or in, you know, the S P five hundred, but um basically they knew even then that you tend to find better opportunities um in like fixed income products like the US Treasuries or maybe the the Bun Bobble. So, in a nutshell, uh I started working for them. That was the first time I'd ever seen

a depth of market for futures. I'd obviously seen level two for uh stocks, but I'd never seen a depth of market for futures. And I was there for a a little while and um I figured it out on my own for the most part, but I figured it out because I was able to watch some other guys. and kind of see what they were doing, um, just because I can see their screens, one guy in particular.

And then it all just kinda came together and made sense. And once once I understood what was happening and I had actually talked to a couple of floor traders as well And they began explaining, you know, how you look for big orders essentially. And a l a lot of people don't know this, particularly retail traders. You know, the guys on the floor are not geniuses. Um, and it's not a guarantee that you're gonna make money, but

uh what they can spot or what they were able to spot at the time were inefficiencies. So it was a it'd be a big pit and they might see that the market is bid twelve on one side of the pit. um and offer fourteen on the other side of the pit and they could take advantage of that, you know, maybe maybe buy thirteens and sell fourteens right away and work with a partner.

Or they would befriend a broker and the broker would let'em know when a big order was coming in. That's technically illegal, but it happened. Um and you know, you know a big bank's about to sell ten thousand contracts, you go short. They sell ten thousand contracts, the market breaks, a couple of ticks you cover, it's free money, essentially. Uh so that's why a lot of those guys complained when the floors disappeared.

Um so after that I I eventually left the office mainly just due to politics. It wasn't um you know, I didn't do do poorly or lose my money. Um it just it wasn't a a good deal after a while. And from that point I went out on my own and then eventually started um, you know, no BS day trading as a way to try to educate some

some traders out there in the world about the the realities of trading. Okay. And how long have you been out on your own now? Uh quite some time. Um over ten years. Okay. Excellent.

So let's get straight into it. Let's talk about uh the order book. So I'm just wanna ask you a few really basic questions just to begin with. Uh just so that's the Because I I'd hate to lose someone right at the beginning and then they just lost for the rest of the episode. So just to make sure we don't lose anyone, I just want to ask you a few really basic quick questions. So first of all, when we talk about the order book What are we talking about? And are there other names for it as well?

Uh there are other names. It is well, it is technically the order book, but um these days you would also refer to it as a depth of market, a depth in sales. Um or when people say the order flow, it means they're watching order flow within the order book. And what the book is, uh it shows ten bids and ten offers, right? So if the current price of the market is at uh five. You will see offers at six, seven, eight, nine, ten, all the way up through fifteen.

And you'll see the bids from five all the way down to even and then, you know, the next below even or whatever. Depends on what product you're trading, obviously. So you get to see ten bids, ten offers all the way out. and the inside market, which is where the price currently is, right? So when someone says it's five by six, what they mean is there's a bid to buy at five and there's an offer to sell at six.

And eventually for the market to move or for price to move, uh somebody either has to be willing to buy at six or sell at five. Okay. And just to be clear, when you're talking about a bid or also an ask, you're talking about someone who's willing to buy at that price and then an offer is someone willing to sell, correct? That is correct. Okay. And probably one other thing we should just be clear on is the difference between a market order and a limit order.

Sure. As a matter of fact I have a not to plug this, but I do have a video um on YouTube, free video Uh it's order flow basics and what are you seeing on the DOM? And it covers this in great detail, like the most basic detail of all. But basically a limit order means let's say you and I are participants in the market. And I say I'm willing to buy one contract for a price of five. Okay? And you say you're willing to sell one contract uh at a price of six.

Um, we're both currently working limit orders, which means we're only willing to to do a transaction at those prices. I'm only willing to buy at five and you're only willing to sell at six. Now if I step up and say, you know what? Okay, fine. I will buy from you at six, I have now used a market order to hit your limit order at six, and then the transaction is conducted at six. Okay, so limit orders are visible in the order book and market orders are not.

Well, market orders become visible once the transaction is created, right? So m so uh the limit orders are what are visible in the order book and then when someone hits a limit order, that is a market order. So the limit order is being hit by a market order.

Yeah, so you see it in the the time and sales. Time and sales, that is correct. Yes. But not in the actual order book itself. You only see it sorta being taken out Right, you'll see the transaction occur and you'll see the bid and offer change as a result of those contracts trading.

Um but yeah, you you obviously don't see a market order because it doesn't happen until someone decides to initiate it. So it's not like I mean I can sit there all day and work a limit order at five, but you're not gonna see my market order until I actually step up and and hit your offer. at six and that's part of the poker aspect of it is that, you know, I'm I'm hiding my intent and intentionally don't want to let you know I'm willing to buy at six.

until I do, you know, and then you're surprised by it or not surprised, but that's how it works. Yeah. So maybe explain to us why the order book is important for you in your trading. Like what's the value of the order book? The value is that it lets you know Where supply and demand is. And that is ultimately what changes price. So if there is more money

interested in buying than in selling, price will move higher. If there's more money interested in selling than buying, price will move lower. What do I mean by that? Let's particularly let's say And I I'll use um'cause I primarily trade treasuries, the ten year note for an example. Let's just say I'm looking at the order book and I'm thinking about selling.

Um and right now the price is two by two half. So there's a a bid at two and offer at two half. But the bid at a at the price of two is for three thousand contracts. and the offer at the price of two half is for three hundred contracts. So clearly there's far more uh interest right now and buying it too, right? And so I I if I wanted to sell, I'm gonna place

my an a limit order at two half because almost guaranteed contracts are going to continue to trade at two half until the bid and the the offer even out a bit. So if it's three thousand bid by three hundred offer. buyers are naturally going to to gravitate towards the three hundred offer thinking that the market's gonna move higher.

Um if it's you know then changes so that it's now a fifteen hundred bid by fifteen hundred offer, now we're back on a level playing field where it appears you have an an equal amount of buyers and sellers on both sides. And that changes. So from a scalping perspective

And scalping doesn't necessarily mean for one tick, by the way, let me clear that up. It can be for five ticks, eight ticks. Just scalping means you're looking for um you know, opportunity in the moment based on order flow. Uh from a scalping perspective the order flow allows you to see at times when one side clearly has control because the bids, the the buyers and the market orders on the buy side are clearly overwhelming the sell side.

or the sellers and the sell market orders are clearly o overpowering the buy side. So Let's you know, if you're watching the order book and prices is uh ten by eleven and suddenly market orders sell everything at ten, they sell everything at nine, they sell everything at eight, right? And they're just wiping out bids. There's no point in going against that. You know, you you s either stick with the sell side and you go short yourself or you s you stay on the sidelines.

But when you can actively see market orders wiping out limit orders, that means, you know, someone's uh moving size and that's what moves price. And just to break this down a step further, what Are you seeing by looking at the order flow or the order book, what are you seeing that other traders who are not looking at this are not seeing? Uh for starters, volume. That would be most important. So

If let's say you have your uh your typical guy who looks at a chart, right? And the market's moving down a bit. And so let's say the market has moved from ten to nine to eight to seven. Okay. And now he's looking at a a price of six as possibly uh taking a long trade. Okay, because let's say it's a technical support level. If he's just watching his chart, all that he can see is the markets move from ten to nine to eight to seven.

Okay. But if he's watching the order book he can see how much volume has traded on the way down and he can also see what actually trades at six. So it makes a very big difference if the volume that trades at six is five hundred or ten thousand. All right. And that might seem like a big number for people who don't watch liquid products, but that's you know, again a treasury number.

If someone's only willing to buy five hundred contracts at six, there's a very good likelihood that the market will now drop to five and four. But if someone's willing to buy ten thousand contracts at six, there's a very good likelihood that the market will now go from six back up to seven and eight. Um so the actual volume it volume is the most important aspect because it shows you

where there's a lot of interest versus not much interest in defending prices. And when you speak about volume, you're talking about I guess volume before it's actually traded, right? No, af no, when it's traded. When it's traded. So not yeah, because there might be a as I showed you in that example, there might be a limit order Of a thousand.

But when the market gets there, it the entire thing is a spoof order and only you know, a hundred contracts train. Okay. So you actually are watching the the transactions which go off on in the order book. So you can see when it trades at that price of six. whether or not a hundred contracts trade there or ten thousand contracts trade there. Okay, and you can see how the market responds to that. So

Certainly you do watch the limit orders or as well, right? The bids and asks because sometimes that is a clue. But some of those orders end up end up being canceled, some of them are spoof orders, they change. So the really important volume to watch is the actual amount of contracts which are trading at each price. And that happens after the transaction takes place, obviously. And and you're watching all this on the the recent trades, um, time and sales.

Yeah. Well I watch it on the depth of market, the um the depth of market I use, I don't know if you want to even plug uh it's it's jigsaw, but you can cut that out if you don't want it in there. Um de the depth of market that I use And and most decent depth of market platforms show you the volume trading on the platform itself.

So uh it makes it very efficient. All you gotta do is watch the order book and you can see the volume trading in the order book and then you can place your orders directly in the order book as well. Um wait yeah, yeah.

Now you said a couple of times that you trade treasuries. Um what's your preference for trading treasuries? And you made a comment a little earlier as well about when you were working with a prop firm about how They were mostly focused on treasuries and also some commodities as well. But um what's your preference for trading uh treasuries and which treasuries are you trading?

I watch the ten year notes, the five year notes, uh the Treasury bonds and the ultra bond. And there's also a couple of others. There's two year, three year, and seven year, but those don't have that much action or volatility. In a way I'm a bit lucky, you know, that I even landed a job at the firm. That's why I know what I know. And of course I became biased because that's what I was

Told to trade was Treasuries. Um so that certainly played a role in it, and played a role in me learning those markets. Uh but Once I started to trade them and over the years I began to realize why they chose those products They ebb and flow in a way which is very logical. And they're not too subject to really erratic behavior. So, for example, the problem with oil, let's say, trading crude.

Not that it can't be done, you know, but the problem with it in my mind is that it's a market that's very thin. And If BP wants to step up and and smack seven hundred contracts, they can. No problem. Because they're BP and they can do whatever they want to do. And so the the thinner markets are far more easily manipulated. Yeah, not to say that somebody couldn't buy seven hundred contracts, but but basically You can maneuver in those markets really easily and you can you can

push'em around very easily. And so it can become more difficult to figure out where there's only gonna be fifteen contracts and where there's gonna be seven hundred contracts that BP's gonna trade. So you tend to have a bit more erratic behavior and you have a lot of spike movement. With the treasuries you have a group of products They're all being traded primarily by banks.

the banks are trading spreads and they're trading the yield curve in those products. I don't want us to go up beyond people's um heads and have'em shut down. But it nut in a nutshell, you have a group of products and there is an interplay between them. So you're actually able to watch four different products and get a feel for the interplay. And the products are very liquid. Uh so they're not subject to nasty spikes and reversals. Uh they tend to move with a a bit more

um sanity, I guess, for lack of a better word. And not that you can't, you know, make mistakes or make bad reads, but the amount of volume that trades l lends itself to really being able to pinpoint prices sometimes. You know, so for example, I can uh sometimes peg a reversal literally to the tick in treasuries.

uh which is something I could never do on the S P five hundred. Or very rarely do on the S P five hundred. Um and it you can only do that because of the way treasuries behave. You know, so it's a it's an excellent product for scalping and and going for kind of short term uh plays. And you can move a lot of size too. That's another thing, is that if if you become proficient

trading gold, you can't really ramp up your size. I mean the most you can trade is ten, twenty contracts. If you become proficient trading treasuries you can literally trade hundred, two hundred contracts w you know, the same way you trade a tin lot for the most part. Um, so if you do

become proficient at it, there's no uh really cap on your potential. Right. And you yourself, are you trading directional outright or are you spreading as well? I trade outrights. I'm familiar with spreading and I watch the spreads and I and I teach people how to keep track of that stuff. Um but I prefer it's this is more preference. I prefer outrights because I like to get paid when I'm right. So I don't mind taking a little bit more risk.

when I'm wrong, uh, so that when I am right, you know, if the market moves twelve ticks, I get twelve ticks. I don't only end up making a tick and a half on the spread. And because you're a Uh, directional trader, do you have a bias going into each session? You know, even though you you're very much focused on the order flow, do you still have an underlying bias for where you think the market might go? Uh at the beginning of the day.

It varies from day to day and that touches on the topic of what I call context. Context is what I mean by context is simply the conditions surrounding the situation. So, for example, on uh non farm Friday, right? The first Friday of every month they release the employment um uh numbers for the US uh when you go into non farm Friday you know

that at eight thirty AM when those numbers are released, the market's gonna go haywire. It just is it's a given. Uh you know, typically on a Monday with no news whatsoever, the market's gonna be w very slow and there might be opportunity, but it's gonna be um, you know, slower and more methodical. So the way you approach each one of those days has to be different, right? So uh

I do some days have a bias when I turn on the screen and some days I don't have any bias whatsoever. And much of that depends on what happened the previous day and what happened in the overnight action and what I'm currently seeing. So yeah, I d I certainly don't base it on charts or or a day chart, but I do base it upon what happened in the overnight action and how the market seems to be behaving going into the opening hours.

Okay. And I presume you'd be fairly willing to let go of that bias if order flow wasn't confirming with what you th were anticipating. Immediately. Yes. That's one of the keys too to Or one of the upsides to being an order flow trader is Assuming you're doing it right and you don't allow your ego to take hold, which, you know, everyone can succumb to that at times. But the beauty of order flow is you have an idea in your head of what should be happening if you're right.

And if the order flow is not confirming your opinion, you just get out. You know, you don't have to to sit there and let the market move five takes against you. You can take a shot and realize this thing is not doing what I thought it was going to be doing and just immediately turn around and get out for break even. Um so yeah, I I'm willing to change my opinion very quickly if if I'm being proven wrong or if it's not adhering to uh what I think should be happening.

Sure. And how many trades would you take on any given day? You know, just generally speaking, average numbers? Generally, again, that completely depends upon the day. On a day like today I took two trades. you know, um, three trades, excuse me. It was so uh stupidly slow. And on a non farm Friday I might take twenty trades, twenty two trades. I I don't normally get much beyond

twenty or or uh maybe twenty five. That's pushing it. Um and that's only on a really volatile day when there are a lot of opportunities. Um so in general, probably on average you know, three to ten. That might seem kinda wide, but it's not. I imagine as an order flow trader, taking three trades in a session must be very difficult to sit on your hands. It's extraordinarily boring. It is. It really is, yes. Um, but that is what makes

Yeah, that's how you gain consistency. That's the only way that you get ahead in this business is you must develop discipline and patience. It is extremely boring. It does require a tremendous amount of patience. But that's the job and that's the discipline. And you know, the days that I lose are almost always days where I force bad trades. And what I mean by force a bad trade

is I sit there for an hour or an hour and a half or whatever and I don't see anything that I wanna see. It doesn't doesn't mean the market's not moving or there's not opportunities, but it you know, nothing falls into my parameters And I take a trade anyway. And inevitably it's a loser, right? So you have to wait

Till you see something you know tends to work, you know, some trigger that lets you know, oh man, I've seen that a hundred times. Typically the market goes up in this situation. Let me take a long trade, you know. And then at least you know how to handle the trade. You know that if it goes through you you have a set stop loss and you're okay with the trade. Uh but yeah, it's it's uh it's pretty brutal and it's it's brutal for um people that trade from home because you're isolated. So

At least in the office you can sometimes banter. Although people are usually quiet in offices too for a while, but uh you know, you can take a break, go to lunch, maybe uh have a conversation if the market's not moving. When you're sitting at your house it requires uh five times as much discipline. Yeah,'cause you just like want to be in on that action and yeah, you need that self control, right? You want to be in on the action.

for something to do, but you can't be in on the action just to be in on it. You know, you have to have a reasoning behind it and so that's the the the problem with it. Um or it's it's so stupidly slow and uh you Yeah, you're just bored and you start surfing the net and of course the instant that you start surfing the net is the instant that you miss seeing something that would have been a trigger and you miss the only trade you see all day. You know?

And then you jump over and now you want to trade it suddenly, but you've missed your entry price. And now the market's four ticks away from your your ideal entry price, right? And then you chase and of course that's immediate that's where it turns around and comes right back. Um so that's how you mess up. Are you ready to get serious about trading? Then join Tasty Trade, Investopedia's best platform for options trading in 2026.

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You said earlier that you're not necessarily just scalping for one tick. Uh how long are you holding positions for, I guess Generally in in time and also how many ticks are you are you trying to take out? I know it probably varies quite a lot, but um can you give us some sort of insight to how you do that? Sure. Again, that depends on context. So Uh I might spot a trade where I think let's say um we're at an area where the market's it's gonna hold in a two tick range for maybe five, six minutes.

And I will take a quick trade and hopefully just grab two ticks in a matter of, you know, thirty seconds to maybe two minutes. Right. That would be sort of a short term trade, sometimes maybe even seconds, sometimes If I'm on the wrong side, I step up and I'm immediately on the you know, it's against me, I just blow out in a matter of ten seconds, depending on on the situation.

Um other times if I think that maybe direction is shifting or if I'm sitting in a trade expecting a move to occur, but maybe not for a little bit. You know, I might sit in a trade for ten, twelve, eighteen minutes. Um, hopefully it moves within that time in my direction so I at least have

a little bit of an edge in terms of, you know, maybe the market's at least two ticks in my favor. So worst case scenario I can scratch the trade. Um and now I have a look at seeing whether it goes or doesn't go. So I would say on average, probably uh have to sit in a tray between two and a half minutes to maybe twelve minutes, you know, depending on the context. Some you know, I've I'll sit in a trade for thirty minutes if

It's going my way. You know, and there's just no sign that a stopping. Um, I'll just continue to hold and and move my stock closer and closer and look for the best exit price. Uh but on average I would say probably three minutes to to twelve minutes. Okay. Now here's a question which I've which I'm I'm quite keen to ask you. As you use order flow to enter the market, do you also use order flow or your your read of order flow to

Exit the market either for a profit and for a loss. Absolutely. Absolutely. So That's another issue that a lot of retail traders face is they fall into the trap of believing that you get in the trade, it moves in your favor. And now you just start bringing a trailing stop down and then you wait for the market to turn around and hit your trailing stop. And they they often give back so much money doing that. Um when if they were watching the order flow they could

sometimes clearly see the market's just stopping. And there's no reason to let it come back two, three, four ticks, you know, um, just take it off right there. So yes, I use the order flow to enter and I try to always pinpoint the best possible exit. You know, it doesn't always happen by any means, but I'm trying actively to do that. And another uh Issue with the mindset of a scalper is There's no problem immediately getting right back in if I think I'm out too early.

So let's say I buy it buy at five and I take the profit at eight and suddenly they go nine and I'm like, I don't think they're done yet. They're gonna go nine, ten eleven, I'll buy nine and try to take it at ten eleven and get out again, you know? And that's what programs are doing also all day long. So using a trailing stop really I mean you wanna you wanna drag it down to make sure you don't get caught in some weird reversal, you know. You kinda keep dragging it down as an emergency stop.

But um people should really spend some time trying to focus on taking the the best possible exit prices and not just automatically using a trailing stop. Can we just go into that a little further? So Do you have a predetermined amount that you're risking prior to going into the trade? Like do you think that through? Because I know, you know, you're obviously uh trading at very quick speeds. Like do you know exactly how much you're gonna be risking on that trade? Like in a dollar amount?

I do. I do well I do within a tick, let's say. So I don't really look at it from dollar amounts so much as tick amounts. I'll figure out what size I want to trade, you know, based on the situation. Uh and then I I'll completely adjust based upon the situation. So as an example, let's say the market is is grinding upwards, grinding higher. And I think that maybe it's going to run out of steam and I'm going to take a fade trade. I'm going to go short. Right. When I get in that short trade.

Usually I pick a spot where I know it should not go through me by more than one take. And if it goes two ticks against me, I just blow out. Okay. Um And that might seem like a very tight stop, but in that scenario, it makes sense because if it goes two ticks against me, it might go seven ticks against me, right? So I might as well get out, take the loss, sit back, wait.

Let's see what happens. Maybe try another short trade. Or you know what? Maybe turn around and go long, realizing that I was I had the wrong idea there. So um I do know where I want to be out on every trade. where that is depends upon the trade itself. So some trades I might actually be looking to enter in the hopes that basically it it moves a tick or two in my favor and worst case I scratch.

In some cases I might be out with a one tick loss, believe it or not, because I just know that, you know, they shouldn't take this order out. If they take this order out, I'm I'm on the wrong side. And there are other situations where I know I'm kind of in a an area where it might chop a little bit.

And I have to give those trades maybe three, four, five ticks. Five is a little bit excessive with a ten year, but um three to four, definitely. And you just have to give it that leeway to see whether or not you're uh prediction is correct. So y you just adapt based on

the scenario, but um absolutely before I enter the trade I do know where I'm most likely wrong and I already have that stop loss planned. And I don't deviate from it. That's that's also what kills a lot of people. When you deviate from your stop loss and you begin moving it. That's how, you know, what should have been a a three tick loss becomes an eight tick loss.

Just going back to that first scenario you explained, so you've the market's grinding up um and you think it's probably gonna turn around um and you fade it, so you go short. You're trying to enter your short position at a point where you think the market shouldn't go a tick or two above that. Okay. What if you start what if it does go start moving against you, so the market continues to rise, you're short, um, it goes two ticks above where you got in.

But you begin to see a lot of offers coming into the order book, a lot of people selling a few ticks higher. How do you react in that scenario? There are times when I know I might be a little bit early and I'll hold through that. So yeah, the market might tick up two ticks and then suddenly I see just a f uh a flood of sell orders come back in. And now it's only one tick against me instead of two, right? You know, or they or they're sitting and it and it's

It's two ticks against me technically, but there's a huge offer sitting at the second tick, right? So in a scenario like that, I might

give it three, you know, and just kinda wait and see if they hold it. But then you start to get into dangerous territory if you if you begin to give it more than that because now you end up talking yourself into thinking you're right. But realistically if you're right When that next wave of sell orders comes in two ticks higher, it should bring the market back to your entry price.

So less if I'm in a trade and I'm short and the market's two ticks against me, and again, we're not uh talking about crude, obviously, we're talking about a liquid market like Um, the treasuries or even the ES. If sellers aren't able to get the market back to my entry price relatively quickly. it means there's still a tremendous amount of buy side pressure.

And so frequently the best thing to do there is just cut it as at a loss. You know, one tick, two tick, just cut it, let it go. And you know what, if it does come back to my entry price Sometimes that's just trading. Um and and now I wait and then maybe get in another trade, you know, a few minutes later and get the two ticks back. But you can't question it too much if it's if it doesn't snap back on your price.

Okay. Stops that you're using, do you have a limit order sent in the book? I do. I well I have a market order actually. So I have I have a I'm tip typically always manually exit a trade. But what I have is when I enter a trade, I'll immediately place an emergency stop like four ticks off my price. Um, maybe five. That is

Or or maybe three, depends on the scenario. But that's my stop in case the market sweeps very quickly against me. Like I'm clearly on the wrong side. It shouldn't jump that far that fast. Um so I'll enter the trade, I'll immediately put an emergency stop in, say three to five ticks away. And then I will manually

figure out the exit point. So and you can do that with treasuries because they go back and forth and they're very liquid. You can't really do that with dinner products. You almost always need to just market, you know, out. Um but sometimes in the treasuries I know I wanna be out, but rather than hitting out immediately with a market order for three ticks, if I'm a little bit patient, I might be able to take a two tick loss or even a one tick loss.

You know? Um, but worst case I have the other stop in and you know, I'll lose three or four ticks. So is and that's a market order because what you don't want to have happen is the market blows through that and and you don't get, you know, hit out at all. It becomes a limit order but it goes so fast that your limit order misses due to slippage.

And now you're looking at an eight tick loss instead of a a four tick loss. You can set a s a stop limit order. So in other words, let's say the market is currently trading five by six. I could set a stop buy order at eight. But what that means is if the market trades eight, the buy order triggers, but it's a buy order to only buy at eight, not to buy at nine.

So it's not a market a stop stop market order, it's a stop and limit order. If I have a stop market order, that as soon as the market trades eight, I will get the next best price, whether it's eight, nine, or ten. So the reason you want the emergency to be a stop market order is in case the market moves so fast in one direction due to some event you can't foresee.

you do get out of the trade, you know, and it doesn't become a thirty kick loss in some crazy situation. Um if it's a stop limit order and they get they eat through those orders really quickly your order may not be filled and now it's a limited order just sitting there at eight and the market's trading twelve. Makes sense? Yeah. Yeah. Makes makes sense. Yeah, yeah. I'm with you. Um so

Uh just to the second part of the question though, so your your stop is visible in the order book? Um no the stop's not visible. The stop doesn't trigger until the market trades that price. Okay.

Uh got it. Yep. Yeah. Okay. I'm with you. Now what order types are you you norm are you normally using to enter the market and Also exit as well when you have to do it. It'll be again dependent upon the scenario. Uh sometimes i I always want to use a limit order if I think I can get the limit fill. So again, back to that first example. If it's three thousand

on the bid by three hundred on the offer and I want to sell, I'm obviously going to put a sell limit order with the three hundred. You know, because it I'm I'm likely to be filled on that order because there's such a discrepancy between the bid and the offer.

Uh uh let's go the other way. Let's say it's three thousand bid by three hundred on the offer and I want to buy. Well, my odds of getting filled with three a three thousand bid underneath me are almost none. So then I'll use a market order and and buy into the the offer of three hundred. So I'm always trying to get a limit fill, but realistically

Sometimes you just have to pay up the the next price and um take the market order, use the market order and and get the fill or otherwise you miss it altogether. And with your entries, I know we're kind of jumping between entries, exits bit are all over the place. But um With your entries, are you getting in your your full size at one position or are you kind of spreading it across a few different price levels? It's almost always full size at one spot. That's my particular style.

I'm usually all in, all out. Um there's some reasonings for that. I I take a little bit of time to explain, but uh it it tends to be best For most people, when you start scaling, frequently people get themselves into a situation where they're inversing their wrist reward. And what I mean by that is they end up risking, you know, like five ticks on their full size and then they scale out when the market moves in their favor and they don't capitalize and get the full payoff on full size.

Um, that's when it when it wins. When they lose and they average in well, they're averaging into losers. And that that in and of itself is an indication that you were on the wrong side in the first place and you're probably on the wrong side now. So you're just doubling down into a bad situation. And it it just doesn't work for most people. So what I tell people is if you can become successful at going all in, all out

then eventually you can learn if there are areas where you you might want to scale a little bit, you know. But for for me that for the most time most of the time it is a all in, all out scenario. Okay. Right.

Now I guess just going back to some more general questions about the actual order book in itself and not so much about your specific way of trading the order book. Um, obviously do quite well at reading the order book in Treasuries. Is it a case of if you can read one order book will you can read any order book, or are there really big differences between different markets? I believe there are very big differences. Very, very big differences.

Um I actually did a presentation one time about choosing the right market to trade and it was uh solely dedicated to this topic. It's on futures.io if you want to watch it sometime. The concepts are the same. So supply and demand does move markets. So if you have more money going one way, it's gonna move the market. But the problem is in today's day and age, if you want to trade the DAX, for example, You almost have to be working a program that can trigger orders at certain prices.

And you can't really take much time to think about it. So, in other words, let's say you wanted to play a breakout. You already have to have the order working to play the breakout and you really already need to have an idea of where you want to be out and those orders need to be in the book. And because what you can't do is, you know, you can't buy

evens and the DAX and then sit there and watch it go one, two, two, three, three, two, three, four, four, three, you know, and get a feel kind of for where it's stopping. It it can spike in such a way that If you don't take advantage of that one momentum move, the market may completely reverse and come back on your entry price in a matter of a few seconds.

Ciao. If you're trading thin markets such as a DAX or gold, um I think you can't trade those effectively without using a lot of market orders that are already placed and or having a an automatic strategy so that if your order is hit, you have an automatic trailing stop that comes in behind it. And you can do that with most software these days. Right? So you execute it even

Uh you use a three tick trailing stop, the market goes from even to three, your trailing stop comes to break even. The market goes from three to six, your trailing stop has moved to three, you've locked in three ticks of profit, so on and so forth. I think you have to use those kind of strategies in a thinner market. in a more liquid market like the Treasuries and the S P five hundred.

or the bobble or the Eurostocks. There you can use a little bit more discretion and manually adjust orders and get a little bit of a better feel for um what's happening. So I guess the short answer is yeah, I think there's a huge difference and I don't think I could attain the same results in uh crude oil as I can attain trading treasuries. Um I think the concepts need to be known and people need to understand.

what they're saying and why they're saying what they're saying with regards to volume and and in the book, uh, and develop methods based upon that information.

But the implementation of it is far different. Now, someone who might be new to looking at order flow, you know, they might pull up the order book and It probably just looks like a whole lot of numbers flashing on a screen rapidly. Like there's a lot of changes every single second. How do you begin to take valuable information from that?

You like how do you build skill and actually being able to read the order flow? Uh and and are there any tricks that you use to kinda because I presume it's you'd have to be fairly good at doing some quick sums. There are you don't have to be good at doing sums because the sums are shown for you in the platforms if you have the the profile column and the transaction column.

But what you where you start is You start by understanding what you're seeing and the impact that it has, particularly the impact that larger orders have. Then you start looking at the inside. What I mean by the inside is um the market's currently five bid by six offer. That's where you focus your attention at first. And you start to notice how, okay, well when they when they buy six and now it goes six bid offer seven.

That applies some pressure and that creates a little bit of a chain reaction and now it goes seven bit off rate. And that's how price changes. And as a a new person looking at the book, that's what they want to watch in the beginning. They want to start noticing when price is moving and how it's moving and notice how the next price goes bid, the next price goes bid, the next price goes bid, the next price goes bid, and then boom, they hit the spot.

where they can't go bid the next price. So it goes six, seven, eight, nine, and then they hit ten. Nobody can bid ten. Now it goes back offer at nine. Now it's bid eight offer nine. So between five and ten there wasn't any resistance, but now there's resistance at ten and nine. Okay.

And that's what they want to focus on at first because i if you're trying to watch all the changes and the bids and the asks, I mean that's not possible because there's so many small orders adjusting. But you were trying to watch The total amount of contracts trading at each price.

And then you want to watch how the market reacts to that. So kind of what you said earlier where let's say you see the market going up, I took a short trade, the market goes two ticks against me, but then suddenly uh a lot of sellers come in two ticks higher. Right. Um just take notice of that. Take notice of how volume is influencing price. And that's where it starts. And once you get a feel for that, then you can start to to to pull your vision out a bit.

and look at the bigger picture and say, okay, now we've traded from five to ten. They're stalling at ten nine, ten nine, ten nine. Based on what I know about this market now, is it likely that it'll go nine, ten, eleven, twelve? Or is it likely that the sellers will be able to hold here and the market will fall back in nine, eight, seven, six? And that's something that can really only be acquired with experience. And it's one of the reasons that I tell people to to specialise in one market.

particularly when they start. If you wanna branch out to other markets when you get better that's fine. But don't Don't watch the Euro and gold and oil and the S P and try to make trades in all of them. You will fail almost guaranteed. You know, specialize in one market, learn the behavior of that market, and the reason for that is because the same people play in these markets every day and they don't cross markets a lot of them.

So what you want to learn is how the major players who move volume tend to behave on a daily basis in one specific market. Um and if you know if you can get a grasp on that, then you can start to see the bigger picture and incorporate it with the smaller picture of, you know, six bit by seven, seven bit by eight and and kind of make a A best educated guess.

Uh do you ever suggest or is it a worthwhile exercise to record your screen? Because if you're very new to order flow and reading the order book. Like I said, it it can look like a lot of numbers changing rapidly. It's very fast moving. Um, to record your screen and just slow it right down and look at, you know, orders being taken out and put into the order book and and that type of thing, is that something worthwhile doing?

Absolutely. Absolutely. I tell all of my webinar participants to record their trading. It is the fastest way to learn. Um either record it or you know s some uh brokerages offer market replay features. So market replay is also great however you do it. You want to go back through pause, stop, rewind, fast forward, uh take particular note around turning points, just kind of see how the market was behaving, what kind of volume was trading.

How did the did the market behave up to that point? How did it behave when it was pausing? How did it behave on the reversal? And if you'll record your trading and record the action and study it, you'll learn more from that in a month than you'll learn from journaling your trades in a year.

Um, I I definitely recommend that. How would you suggest that a newer trader, someone who wants to uh be active in trading the order book How do you suggest they go about actually identifying or trying to seek out high probability, low risk trades? A lot of study and screen time. I recommend that people begin the first thing you want to do is you you have to make sure that you do have a decent depth of market platform, whatever one you choose. There's really only free in the neighborhood, okay?

Jigsaw is one and jigs the key to jigsaw is that it has these inside columns. that show the the s the uptake downtake splits. No other platform does that unless it's a home growing platform. Um and it's fifty bucks a month to place orders through it and you don't even have to do that if you're not trading live. So for it for the cost it's Stupid, ridiculous cheap. Okay. But there's Jigsaw, there's TT's X Trader, which is more expensive, and there's CQG.

Um, there are some others on the on the market, but I don't really recommend them. Those are the three that give you the most information. Okay. So You need to have a very good depth of market. so that you can actually see the order book, see the trades, see the volume profile. That's where it starts. You have to kick down a little bit of money to to get connected to those and get connected to a data feed. So you can actually see what's taking place.

Then if you want to sim trade or paper trade, that's fine. Um it's not realistic. You're not gonna make the same decisions as you will in real life. But you can watch market replay, watch your videos.

and just start doing that every day for a couple of hours a day. And I and it's you know, it's time consuming, but there's no substitute for screen time. And if you will watch the the action for, you know, the first two to three hours of every day, not all day, but you know, first two to three hours after the open, you'll be surprised uh at how fast you start to i identify um

just certain situations where you can see clearly that they're just not going through this price. It's just not happening. You know, it's just no matter how many times they hit the price, they can't get through it. So If if that's the case, then I'll just join that side and you know, they may get through it eventually, but everything right now is pointing towards them not getting through it and therefore I'm gonna go with that side of the money and hopefully get paid as it comes off that price.

And that's what I recommend. I mean you you and you know, then ultimately I mean if you feel comfortable you open a live account and trade a one lot and that's where you really get your trial by fire, so to speak.

Yeah. Um with the order book. Is it of value to anyone who's not a scalper? Like what about someone who might be trading, you know, they might place their trades after the market closes. Uh they might be more of a swing trader, let's say. Or maybe even someone who's who's trading a little bit more actively, but certainly not a scalper, like someone who might be trading a sixty minute um bar chart or something like that.

Is the order book of any value to someone like that? No. It's it's really not, if that's your your take on it. Let me let me give two answers to that. So my or my two responses. My first response is unless Okay, let me let me back up. Yeah, two responses. My first response is swing trading is not a good idea for most people. And here's why. Too many things can happen overnight or over the course of an hour or two hours. And one of those things

is a simple chain reaction that takes place as a result of large orders hitting the market. So here's what I mean by that. Let's say uh you have a guy who's a swing trader and he's watching the S P five hundred and to him their support at twenty five fifty. So his idea is I'm gonna buy twenty five fifties and I'm gonna sit in this trade all day long.

And I'm gonna see if it goes back to twenty five sixty. Okay. And if it doesn't, I'll get taken out at at twenty five forty five. Right. So he looks at it as I got a two to one risk to reward or reward to risk. And that's his strategy. What he's not acknowledging is the fact that when the market hits twenty five fifty, There's there's not a predetermined fate set in the universe. that's taking that market back up or down. What it is

And it is a combination, it is a combination of orders feeding on orders. And so you will have literally hundreds of HFT programs that are now flat and they're watching the bids and offers at twenty five fifty and twenty five, you know, forty nine seventy five, forty nine fifty, right, forty nine twenty five, and on the upside. And they don't jump into the market until they see something happen.

So when the market cracks twenty five fifty and goes to twenty five forty nine, that triggers an HFT, which Which goes twenty five, you know, forty eight, seventy five, and then that triggers ten other HFTs that hit the next bits, the next, and the next. And so it spikes the market down and it's this domino effect that takes place. And that one domino effect can affect the you know, so that domino effect can affect the rest of the day.

And what happens over the rest of the day. So the the concept that a person can think He knows where the market's going to be in two hours. It's in my personal opinion it's illusional. I know there are people that argue against that, but that's my personal opinion and you're just delusional because I've seen s you see it every day, just situations where markets

only move because a couple big orders hit and then suddenly it goes. If those big orders weren't there, it would never go. Um and there's no way to know that ahead of time until you see the big orders. Okay. So That's my first response. Uh i fundamentally is different if you're, you know, a fund manager. So there's a very big difference between day trading and and position trading um from a w much longer time span.

Um or if you're in the cattle business and you know something about the cattle prices and you have a you know, you're pretty sure three months from now cattle prices are going to be higher. That's a different type of trading altogether. I think swing trading is the worst. Uh it's it's just crazy to me that people do it, but they do. So that's why

Really no. The the book a lot of people that do make a little bit longer term trades do incorporate my ideas. I get guys that call me about it all the time. But What I'm able to do is usually show them, look, man, you might be thinking, you know, looking at the sixty minute bar chart, but you you have to understand right here, you can you see how if this order gets taken out, it's going to cause a chain reaction.

And the guy always said yeah and I said, Okay, well when you if you know that ahead of time, there's no point in you sitting in that trade for two hours. You need to blow out of the trade, take the loss and and you know, look for a better entry point lower.

Um so if if a person's willing to uh adjust their strategies a bit and react in the moment um to what they're seeing, then yes, it can be helpful if You s a straight up chart trader who's gonna sit in trades for a few hours, then honestly, no. It doesn't make any difference. Okay. I was expecting an answer like that. Not you know, and I know how it comes across. I'm not I never try to come across as being arrogant, you know, or that I'm

a hundred percent right, but I I've been around a long time and I just I've I can tell you I've never met a successful swing trader. I I mean it it's maybe if you have a a lot of capital And you you sort of have an inside look into the industry or whatever, you know, sector you're studying in stocks maybe, something like that, or you but just looking at charts and thinking that you can know where the market's gonna be in two hours is

Trust me on that. Well, I don't think it's about knowing where the market is going to be. Like no one knows where the market's gonna be. I mean, even someone like yourself, you don't know where the market's gonna be. you know, over the next minute, you know. I mean you probably have a pretty good idea from your read of the order book, but That's that's true, and here's my response to that. It's a lot easier to predict what will happen in the next six minutes than in the next sixty minutes.

And that holds true in every aspect of your life. You can sitting right here tell me with Not a hundred percent certainty, because I may hang up s you know, without saying goodbye to you, but which I'm not going to, but you can predict that for the next six minutes you're going to be conducting a a podcast with me. But

over the next sixty minutes, you know, you kinda know what you're gonna do, but you're not, you know, you might have this to eat, you might have that to eat. You may go here for lunch, you may go there for lunch, right? And now extend that out a little bit farther, you know, what you're gonna be doing tomorrow.

at eleven A.M. if you don't have an appointment made, right? So the same thing happens in trading. There are moments when it's far easier to predict what's gonna happen in the next uh five to ten minutes um than it is to predict what's gonna happen in the next hour. So I certainly I appreciate that comment of you're right. I don't know with a hundred percent certainty what will happen in the next

minute, but what I do know frequently is the market's not gonna move more than two ticks one way or the other in the next minute. And that allows me to make a little bit better educated guess. than if I'm trying to figure out where it's going to be in in the in an hour from now. Um and if you move volume

you don't have to have ten and fifteen and twenty tick winners. You can take two and three and four tick winners on bigger size. And that's what guys, for example, the Trade Bank of America do, or or Apple. you know, they they trade twenty thousand shares and they're they're scalping three cents on it.

Um, because they know Apple's not going to move a dollar fifty over the course of the day, but they can pinpoint these spots where it's probably gonna move three or four cents or six cents, and then they do it on volume. So that's kinda that's where I said, except in treasuries, not in stocks. Um that's why I advocate that uh

that style. But you know, whatever floats your boat. Okay. Yeah, no, that's that's a fair point. I appreciate that. Now you mentioned HFT just before and I feel as though it's Um some people are probably quite upset if I don't ask you a few questions around that. So um let's let's just address a few things about uh high frequency trade and how that affects the order book and spoofing and that type of thing. So Uh what's a good question to ask to to begin this? Um You've been trading

A a a fair while. Um, and you must have seen a a big, you know, the uprise of high frequency trading. Like so the order book I'm sure is very different today compared to what it was fifteen years ago. Um, how has that affected your trade in? Like how have you had to adapt? Like what do you do differently now that you could have gotten away with, you know, fifteen years ago? Uh I don't know if that's a good question, but it might lead us somewhere.

Yeah, yeah. No, that's uh that's actually an excellent question and it's more about what I could get away with fifteen years ago that I can't get away with now. the speed is the number one problem. The if fifteen years ago, uh or ten years ago, even even less than that really Uh if there was an order of let's say a thousand on the bid and I was looking to go short if that order uh was was getting hit.

Well what happened is you could actually see the the thousand go a thousand nine hundred, eight hundred, five hundred, four hundred because it was mostly manual orders, guys clicking their mouse. um or programs that weren't being funneled through microwave towers into co-located servers, right? So you could see the the bid giving way and if you were fast, you could hit it as it was leaving.

And the market would immediately break in your favor and you would instantly be sitting in a breakeven trade. And that's what HFTs are trying to do all day long. They're trying to hit orders as they're leaving, immediately being being a break-even trade.

And then if it doesn't go they just turn around and scratch. So they're they're trying to risk nothing to make something all day long over and over again. That's how they work. For the most part. They can obviously lose, but that's what they're attempting to do, and that's why they're in and out so frequently. So the major difference in in in terms of adaptation is I've had to

learn how to anticipate far, far better. Uh it it certainly is more difficult. I don't dispute that. Um it can be dying, but it's more difficult. So now Uh let's say there's a a bid of two thousand and I want to be short If it goes, I can't wait for it to start going. you know, I have to kind of make the judgment call at in the moment and say, you know what, I think sellers sorry about that. I think sellers are going to hit this. And then I actually have to sell

into a bid of two thousand and be one of the first guys to do it. Because if I wait and try to get it as it's going, I'll never get it. It moves so fast, so many orders hit so fast. So that's really been the big key is you have to anticipate a lot better. In in terms of that edge, it might seem like a small edge, but it's not. It's a huge edge, or it was a huge edge, and that's why floor traders and and guys complained when all that disappeared. Um is that it is a huge edge to be able to hit

a big order as it's leaving and immediately be sitting in a break even trade. Um and that doesn't happen anymore. You know, I have to I have to have a little bit more foresight in terms of Rather than that that twenty second period or ten second period, I have to have more foresight into the next a minute to two minute period, you know, and and anticipate that they are going to wipe out that order.

And now the the next part I would say would be lack of volatility. It was very common to see huge moves. Uh a non farm report would come out and this and Treasuries would literally run ninety ticks, three full points. It was insane. Um, and you could just buy it at any any price and it would, you know, make thirty ticks in a matter of uh a minute or less. Um and that doesn't happen anymore. There's so much volume now that The volatility has been reduced.

And now, you know, I do find myself in trades that would have yielded twelve or fourteen takes.

Um back then now I'm I'm only getting five to seven or you know, four to six because it's just not there to be had. Do you anticipate that it's gonna continue to get more difficult for someone like yourself?

It's very hard to say. I I think all the markets are viable. Someone asked me this the other day about whether or not it's still viable and I said, Well it's been viable for fifty plus years. It's I'm sure it'll be viable for a while longer. Um I think it depends upon w this is getting out there, but it depends upon where artificial intelligence goes in the future.

You know, my edge is definitely in my discretion. I'm able to I can't act as fast as the HFTs can now, but I can use discretion to see how they're trading. and have a pretty good idea of where the programs are set to go off and where the bigger traders are moving size. Um If someone begins developing AI, and I think they already have in a few cases, but if they develop some AI that is not only reading numbers, but is truly grasping game theory in in the way that machines play chess.

Um at at that point it might be AI against AI. I mean a a good trader sh in theory should always be able to use some discretion and and figure out how to compete with that. But um you know, it's a possibility, certainly, that, you know, the best traders in the world eventually will the AI will take'em out like the the chess computers did. Yeah. I actually just interviewed a guy last week and by the time everyone's uh hearing this episode, uh

It'll be out by now. Uh his name's Thomas Stark. And um we had a really good chat about artificial intelligence and uh quantum computing and It was pretty incredible. I mean, he's not uh using it much in the way of a trading scenario, but he's just uh you know, he's a physics PhD, um background and it's just he's fascinated by this sorts of technology. So um cool. Is he developing it too?

Uh he's yeah, he's he's involved in it uh I'm not sure exactly in in what capacity, but uh yeah, he was uh he was fun to chat with. Yeah. It I mean it it is amazing. There's no doubt and there's no doubt that it's already being used by a lot of bigger firms. Um It it's yeah, I mean it's incredible. I I think the speed

is truly more of an advantage than even uh and a good AI system. That's really where the the big guys have a lockdown now. I mean it it's it's completely unfair, but it's just the reality of the world. You know, if you're a market maker, I don't know if you know this, but if you're a market maker A couple of advantages to that are You get You know, I don't know the exact specifics'cause I'm not a market maker, but I know that you get more bandwidth and you get it in such a way that you're

your orders can be executed faster really than anyone else's. Not only that, but you get position in the queue. So It's it's like pro rata fills, right? So let's say there's a thousand on the bid. and you're working three hundred of that, but let's say your three hundred is last. So there were seven hundred contracts there before you and then you add your three hundred And now 100 lot prints, you'll get a piece of that.

despite the fact that you were last in line. So one of the advantages to being on the floor was and and also on computer in the early days was it was was called FIFA, which is first in, first out. So if you're there, if you're the first guy in line, you're the first guy that gets the contract that trades there. Well that's changed.

So now you have the edge where you might add have added your contracts later, but you still get a partial fill. And then you get that partial fill and now you have a free look, right? So now let's say you put three hundred in on that that bid. A hundred lot trades, you get twenty contracts of that. Boom, you pull the other two eighty.

And now you have a free look to see whether the market moves in your favor and if it doesn't, you can scratch the twenty contracts because you're so you're your program so fast that you can hit the bid as it's leaving. There's just no way to compete with that speed unless you're on that level, you have the capital and and you're in that position. That's the real serious advantage right there. You know, and and now if you can add AI to that speed

I mean, yeah, I mean, you're indestructible at that point. Yeah, I mean there's certainly interesting times ahead. Uh I'm excited to see where it goes. But uh just one last question. And then we'll uh wind things down. I wanna ask you about

spoofing in the order book and like phantom liquidity. So you're reading the order book and you're looking at kind of what bids are being displayed, what offers are being displayed. But you also know that some of that is not true liquidity. Like some of that is just been posted and the people posting that have no intentions to actually fill those offers. Now I know this is

a grey area and it's m s look down upon. It's you know, some people have been prosecuted for it and that that type of thing. But it regardless, it happens. How do you deal with that? That's a matter of uh Learning your market very well. Again, that's an extremely important part of it. There are times when you can be pretty certain an order is real and times when you can be pretty certain it's not and other times when you just don't know.

So the way that I deal with it is I just wait for the times when I think it's real or I think it's not. And if I'm not sure I just stay away from it. Right. So for example Um sometimes there are orders that are just too big for that time period. Like uh you can see that the market suddenly goes four thousand bit And i there's just no reason for it to be four thousand bit, you know, in that in that particular situation. And you know that probably the two thousand of that or more is a spoof.

And it's gonna pull away. Um and so you can't rely on that to push the market. You know it's not gonna push the market, it's a smooth forder. There are other times when let's say you're at a very logical technical level. and there's an order of five thousand sitting there and it gets there and the five thousand doesn't budge. So you know, yep, there's five thousand there. Now how you trade around it, of course, depends on the situation.

But you can you can find spots where you can read whether or not it's real or whether it's not. And then there are other times when you just you can't figure it. Uh You can always figure a little bit of it will probably go away because a lot of HFTs just pop twenty lots or, you know, ten lots onto orders. So you might see an order of twenty five hundred

Okay, there might not be twenty five hundred there, but there's probably twenty two hundred there, right? So the three hundred spoof doesn't really matter, or the three hundred that cancel doesn't really matter in that situation. Um when it matters is when you have a bunch of orders, like you have uh three thousand, four thousand, and four thousand showing, and then suddenly when the market gets there, those all drop away to a thousand.

Right. And now you know those are all spoof orders meant to prop the market up temporarily. It is technically illegal, but you're right. It happens every single day. It happens all day long. I don't know how you could possibly prosecute it. But anyway, yeah, so the way that I I deal with it is just if you have some experience with whatever market it is, you start to figure out

which orders are real and which orders are probably spoofs. And if you can't tell the difference, just don't get involved in that location to stay out of a trade.

Fair enough. Very good, John. I I really appreciate you coming on the podcast, man. I I think this has been really interesting. If someone is I know you've got a few videos uh floating around on YouTube, if someone is uh very new to uh trading off order flow, is there any one of those videos which you might recommend they uh check out first? Yes, I would say the first one would be order flow basics. It's uh

I think it's I had titled it Order Flow Basics, What is the DOM? Why is it useful? And that will explain I mean the basic, basic principles of um limit market orders, you know, price movement, size, etc. And then the next one would be order flow scalping with me I did it with uh Big Mike's trading when it was Big Mics is now futures dot Io. Um but It's my most viewed video by far, so I'm sure they can find it. Um order flow scalloping with John Grady from OBS through Big Mice Trading Forum.

And that takes order flow basics a step farther. You know, and it covers some of the stuff that w you and I covered tonight and then Um, I show like some sample trades. Uh I always try to do that and and kinda show how you can see it in the moment and respond to it. I always say those start with those two.

Then read you know, read over the site and then look at the other YouTube videos and just go from there. Yeah. And I can certainly vouch for that first video. It's it's brilliant. I watched it myself and obviously picked up a lot from it. So I'd certainly recommend if

Maybe if you got lost on anything we're talking about, watching that video will certainly clear this up. Um I'll put a link to that video in the show notes as well. Obviously you can also find it on YouTube. Uh and John, for yourself, if someone wants to find out more about you, where's the best place uh they should go to?

uh my site, which is just no bsdaytrading dot com. And if you have any questions, uh there's a contact page. You know, definitely send me an email. I always respond to emails within a day or two. And I'm I'm happy to do so. So um yeah, if you have any questions just hit me up through there. Okay. And are you active on Twitter? I am. I have a Twitter and the username is also an OBS day trading.

So, um I don't post on there that frequently but I do try to throw out tweets here and there and uh particularly when I'm kinda seeing something in the moment, sometimes I'll drop a quick tweet and Um, I never like to be too committal, you know, because I don't want people to um take it as a suggestion, but uh they usually work out pretty well, you know, and uh point out

kind of what's happening. And um so yeah, I'm on Twitter as well as Facebook. Same thing. No BS day trading. Excellent. Okay, John, let's call this a wrap. Again, I really appreciate you taking the time, buddy. Thank you. All right. You've reached the end of this episode of Chat with Traders, but rest assured there are more applications.