Learn to trade order flow with Jigsaw Tools – Beginners guide

Published on: December 06, 2013

In this video, I’d like to talk about getting started with Jigsaw Tools.

Part of the focus will be on traders that do not currently use order flow at all. Those that are looking to learn to trade order  flow. For traders moving from a product like XTrader, it will probably take just a few hours to get up and running with Jigsaw Depth & Sales.

We will also discuss some of the tools unique to Jigsaw such as the reconstructed tape and power meters.

As usual, change to Full HD, Full screen mode for best results.

For traders with no experience with order flow, there are 2 separate skills you need to acquire

1 – Reading the order flow

2 – Using order flow to make a trading decision

It would be a mistake to attempt to try to do both at the same time.

You need to first focus on reading the order flow. Being able to actually read and absorb the information that is being shown.

You need to set aside specific time to doing this and we will explain how shortly.

What you should not do is to run the tools and immediately use to compliment your trading. You should also not try to scalp the market on SIM.

You need to be focused only on reading the DOM. If you have charts up, or other screens that you currently use, your focus will gravitate towards them. It’s more comfortable to look at the things you currently use than this new set of tools.

If you enter SIM trades, you will suddenly have a bias and you initially need to do this without bias.

Later on, when you get past the “learning to read it” stage, it is a good idea to have a bias and a good idea to SIM trade.

Thick markets and thin markets do move differently.

Thin markets are markets like Crude, DOW, Gold that usually have less than 100 contracts at each level on the market depth.

Thicker markets are those like the E-mini S&P 500 futures,  Eurostoxx 50, US Treasuries that have 100’s or 1000’s at each level on the DOM

There is certainly an argument that says for trade confirmation, the Depth and Sales is more useful for thick markets than thin markets.  Areas tend to hold to the tick and you aren’t looking at action that occurs over so many prices.

Similarly, you could argue that the Tape tools and power meters are more useful on thinner markets. They have less trades going through overall and the changes in pace and exceptional size is easier to see.

With this in mind, we have Crude traders using just depth & sales and we have e-mini S&P500 traders using just the power  meters and the reconstructed Tape.

The fact is that some tools suit some people and that will be a major factor in which you get the most use from.

So, for now, just keep an open mind.

First Steps

The first thing you need to do is relax.

Look at this as something fun you are about to start.

Do not put pressure on yourself by trying to SIM trade or live trade as you go through this process. That will make it a frustrating activity and not a fun activity.

You are going to make progress that can be measured in hours – following this plan you are going to start seeing things in the first few days.

Allocate no more than 60-90 minutes per session to this. Any more and you will lose focus.

One or 2 times per day only.

Focus on one market or spend a few days at the start to select a market – just go through a few, pull up Depth & Sales, see if one seems to make more sense.

Do this at peak times, not when the market is dead but also not during crazy times like news announcements.

Focus.

Initial focus on Depth & Sales should be:

• 2 Columns only – current trades

–      Size executing at each level

–      Size executing at bid vs offer

–      Changes in size

–      Changes in the speed it ticks up/down

–      How ‘easy’ it ticks up down

–      Prices it seems to stick at

–      Prices it seems to gravitate back to

–      Prices no-one wants to trade

And that is all. Ignore the depth, it is secondary

–      Right now, you may have a perception that people that read this are looking at all of the numbers all of the time and so the numbers concern you.

–      This is not true – we look at other information sometimes but  a lot of reading order flow is just the way price moves up and  down and the numbers themselves are secondary.

–      Don’t try to do math in your head, trying to tally up total trades either side as it moves. The difference will be obvious or it won’t be important.

–      After about 5 or 6 of these 60-90 minute sessions, you will start to see things occurring – price coming to a level and trading a lot of contracts but price gets stuck (and traders to). I don’t want to say too much because you should start this with an open mind.

As this becomes easier, you can start to take note of the total trades that have executed at the levels as well as the large/small quantities on the volume profile.

After that you can start looking at the numbers on the depth. Again, you are looking for OBVIOUS outliers. If average depth is 1500, then someone spoofing the market is not going to put 1590 up there, he’s going to put 2000 – it’s more visible.

After a while you can start to put your levels on there. Now you will be looking specifically at the order flow as it relates to your key levels.

With Recon tape/power meters, a lot of the information on there is the same as on the current trades columns of depth & Sales.

–          All trades

–          Large Trades

–          Power meter – All trades

–          Power meter – Filtered Trades

This is similar to current trades in Depth & Sales.

Tape reading