One of the most valuable lessons I learned when trading prop was how to identify institutional order flow.

This becomes relevant when there is abnormal activity in the name (ex: relative strength/ weakness, correlation breaks etc)... extreme volatility etc.

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I won’t give away all the secrets but here are a few pointers.

These type of orders are most relevant, 30 min into the open or 30 min before close, also around VWAP intraday.

Different MMs dominate certain single stock names. Which means the trading patterns are easy to spot

Ex: The main MM may like to work orders a certain way in ABC whereas the main MM in XYZ may prefer to work an order a completely diff way. After tracking certain stocks you start getting used to how flow is traded in that name.

It’s important to see where orders are filled and what routes they are going through. Pay close attention to time patterns that follow.

Again, I’m not going to give away specific secrets but here is a very vanilla example

EDGX is an ECN which basically is a place for a “natural market” no real direct MMs.

Let’s say stock ABC has had a large order that has been flashing abnormal size for three days on the bid at 9:50am.

This may be a large participant that is directly working an

order in a way where he wants to avoid the MOO orders. He is waiting till after the morning rush to then try to show size.

Pay attention to the change of sizing in the lots. Ex: If day 1,2,3 he was $10M on the bid and day 4 he’s $5M this could mean he’s coming to an end...

This could be a way for you to fade the recent ultra bullishness that has presented itself over the last 4 days based on one buyer dominating the name.

Think:

1) stock
2) routes
3) fills
4) times
5) spoofing on bid/ ask (this is important )

Remember that this is not a hard science and it is very difficult to quantify this. However, it is important to understand these things to help your discretion as a trader, especially when trying to identify a dislocation on the fly.

When thinking about the derivatives market, think about the rate of change in the term structure when you are calibrating vols. Larger rate of change showcases “pressure points” for MM’s in the name.

I’ll leave it there for now.