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Order Flow and Price Formation
🇧🇷Leia em Português:
Nem Toda Movimentação de Preço Significa Que Alguém Sabe de Algo
Most investors believe impact equals information, but the data proves otherwise. Price can move without any insight at all.
Our models show that market impact is often mechanical, not informational.
A large buy order can push prices up even if it’s just part of a passive rebalance.
And over 85% of order flow autocorrelation? It comes from the same trader slicing orders, not from herding or crowd behavior.
Even more surprising: most of the price movement during a metaorder reverts afterward. What looks like a new trend is often just a temporary distortion.
The square-root impact law confirms it, impact grows with √Q, not linearly. It's about liquidity dynamics, not trade size.
And when multiple institutions trade the same asset, price reacts to the crowd, not the individual. Co-impact hides your intent.
Without modeling these dynamics, most execution strategies leave you exposed, or worse, manipulable in multi-asset portfolios.
If you're serious about outperforming, go beyond the headlines.
Decode what’s really driving Wall Street’s moves, and challenge your assumptions.
Read “Order Flow and Price Formation” by Fabrizio Lillo, available now inside the Wall Street Insider Report
Decode the Algorithms Behind Wall Street’s Moves from the Inside.
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