Order Flow

What is that one tool that you use to successfully time your trades? Is it an indicator [RSI, Stochastic], do you use divergences, is it trend line breaks or you are a fan of Gann Turn Dates. Whatever method you use you absolutely must give a try to Order Flow. I tried Order Flow myself but my success was mixed in the beginning. But once I understood the importance of context while using OFA, my trading took a turn for the better. So below I have tried to compile a list of commonly asked question about OFA and their answers according to my experience.

So check out the information below on the timing tool of my choice…..

What Is The Order Flow?

Order Flow essentially means the flow of buy and sell orders for a particular instrument. Whenever a buyer and a seller agree on a specific price we get a trade. Click To Tweet The OF chart records the trade on the side of the aggressive trader. Now the question s how do you determine which party is aggressive? The answer is simple, the one with a market order is the aggressive one. Now an aggressive does not always mean smart.

Order Flow Basics

OF consists of interaction of buyers and sellers in the markets as we saw earlier. To keep track of that an exchange tracks the Bid and Ask/Offer prices for a particular instrument for instance Nifty Share Price. Best Bid Price is the price at which the highest buyers is willing to buy. Best Offer price is the price at which the lowest seller is willing to sell. A market buy order is always placed at the best offer price, and a market sell order is always placed at the best bid price.

How To Read Order Flow Charts?

Reading OF indicator is as much a science as it is an art. On one hand we have the numbers and programming trying to give us different inputs such as delta, divergence, high value buy sell, etc. On the other we have to make sense which party is aggressive, as well as which is entering passively. Then we have to find out on which side the SM is trading from. But we can employ context from other technical analysis tools, such as Market Profile, Support and Resistances, etc and make sense of the numbers appearing on an OF Chart. Watch this short presentation on trading order flow with context.

What Is Order Flow Trading?

OF Trading refers to trading the imbalances in supply and demand by tracking the flow of orders on buy and sell side. Common sense tells us that if buyers are greater than sellers markets will move up and vice versa. Conversely when they are in balance, we get side ways markets. So the idea is to spot when these imbalances are starting to develop and then place your trades accordingly. Check out the chart below where I have used Market Profile [Context] and Order Flow [Timing Tool] to trade Nifty Share Price.

Order Flow Trading

What Are Order Flow Trading Strategies?

There are many OF trading strategies and one which I often use is delta divergence. This setup occurs when you see price making higher high, where as the delta on the bar makes a lower high. What it means is that buyers are losing their strength and are very close to giving up. As soon as we see one party (in this case buyers) losing control we can fade that move and position ourselves in the opposite direction. Watch this detailed webinar on various Order Flow Trading Strategies.

How To Find Great Trades Using Order Flow?

The greatest trades occur when we are early in identifying the shifting control in the markets. The auction market theory states that markets go up to find sellers. Now once we reach an important reference, for instance a resistance. We can monitor the OF charts and check which side is dominating. Whether one party who is putting in effort is getting the result or not. So by using the AMT principles and observing the real time flow of buyers and sellers, we can take some timely decisions in the markets. Also to trade markets in real time you need a reliable OF trading software. Watch this webinar on Trading Nifty with Order Flow. Also we share daily analysis of Nifty and Banknifty in our Market Profile Blog.

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