What Is Order Flow And How To Profit From It

Posted by on Sep 9, 2015 in Blog

What Is Order Flow And How To Profit From It

There are different ways to use order flow in your trading. To some order flow is the constant adding and subtracting of orders you see on the DOM. To others it is the trades that appear in the times & sales. To me it is the trail left by the actual orders that have been filled. Some will argue that is filled order flow or order flew, it is not the constant changing of bids and offers in the order book.

I am not really interested in orders that are not getting filled. Sure it is nice to look at and can be a bit dizzying at times when the market is moving. Think of orders in the order book as shoppers in the mall window shopping. If you are a clothing store you judge your profit and loss by what you sell to shoppers. You don’t make any money if everyone just looks at what you have for sale and doesn’t buy. It is important that price trades.

When I created the Orderflows Trader Software I wanted to make something that would allow me to easily identify the order flow patterns I want to see. I rely on these patterns for my trading decisions. The patterns I see are not cookie cutter type that simply says buy when the arrow is blue and sell when it is red. That is not trading. That is taking signals. I think a trader still has to analyse the current market situation and decide to take the trade or not.

This morning in the ES there was a nice set up. The cash market had just opened and the market tried to go a little higher but couldn’t sustain its move up. Then about 15 minutes after the open there was a single print in a bar that closed lower with several selling imbalances. That was my sign to start looking to get short. I put a limit in at 1981. It was filled. The market did trade up to 1982 before selling off. I got out at 1976 for a 5 point winner. The market sold off another 7 points after I got out, but that is ok. I know I am not going to get every tick out of the market.

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