ORDERFLOW

CONCEPTS
Introduction to Order Flow Trading
 What is Order Flow?
 Real-time visualization of market participants’ buying and selling activity.
 Tracks executed orders, showing the interaction between aggressive buyers and
sellers.
 Why Order Flow Matters
 Understand the "why" behind price movement.
 Identify institutional activity and liquidity zones.
Order Flow Tools
 Footprint Charts:
 Bid x Ask Imbalance.
 Volume at each price level.
 Volume Profile:
 Shows high and low volume nodes.
Key Components of Order Flow
 Market Orders:
 Executed immediately.
 Represent aggression and move the price.
 Limit Orders:
 Passive orders providing liquidity.
 Do not move price but absorb market orders.
 Delta:
 Difference between buy and sell market orders.
 Positive Delta = More buying aggression.
 Negative Delta = More selling aggression.
 Cumulative Delta:
 Tracks net buying or selling pressure.
 Key Order Flow Concepts
 Absorption
 Exhaustion
 Initiative Buyer/Seller
 Responsive Buyer/Seller
 Liquidity Grabs
 Stop Loss Hunting
 Stopping Volume
 Understanding Delta and Its Significance
 What is Delta?
 Measures the difference between aggressive buy and sell market orders.
 Formula: Delta = Buy Market Orders - Sell Market Orders.

 Types of Delta:
 Positive Delta: Indicates buying aggression (more buy market orders).
 Negative Delta: Indicates selling aggression (more sell market orders).
 Cumulative Delta:
 Tracks the running total of Delta over a session or time period.
 Reveals the overall buying or selling pressure trend.
 Helps spot divergences between price and market order flow.

 Delta Divergence:
 When price moves higher with decreasing Delta — signals weak buying.
 When price moves lower with decreasing Delta — signals weak selling.

 Delta Absorption:
 High positive Delta with no significant price movement — buyers being absorbed.
 High negative Delta with no significant price movement — sellers being absorbed.
 Delta as a Reversal Indicator:
 Watch for Delta divergence at key support/resistance zones.
 Combine with volume and price action for confirmation.
Different Types of Market Participants:
 Institutional Traders:
 Large financial entities moving significant volume and Use advanced algorithms and strategies.
 Retail Traders:
 Individual traders with smaller positions. Often follow technical analysis and market sentiment.
 Market Makers:
 Provide liquidity by placing both buy and sell orders. Profit from bid-ask spreads.
 High-Frequency Traders (HFTs):
 Use algorithms to execute trades in milliseconds. Capitalize on short-term price inefficiencies.
 Swing and Position Traders:
 Hold positions for days, weeks, or months. Base decisions on technical and fundamental analysis.
 Breakout Traders:
 Enter trades when price breaks above resistance or below support. Rely on strong volume and
momentum for confirmation.
 Intraday Traders:
 Open and close positions within the same trading day. Focus on capturing short-term price
movements.
Identifying Supply and Demand
 What are Supply and Demand Zones?
 Demand Zone: Area where buying interest is strong enough to prevent the price from falling further.
 Supply Zone: Area where selling interest is strong enough to cap price advances.
 How to Identify Demand Zones:
 Price moves up sharply after consolidation — strong buyers present.
 High positive Delta and aggressive market buying at a specific price level.
 Big limit buy orders absorbing aggressive sellers.
 How to Identify Supply Zones:
 Price drops sharply after consolidation — strong sellers present.
 High negative Delta and aggressive market selling at a specific price level.
 Big limit sell orders absorbing aggressive buyers.
 Order Flow Confirmation:
 Look for large limit orders getting punched.
 Observe market order aggression following the buildup.
 Combine with volume profile for added confirmation.
 Volume Clusters:
 High volume nodes often align with strong supply and demand zones
Identifying Supply Zone in OF
 Marking Supply Zone:
 Aggressive momentum candle
 High selling COT
 High selling Delta
 Selling side imbalance
Identifying Demand Zone in OF
 Marking Demand Zone:
 Aggressive momentum candle
 High buying COT
 High buying Delta
 buying side imbalance
Identifying Buyer/Seller Exhaustion
 Breakout Failures:
 Price breaks a key level with strong Delta but fails to follow through.
 Leads to SL hunts and quick reversals.
 Inside Candle Formation:
 Signals exhaustion and lack of follow-through.
 Signs of Buyer Exhaustion:
 Price pushes higher with decreasing Delta and volume.
 Large market buys fail to move the price up significantly.
 Absorption at higher levels with no follow-through.
 Signs of Seller Exhaustion:
 Price pushes lower with decreasing Delta and volume.
 Large market sells fail to push the price down significantly.
 Absorption at lower levels with no follow-through.
 Identifying Buyer/Seller Absorption:
 Absorption:
 Large limit orders absorbing aggressive market orders.
 Price stalls despite aggression.
 Absorption of Buyers:
 Occurs when large sell limit orders absorb aggressive market buys.
 Price struggles to move higher despite high buying pressure.
 Often seen at resistance or supply zones.
 Absorption of Sellers:
 Occurs when large buy limit orders absorb aggressive market sells.
 Price struggles to move lower despite high selling pressure.
 Often seen at support or demand zones.
Unfinished Business in Order Flow
 What is Unfinished Business?
 A price level where either the bid or ask side remains incomplete.
 Often occurs at key highs or lows.
 Signals potential for price revisit to complete the order flow.
 Characteristics:
 Highs or lows where no aggressive buyer/seller fully closes out.
 Imbalance remains visible on the footprint chart.
 How to Spot:
 Look for prominent single prints or missing volume at the extremes.
 Watch for future price revisits to these levels for completion.
 See below examples.
Unfinished Business Examples
Unfinished Auction Examples
Unsecure High in Order Flow
 What is an Unsecure High?
 A price level that forms a high without sufficient volume or Delta confirmation.
 Often leads to failed breakouts and quick reversals.
 Characteristics:
 Low volume at the high.
 Weak Delta showing lack of aggressive buying.
 Price struggles to stay above the high and reverses quickly.
 How to Spot:
 Look for high prices with minimal volume and Delta activity.
 Watch for quick rejections and large sell orders entering after the high is
touched.
DELTA DIVERGENCE STRATEGY:
 Delta divergence is a market phenomenon observed in order flow
analysis where there is a mismatch between price action and the delta
(the net difference between buy and sell orders executed at the
market). This divergence signals potential reversals, weakening trends,
or absorption of aggressive orders by larger participants.
1. Identify Delta Divergence
 Use an Order Flow chart or Volume Footprint to spot divergence
between delta and price action:
 Positive Delta + Falling Price: Aggressive buyers present, but sellers are
absorbing and dominating.
 Negative Delta + Rising Price: Aggressive sellers present, but buyers are
absorbing and pushing the price higher.
2. Confirm Key Levels
 Look for delta divergence near critical levels:
 Support/Resistance: Price stalling with divergence can indicate a reversal.
 Supply/Demand Zones: Check for divergence in these zones to spot liquidity
absorption.
Understanding Liquidity in Order Flow
 Definition: Liquidity represents the availability of buyers and sellers at
different price levels.
 Types of Liquidity:
 Passive Liquidity: Provided by limit orders waiting to be filled.
 Active Liquidity: Provided by market orders aggressively seeking execution.
 Identifying Liquidity Zones:
 High Liquidity Areas: Zones with large resting orders, often supply or demand
zones.
 Low Liquidity Areas: Thinly traded zones, prone to quick price movements.
 Liquidity Hunts:
 Stop Loss Hunts: Price spikes to trigger stops and collect liquidity.
 Liquidity Vacuums: Sharp moves through low liquidity zones.