Strategic Order Flow Trading

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Module 2
Enhancing
Your Order
Flow Trading
Performance
Disclaimer
A footprint is a tool that fits within the spectrum of trading tools. I would
compare it to technological advancements, highlighting how tools evolve to
become more efficient and effective. The footprint tool, alongside other tools
like book maps and price ladders, represents the latest advancements in
trading technology.
Setting up a footprint chart requires customization based on individual trading
strategies and preferences. Here are some key considerations:

Timeframes: Choose the timeframe that aligns with your trading strategy.
Shorter timeframes provide more detailed information, while longer timeframes
offer a broader perspective.

Types of Rotations: Rotations can be based on time or specific price

movements (e.g., point and figure). Select the rotation type that best suits your
trading approach.

Statistics: Include statistics that provide valuable summaries of volume, Delta,

cumulative Delta, and price changes. These statistics help traders analyze
market activity efficiently.
Put on your chart what you need to be successful.
Put on your chart what you use in your analysis.
You are not trying to impress anyone with your chart.
Is there a best time to trade order flow?

The Opening Range - There is often a surge of orders batched up overnight

and released right at the open. This influx of orders provides good movement
and liquidity to read the market's directional bias. Cash open.

Morning Period - The first hour after the open sees active trading, providing
opportunities to fade the overnight sentiment and trade potential reversals back
to the prior close. You can also see trend days develop during this period. This
is probably the most active time (not highest volume necessarily) that traders
are in front of their screens. It overlaps with the European session.
Cash open
Lunch Period - Lower intraday volatility from 11am to 1pm Chicago time offers
chances to monitor order flow dryness and prepare for the afternoon.

Afternoon Trend - From 1pm to 2pm Chicago time, sometimes intraday trends
emerge as institutions position for the close. Joining the directional order flow in
this period can ride momentum. But is the FED Zone.

Closing Hour - The final hour sees another spike in volume and volatility as day
traders' square positions and institutions complete rebalancing. Active order flow
reveals the market's last-minute conviction into the close. Cash close is the final.

The bookend periods of market open and close provide surges in activity and
order flow interaction to best read market conditions. The midday period presents
opportunities as well. An adaptive trader can optimize order flow trading across
different intraday periods.
Cash close. Good movement,
but then flatlines.
By identifying areas with the maximum trading activity, traders can gain insights
into market sentiment and behavior. Moreover, it is essential to observe how the
price responds after significant trading activity occurs.

What happens on the cash open can give you direction.

The delta change is the most important aspect to look at, as it shows the
change in Delta from the previous bar, providing valuable information on market
trends.

The delta change from the previous bar can indicate potential market reversals.
Delta change
Delta change
Extreme delta spikes tend to be unsustainable.

Increasing delta signals momentum is accelerating in that direction as

aggressive traders pile in.

Focus on the rate of change in delta - sharp rises suggest urgency and
conviction, slower delta increases = less commitment.

Net delta needs to expand and refresh to drive sustainable trends, not just
spike.
Extreme delta with consistency afterwards
Extreme delta but no follow through.
Delta Momentum involves analyzing consecutive bars with consistent positive
or negative Deltas. These consecutive bars indicate strong order flow in a
particular direction, further confirming the prevailing trend. Traders can use
Delta Momentum to focus exclusively on long or short trades based on the
overall direction of order flow.
Delta Momentum
The Max Delta indicates the price where the most aggressive buying occurred,
while the Min Delta shows where intense selling pressure stepped in.
Max/Min Delta
What’s the Max/Min Delta doing?
Benefits of using delta at price in order flow analysis:

It helps identify imbalances between buying and selling pressure. By looking at

the delta (rate of change) in buy and sell order flow at different price levels, you
can see where there is more aggressive buying or selling happening. Large
positive delta indicates buying pressure, while large negative delta indicates
selling pressure.

It reveals support and resistance levels. Price levels with consistently high
positive or negative delta can act as support or resistance, representing areas
where buyers or sellers are more active. Watching how delta evolves at key
prices gives clues about the strength of these support/resistance zones.
Delta helps gauge the conviction behind moves. Large, rapid delta spikes show
strong conviction behind buying or selling at a certain price level, versus slow
steady delta changes which reflect less urgency. This can aid in assessing how
meaningful a price move may be.

It acts as an early indicator of potential breaks or reversals. Shifts in delta often

precede price breakouts and reversals, providing an early warning of change. If
delta starts dropping at support, it flags breakdown risk, and vice versa for
resistance.
Delta at price gives a more accurate representation of buying and selling
pressure - Delta at price looks at the net delta of orders at each price level
rather than just the number of orders. This gives a better sense of the true
buying or selling pressure, as larger orders have a bigger impact on delta.

Identifies support and resistance levels - Price levels with high net positive or
negative delta can act as support or resistance, since it shows where
substantial buying or selling interest exists. Watching how delta evolves at key
prices is helpful for trading.
Delta at price
Delta at price
When you observe a market rally followed by the generation of support levels.
This indicates a trending market moving higher. However, when the support
levels start transforming into resistance, it suggests that the market's upward
momentum may be diminishing.
Support become resistance
The importance of order flow imbalance and its location in a footprint chart is
that it provides valuable insights into the supply and demand dynamics at a
given price level.

Imbalances can confirm or negate breakouts - Heavy buying or selling

imbalances during a breakout increase chances it will be sustained. Lack of
imbalance shows lack of conviction.

Traders can quantify the energy exerted during a price move and gain valuable
insights into market activity. The ability to witness volume development
vertically, rather than just horizontally, offers traders a more comprehensive
understanding of market dynamics.
Imbalance changes show shifts in control - Flipping from selling to buying
imbalances at a price level indicates a shift in control and increased likelihood
prices will move up through that level. The opposite for flipping from buying to
selling imbalances.
Imbalance flips
The location of imbalance relative to the current price indicates who has control.
In green candles imbalance below current price signals buyers are in control
while in red candles imbalance above suggests sellers are driving price action.
Price relative to imbalance location
Imbalance levels that persist over time or receive additional orders are seen as
more significant. The stronger the conviction, the more important that price
zone.
Imbalances at same levels
Imbalances at same levels
How the 2nd pair ended up trading.
Have to be ready to cut losses and
pivot.
The point of control (POC) on a bar in order flow analysis provides very
valuable information and context.

Indicates Fair Value - The POC marks the price where the most volume traded
during that bar's timeframe. It represents where buyers and sellers agreed on
"fair value". Watching POC shifts in a bar is insightful.
POC at top of green candles or bottom of red candles. Shows that volume is
migrating through the bar.

You want to see volume migrating in a bar for a trending move.

If POC stays at the bottom of green bars it indicates support.

If POC stays at the top of red bars it indicates resistance.
POC going lower
POC migrating higher IN the bar.
Disadvantages of Footprint Charts
Setup Complexity: Properly setting up and configuring footprint charts requires
time and effort. Traders need to define the specific parameters and rules based
on their trading strategies, which may involve a learning curve and
experimentation.

Continuous Learning: Mastering footprint chart analysis is an ongoing process

that requires continuous learning and adaptation. Traders should invest time in
understanding different patterns, interpreting price-volume interactions, and
refining their approach to effectively utilize this tool.
Reading the story in a footprint chart involves interpreting market dynamics
based on factual observations. By analyzing volume, Delta, price changes, and
liquidity, traders can form a clear understanding of the market's narrative. This
allows for better decision-making and pattern recognition over time.
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This concludes Module 2.

In Module 3, I will discuss

Advanced Order Flow Concepts