Order Flow Trading Strategy
Uploaded by
Wilfred HodehomeyOrder Flow Trading Strategy
Uploaded by
Wilfred HodehomeyOrder Flow Trading Strategy (Forex & Futures)
Order flow trading analyzes the real-time buying and selling pressure in the market by
tracking the volume, liquidity, and aggressive orders. Unlike traditional indicators, it
provides a direct view of market participants' actions, helping traders spot reversals,
breakouts, and liquidity grabs.
Core Concepts of Order Flow Trading
1. Bid-Ask Volume Imbalance
o More aggressive buyers (hitting the ask) = Bullish momentum.
o More aggressive sellers (hitting the bid) = Bearish momentum.
2. Delta (Net Buying/Selling Pressure)
o Positive Delta: More buy orders than sell orders.
o Negative Delta: More sell orders than buy orders.
3. Volume Profile & Footprint Charts
o Shows where most trading activity occurred (key support/resistance).
o Footprint charts display executed orders at each price level.
4. Liquidity Pools (Stops & Limits)
o Traders target stops above/below key levels for liquidity grabs.
o Breakouts often occur when liquidity is taken.
Order Flow Trading Strategy (Step-by-Step)
1. Tools Needed
• Order Flow Software:
o Jigsaw Trading, Bookmap, Sierra Chart (for futures).
o MetaTrader 5 (with volume delta indicators for forex).
• Footprint Chart / Volume Profile (to see executed trades).
• Time & Sales Data (shows real-time order execution).
2. Identify Key Levels
• Look for high-volume nodes (POC – Point of Control) from Volume Profile.
• Mark previous day high/low (PDH/PDL) and session highs/lows.
3. Track Order Flow Signals
A) Absorption (Reversal Signal)
• Scenario: Price reaches a key level, but large orders reject further movement.
• Signs:
o Large sell orders preventing price from going higher (resistance).
o Large buy orders preventing price from going lower (support).
• Trade Setup: Fade the breakout when absorption appears.
B) Stop Hunts & Liquidity Runs
• Scenario: Price spikes to take out stops before reversing.
• Signs:
o Sharp move into a liquidity zone (above highs/below lows).
o Rapid reversal with strong opposing delta.
• Trade Setup: Enter in the direction of the reversal.
C) Imbalance & Continuation
• Scenario: Strong one-sided delta (buying/selling pressure).
• Signs:
o Consistent positive delta in an uptrend (bullish continuation).
o Consistent negative delta in a downtrend (bearish continuation).
• Trade Setup: Ride the trend until delta weakens.
4. Entry & Exit Rules
• Entry:
o Wait for order flow confirmation (e.g., absorption + delta divergence).
o Enter on pullbacks in trending markets.
• Stop Loss:
o Below recent swing low (for longs) / above swing high (for shorts).
o Or beyond a key liquidity zone.
• Take Profit:
o At next liquidity pool (previous highs/lows).
o Or when delta flips (losing momentum).
Example Trade (Using Order Flow)
• Setup: EUR/USD approaches 1.1000 (a major resistance level).
• Observation:
o Large sell orders stacking at 1.1000 (absorption).
o Negative delta increasing as price nears resistance.
• Action:
o Short at 1.0995 with stop above 1.1010.
o Target at next support (1.0950).
Pros & Cons of Order Flow Trading
Advantages
• Reveals real market intent (not lagging like indicators).
• Works in all market conditions (trending, ranging).
• Helps avoid fakeouts by spotting liquidity grabs.
Challenges
• Requires fast execution & good data feed (less effective on low-tier brokers).
• Steeper learning curve (needs screen time to read order flow).
• Best suited for futures & CFDs (forex has limitations due to decentralized volume).
Best Markets for Order Flow Trading
1. Futures (E-mini S&P, NASDAQ, Crude Oil – centralized volume data).
2. Forex Major Pairs (EUR/USD, GBP/USD – using tick volume & depth of market).
3. Stocks & CFDs (L2 data helps).
Final Thoughts
Order flow trading is powerful for traders who want to see the market’s hidden
movements. By tracking aggressive orders, delta, and liquidity, you can anticipate
reversals, breakouts, and stop runs before they happen.
Would you like a specific broker/platform recommendation for order flow analysis?
