Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

[Tutorial] Introduction to Orderflow Analytics

1 min read

Welcome everyone to Orderflow basic tutorial series. In this tutorial we will be getting into the orderflow basics and key terminologies  required to interpret orderflow charts.

Orderflow is a visualization tool to understand the flow of bid and ask orders (market orders). Orderflow explains what aggressive buyers or sellers are doing in the market. It helps you to get the microscopic view inside the candles to understand how the buyers and sellers behave.

Orderflow analytics helps traders to understand the mechanism that moves the price and focus on what is happening in the market right now, what is the current trading behavior which is going on (Big orders, Momentum buyers/sellers, Momentum Exhaustion, Stop hunting, trapped buyers or sellers and many more nuances which helps traders in scalping/intraday trading.)

Different Names to Orderflow 

  • Tape Reading
  • Volumetric Bars
  • Footprint charts
  • Bid x Ask Ladder

What one can do with Orderflow Tool?

Here are some of the ways where one can use orderflow analytics to understand your trading competition better.

Stop Hunting: Track where other players keep their stop loss

Momentum Behavior : Track how momentum players drive short term momentum

Momentum Exhaustion : Track how intraday momentum exhaustion occurs.

Traders Confidence : Track weak & strong players behavior at key support/resistance

Absorption: Track how large orders absorb the liquidity and creates ceiling effect.

 
Most of the classical technical indicators/patterns look into the past data to take a trade decision. Whereas Orderflow studies rely only on present information and it focuses more on what is going on right now in the market.

Tools used for Orderflow Analytics

Some of the Frequently Asked Question before getting into the Orderflow Basic Terminologies

Can I use orderflow to find Big Buyers/Big Sellers?
Yes you can use orderflow to find big buyers / big sellers

Can I use orderflow to find Key Support/Resistance?
Yes it helps traders to identify scalpers/intraday traders to find key support / resistance levels which are critical for them to time their entry and exit.

Can I combine Orderflow with my existing studies?
Definitely, orderflow is a decision support tool which helps traders to get the short-term context and it improves the way you are looking into the market and your technical studies.

Does Orderflow bifurcates volume into Buyers Volume/Sellers Volume
Yes it does. Infact it does more than that.

Which is the Best Timeframe to Apply Orderflow?
It depends upon what kind of trader you are. If you are a intraday trader then 3min/5min orderflow or a range bar charts order flow would do better. However if you are a positional trader then one can consider using 15min or 30min orderflow information.

What knowledge is required to study the Orderflow Context?
Knowledge in Auction Market Theory (Market Profile) or Price Action or Volume Spread analysis helps traders to evaluate the underlying context.

Can I use Orderflow as Independent Decision making tool?
Yes one can. But Knowledge in Auction Market Theory (Market Profile) or Price Action or Volume Spread analysis helps a trader to take better trading decisions.

In the next tutorial, we will look into the basic terminology and key components of orderflow.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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