The order flow trading strategy allows knowing how to obtain the professional trader’s mindset. Suppose you’re willing to keep a tab on how to trade utilizing the earliest trading method to a large extent by day traders. Here you can enable the chance to learn how to trade market imbalance through the outstanding order flow trading setup. However, trading through the order flow may support you to gain the ability to define in a better way the things happening on the side of the trading chart or candle price chart.
An imbalance between supply and demand makes a price move, and it is in a trader’s hands to identify the imbalance. By the end of this guide, you’ll be able to recognize the price imbalance between the bid prices and ask prices. Also, acknowledging the ways to profit out of order flow trading charts.
The following section will see an order flow trading guide that includes exact buying and selling trading methods.
What is the order flow?
The financial market depends on the order flow since it moves the price ups and downs. There are many acclamations regarding understanding the concept behind the order flow trading method. In reality, only a very few traders understand the concept inside out.
Genuinely, the order flow forecasts price movements or the upcoming prices relying on the running condition of prices and rates. The rates and prices are evident on both sides of buy and sell. The Order flow is dependent on your trading type. When a trader knows that the prices will move in the market and open or execute an order, the order flow occurs.
The presence of the buyers and sellers is mandatory because they pull the strings of the order flow trading. However, the order may deftly indicate the direction of the market movement. Hence, most traders working in the stock exchange rely on various order types.
How to identify order flow in the crypto market?
The crypto market is substantially propelled by technical analysis and plenty of the available charting programs. In evaluating the potentials of the market direction, an order book is a robust tool. Order flow means defining the buy and sell demand on the book. It benefits the day traders in market scalping to polish up their entries. Also, it supports all kinds of traders to identify the fraud orders in the market famed for false volumes.
Order flow is a golden-age trading method. It is functional for calculating the entry and exit by the side of technical analysis. Day traders or scalpers trade with it to enter multiple short-term trades each time for a scattering number of points.
Besides, the order flow trading method to figure out whether, utilize limit orders alternatively to using arbitrary entries and stopping losses. Not finished yet, it advantages trade managing by calculating the potentials for price reversal. Furthermore, technical analysis consummates the inherent human preference of seeing patterns randomly that is named ‘pareidolia,’ a psychological fact. Also, classify them as self-discovering patterns such as triangles, H&S, etc.
Moreover, retail traders get saturated with the order flow trading method. Hence, retail traders scrutinize supply and demand. And, they take the order flow trading as optional because it requires high proficiency in programming to automate the trade.
On the other hand, institutional and high-frequency traders, to some extent, are apathetic in viewing charting programs, and indicators are more effective in using the order flow trading method. The order flow method applies in large liquid markets where traders can trade entirely off the book and charts, US treasuries, and futures.
A short-term trading strategy
We will use M5, M15, and H1 time frames in this strategy. Also, we will try to find out what the order flow indicates in the lower time frames.
Bullish trade setup
Entry
Look for a buy entry when the order flow indicates buy volumes taking place and had a close above the last candle’s high after bouncing from a support level.
Stop loss
Put your SL order below the support level with at a 5-10 pips buffer.
Take profit
Take the profit by targeting a 1:3 risk/reward ratio.
Bearish trade setup
Entry
Look for a sell entry when the order flow indicates sell volumes taking place and had a close below the last candle’s low after rejecting the resistance level.
Stop loss
Put your SL order above the resistance level with a 5-10 pips buffer.
Take profit
Take the profit by targeting a 1:3 risk/reward ratio.
A long-term trading strategy
This strategy is the most profitable and reliable because it shows long-term data of the market. Here we will use the H4, D1, and W1 time frames.
Bullish trade setup
Entry
Look for a buy entry when the order flow indicates buy volumes taking place and had a close above the last candle’s high after bouncing from a support level.
Stop loss
Put your SL order below the support level with a 10-15 pips buffer.
Take profit
Take the profit by targeting a 1:3 risk/reward ratio.
Bearish trade setup
Entry
Look for a sell entry when the order flow indicates sell volumes taking place and had a close below the last candle’s low after rejecting the resistance level.
Stop loss
Put your SL order above the resistance level with a 5-10 pips buffer.
Take profit
Take the profit by targeting a 1:3 risk/reward ratio.
Pros & cons
| Pros | Cons |
| The order flow trading strategy portrays the precise entry and exit. | It requires high proficiency in programming. |
| It depicts the reason behind the market movements along with accelerated trading. | For retail traders, the order flow trading method is overburdening. |
| Without any hardship, it identifies the S&R areas, market liquidity, and non-liquidity. | The technique is more suitable in large liquid markets. |
Final thoughts
Finally, technical analysis is adequate to trade-off to some extent. Yet another significant matter to remember is that the pattern or people, nothing moves the market. Identifying any pattern is only a step in the approach of spotting a trade.
