The majority actually end up closing their buy trade at a loss, because when they initially got their buy trade placed the market was falling, and it continued to fall for a significant length of time after their trade had been executed. Which means by the time the market reverses, most of the traders with long trades open have already spent an extended amount of time holding onto a losing trade.
Holding onto a losing trade is a psychologically demanding experience. For them, the pain of having to potentially endure another draw down is just too much to bear, especially after the reversal itself has caused the size of the loss on their losing trades to decreased dramatically depending on where they actually got their trade placed.
It may not be as useful of an indicator as the order book we just looked at, but it does still contain important insights about the market which can help you with your trading. The only advice I can give you a the moment, is to watch for signs of a reversal taking place when there is an extreme percentage of traders with long or short trades open in the market. Historical Open Positions Ratio. Instead of showing you what percentage of traders had buy or sell trades open in the past, it shows you the prices at which they had placed their buy and sell orders at in the past and the present , and also gives you an idea of how many buy and sell orders had been placed at a particular price in the market.
You can see that there are four graphs in total. The two which you need to be concentrating on are the two seen at the top, titled Buy Orders and Sell Orders. These two graphs show you where all the buy and sell orders have currently been placed in the market and where they have been placed in the past.
The gradient of the color you can see on each graph gives you an indication of amount of orders that was placed at that price. The deep red colour you can see in the sell orders graph, indicates that a high percentage of sell orders had been placed around this point, whilst the deep green colour you can see in the buy orders graph shows you where a large number of buy orders had been placed.
Something which I have found the indicator to be pretty useful for, is finding out the big round number prices which have a high probability of causing the market to reverse. In one of my articles on support and resistance levels , I mention how large reversals usually tend to begin near big round number prices, as traders tend to put their orders around these prices to enter trades and set stop losses.
With these graphs, you can now easily see which of the big round number prices hold the highest concentration of orders, allowing you to find the prices that have a high probability of causing the market to reverse. Historical Open Orders Graph. I will be doing some articles in the near future on the Historical Open Orders and Open Positions indicators to show you how to better use them, so check the site in a few weeks time to see if their complete. Your email address will not be published.
Save my name, email, and website in this browser for the next time I comment. Additional menu Home Strategies Technical Analysis Blog Forex Live Rates The goal of an order flow trader is to make predictions about the future market price by thinking about how and when orders are going to come into the market from traders making decisions.
Oanda Order Book 2. If you want to check out the Historical Open Orders Graph for yourself use the link below. Historical Open Orders Graph Summary I will be doing some articles in the near future on the Historical Open Orders and Open Positions indicators to show you how to better use them, so check the site in a few weeks time to see if their complete.
Comments Good point, keep going to research, I will continue to follow this article. In forex trading, the order flow is defined by speculation on how traders will react in the coming months. It follows the inter-bank market, while some brokers also own an order flow book. Half of the daily prices, according to the inter-bank markets, are made up, so traders should be cautious before placing orders based on the order flow trading.
As many of the different tools and charts to help analyse the forex markets, traders should treat the information carefully. It can be useful if you use it and compare it with the tendency on the market and the movement of the prices, but you should use it as your only method to predict the way the market will behave. Sell-side dealers work more often using this method because they understand how to use it to their benefit and can differentiate when it will generate movement, and when it won't.
To create volume indicators for Order Flow, you will need to use counter dealing platforms that can help gauge the volume of the flow. Electronic Broking Services is one of the best platforms for those that are currency dealers. Retail dealers can use other different approaches, with similar results, which can be handy in the future.
Once you can calculate the volume, you will be able to calculate the order flow depending on the futures contracts it creates.
All of these actions require sellers, remember! Simple: Your trade will only partially execute. In other words, you will have slippage. Price will then rise until more sell orders are found. Your order will spread out and be placed at ever-increasing prices. This is just like what happened with Johan in our example.
He tried to buy more than the sellers were selling, A TON more. Nobody wanted to sell, so price jumped higher, until sellers found the price high enough to make them decide to sell. Market orders might be the go-to order type for most traders; but, limit orders, or pending orders, are also popular and affect the market in a unique way, different than market orders.
You place the order and wait for price to reach the trigger price. If it does, your order executes, and you buy, or sell. A limit order guarantees a buyer or seller exists at a price. For as long as the order exists without being triggered, the buyer or seller is ready and willing to buy or sell at that price.
That is what the limit order represents; A buyer or seller is waiting for an opposing order to match with their own. At that matching point both orders execute. Why is this important? Because it means unlike market orders, limit orders ADD liquidity to the market.
A limit order makes it easier for traders to buy or sell, not harder. If an order to buy, or sell, exists at a price, someone is automatically ready to buy, or sell, once that price is reached. The order can be matched with opposing orders, adding liquidity to the market. Liquidity is not an issue. Our puny, little orders can easily be matched due to their tiny size. Their buy and sell orders are so massive that finding enough opposing orders is next to impossible.
So, they will often push price to points where a large bunch of limit orders have built up. This gets more of their positions placed. Many limit orders accumulate at these prices due to their significance in the market. The banks, of course, know this and push price to BRNs big round numbers so they can purposely trigger the limit orders and help place their own trades. That is why so many big reversals originate at, or close to, big round number prices.
Open any chart, and you will see this yourself. They make it easier for traders to buy, or sell, not harder. Keep this in mind, and always try to figure out where stacks of limit orders may have built up. Big round numbers are the most obvious and well-known location. Also consider specific technical points, like major support and resistance levels.
Some singular prices have a lot of significance, like the 1. Of the three orders, stop orders are probably the most interesting type. Stop Orders act as a limit order when placed and a market order when executed , meaning:. Since a stop becomes a market order once it is triggered, it removes liquidity from one side of the market. When this happens in large enough numbers, it can often result in a stop cascade. You will usually see this where a collection of prominent swing highs or lows appear.
These are points where traders typically place their stops. The swings form near one another and get broken, as you see above. Price breached the first low, triggering the stop orders placed underneath. That caused a mini stop cascade, which pushed price below the next low. Another stop cascade then began, resulting in price punching below the last low, triggering another cascade. Together, each mini cascade sets off the next cascade. The cumulative result is a sharp drop below all the lows.
This cascade effect takes place in a matter of minutes. So, if you see a bunch of swing highs or lows develop close to one another, be on guard. A stop cascade could be in the works. Remember what I said about limit orders? The banks push price to points where limit orders accumulate, like big round numbers, to help place their own orders?
The banks purposely trigger build-ups of stops to help place their own orders. Since they become limit orders once placed, the banks often target bundles of stops. They can use the limit orders to match with their own orders. Tell me… How many times have you seen price spike a low or high and take you out of your trade? Annoying as hell, right? The reason that happened, probably, was because the banks purposely spiked the stops, because those stops built up around the low or high, to get their own orders executed.
The large-cap traders decided to run the stops to trigger those orders, and use them for their own devices, causing you to lose in the process. Stop hunts are a big focus in Order Flow trading. Before we move on, here is a review of the key points from this section. Write these down and go over them again, and again to really get a handle on what order flow trading is all about.
At its core, order flow trading is about predicting the actions of other traders. Everybody analyzes the market through the same lens price charts , but rather than focus on price, like most traders, we go one step further and try to determine the actions of other traders.
Price does not move on its own. Therefore: We should concentrate on understanding how other traders think and make decisions. If we do that, we can predict what price will do in advance. This gives us a clear advantage in trading the market. This is the understanding of liquidity and how orders work. THEN: We ask ourselves questions about other traders. This forces us to think about their actions and what affect they will have on the market.
We ask questions like: How many traders are losing right now? What will happen when they close? Where have traders placed their stop-loss orders? What action can the banks take to harvest the current crop of orders? As Order Flow traders, it is up to us to determine when these effects will take place and what affect they will have on the moves the market will make. Order Flow trading takes a lot of lateral thinking. Order Flow uses more intuition than something like price-action trading.
Order Flow forces you to draw conclusions from data which cannot be confirmed or checked in any way. Order Flow is all about recognizing the actions of other traders! We are watching the same things the banks are watching. We want to know when the next crop of retail traders is ready to be harvested. The sheep are the emotional traders, the traders who jump into trades without much thought. They make rash decisions rather than using logical analysis.
They react to news, crossing lines and pretty pictures on their charts. In Order Flow trading, the sheep are the key for two important reasons: 1. The sheepish orders drive most of the movement we see: specifically, from closing losing trades. Are they: Buying to place buy trades?
Closing losing sell trades? Taking profits off open longs? One of the biggest logic errors traders make in Forex, which I made myself for a long time, is assuming all price movement is generated via traders buying or selling to place trades. It is NOT!! Price movement is not generally caused by placing trades, although that does cause some movement. Price movement is mostly caused by traders closing out losing positions. A losing trader must take the opposite action, e. And what are most retail traders sheep doing in Forex?
There are multiple aspects to Order Flow trading, all of which you need to consider to get into the Order Flow mindset. However, here are the three key areas to focus on when viewing the market in terms of Order Flow:. A big part of Order Flow trading is thinking about: 1. In Forex, multiple forces exist: the banks, the sheep, and other large-cap traders. The actions of these forces almost always depend on the actions of one, or both, of the other groups.
For example… If the banks want to take profits off a buy trade, they need to sell, so they need the sheep to be buying. The banks need to sell what they bought, which they can only do if others are buying. The banks are taking profits using the orders coming in from the sheep who are late due to the rise. When the banks buy the sheep need to be selling. When the banks sell the sheep need to be buying. Now, the big corollary, the inescapable conclusion: We need the banks to make a profit.
This is the reason it is so important to learn how the banks operate. Naturally, the banks are the biggest force in the market. They have the deepest pockets, after all. BUT, retail traders, sheep, by losing their trades, are also a major force. In fact, this is what creates much of the movement we see. The sheep get pushed into a corner where they cannot hold their losing positions any longer and they must liquidate their trades at a loss.
They do this by using the opposite action: A losing short trader must buy back what he sold: putting a buy order into the market. A losing long trader must sell what he bought: putting a sell order into the market. So, whenever someone closes a position, the opposing order enters the market. A buyer exits and a sell gets put in. Imagine the effect on price action when tens of thousands close at similar times!
Price goes NUTS!! Almost ALL the movement during this rise is from losing short traders closing their trades. They sold at the bottom of the last down-move, thinking the trend would continue. When price rises, their trades go underwater; they start closing en-masse to escape.
AND, the further price rises, the more trades they close as their losses increase. So, always ask yourself: Where are the losing traders? And, try to understand what will happen to price when they close. Their loss will be MUCH bigger. This is kind of like the frog being dropped into a pot of boiling water; he will jump out immediately! It will panic them into closing, causing them to exit quickly, which increases the rate the price rises, and creates even more panic liquidation. The gradual increase will give them a sense that price could still move back in their expected direction, so they stay in for longer.
This is kind of like the frog being gently set into a pot of water and THEN turning on the heat slowly; he will slowly simmer to death. Try to factor in how many traders could lose. That knowledge will give you a sense of what type of movement you will see if price moves in the other direction. If price has been in a long downtrend, and the market is extremely bearish, it makes sense that most traders are short. So, what will happen if price reverses? You often see this when price reverses sharply after trending for a long time.
The sharp reversal is from all the losing traders closing their losing trades. The banks rely on other traders, the sheep, to carry out their actions: placing trades, taking profits, closing trades. Only a few sheep selling? Only a few sheep buying? With this in mind, one of the key goals of Order-Flow trading is getting a handle on what action the banks can initiate with the current crop of orders, and what impact that action will have on the market. So ask yourself: Can the banks place trades, take profits, or close trades; and if so, in what amount?
Again, to do this, we think about the sheep. How many sheep are buying or selling right now? Since the banks depend on the sheep to operate, understanding how the sheep think and make decisions helps us understand what the banks are going to do in advance. The market is looking VERY bullish right now. Needless to say, most sheep are currently long.
The recent sharp rise coupled with price rising beforehand leads the sheep to think price will keep rising forever. Well, think about it; only 3 actions require buyers: 1. Taking profits off long trades. The banks must sell what they have bought, which requires buyers, 2. Closing open long trades, for the same reasons as above, 3.
Or placing sell trades, again, you need buyers to sell. However, we can look at the market, assess the probability and come up with a good insight. When was the last substantial retracement or consolidation?
And the market has moved over three-hundred pips too! The banks must be getting sweaty. Imagine sitting on a three-hundred-pip profit, and trading at their size!! The banks might take profits off their trades, resulting in a retracement or consolidation. The banks take profits, and we see a retracement or consolidation. But what about Scenario 2? The banks place sell trades to make price reverse? The banks could easily decide to sell by using the current crop of orders.
The banks can never place all their trades in one go! They never have enough orders! The banks split the trade into small chunks to lower the orders needed. The swings form at similar prices; because, the bank attempts to replicate placing one trade at a single price. This is their ideal scenario if enough orders are available. Scenario 3: The banks close trades. This is the same as scenario 1.
Same result for the same reason. The banks closing trades would result in a retracement or consolidation. For that reason, we consider them the same. Taking profits allowed the banks to take profits Duh ; but, also shake out the late longs of the sheep. This shake-out caused a large decline, which the banks used to place more buy trades at a better price and re-position themselves for the continuation of the up-trend. Earlier, I explained how stop losses are both limit orders AND market orders.
As limit orders, they add liquidity to the market. A stop guarantees someone is ready and willing to transact at a specific price: the stop price. The order will be matched with an opposing buy or sell and a trader will get their order placed at that price.
Their massive orders require tens of thousands of opposing orders so they can execute those orders. This makes it extremely tough to place trades, close trades, or take profits. There are never enough orders available! To avoid this, the banks often push price into a large build-up of orders. The banks use these stacks of orders to place their own orders at competitive prices.
Big round numbers are one such location. However, they also use the significant build-up of stop orders: being limit orders. Ever place your stop below a swing low only to see price spike it before reversing? The banks know traders like to place their stops below swing lows and highs. So, they use their power to push price to these locations and purposely spike the stops to place their own orders.
When you first started trading, where did you get told to always place your stop? Five swing lows and highs in this segment of price action got spiked before price moved in the opposite direction! NO, it was the banks! The banks spiked the stops, taking out the retail traders including me, on the 14th. This was done so the banks could place their own orders and trigger each reversal. Once price moves away, traders either lose or move their stops to more recent swing lows or highs to lock in profits.
A big one this one… The banks will only initiate a stop run if an enormous number of stops build up below a swing low or above a swing high. Again, this comes back to the central core of Order Flow trading: Understanding how other traders think and make decisions.
If price bottoms out after a large down-move and a noticeable swing low forms, a TON of stops will accumulate from reversal traders. They will think price is reversing and jump in long. And where will they place their stops? You can watch the Price Acton that appears during the stop run to enter your trade by using the new low created by the stop run as the point to place your own stop loss.
The result of inconclusive price action is a small build-up of orders. There are not enough orders for the banks to use for their own purposes. So, to figure out when and where a stop run could take place: 1. Expect a spike after price has bottomed or topped out: i. Once price breaches the swing and triggers the stops, keep your eye out for price action signals: Engulfing candles, big pin bars, sharp moves.
That is when WE get into the reversal. When you do get it right you can get into some gigantic reversals. We might need a drink or two after that one. I hope this has given you an insight into what Order Flow trading is and how it works. In the next sections, we will show you how to do it. The well-known trading platform for traders is MetaTrader 4 or 5. It does not show the real trading volume because you do not get the right data of futures in your trading platform. This is no trading volume.
It only analyses the movement. If you compare the real volume with the MetaTrader volume you will see there is a huge difference. There are different solutions for you. In this section, we will show you how to get access to the real data for order flow forex trading. If you go to the CME homepage you can find the listed futures for currencies. There are different symbols that you eventually do not know.
The futures are traded against the USD. You can see the symbol for each forex future. Pay attention to the contract December means the code Z9. Future contracts are not for a lifetime, they got a time span and expiration time. There are only two options to trade a correct order flow chart.
You can trade the real futures or analyze the futures and trade in the spot market. Both solutions are possible. For futures, you need more money because the minimum contract value is very high. First of all, you will need the real data of the stock exchange. You can get access from a data feed provider. It is possible to create a demo data feed or pay for it. The price is depending on the stock exchange which you want to use.
Secondly, you will need order flow software. On the internet, you will find different software providers. Traders can test the software for free but it is necessary to buy a license after the test version. After that, you have to connect the order flow software with the data feed.
It is a simple process and we documented it on our webpage. Read through our full ATAS review and tutorial. For real trading with futures, you have to sign up for a data feed with your online brokerage account. The brokerage account is linked to the data and you get full access to the markets.
On this page, we recommend using the order flow software ATAS. It is easy to use for beginners and you can install it very quickly. There is a free test version for any traders who want to try it. You can buy this software with a monthly or lifetime license. It provides you with different order flow indicators, footprint chart , volume profile , order books, smart tape, and more configurable stuff for trading. From our experience, it is highly customizable and fulfills the needs of a professional trader.
Read the full review of the order flow software ATAS. For trading futures, you will need a regulated broker who will give you access to the stock exchange. We recommend the American online broker Dorman Trading. The broker is accepting international clients and is highly regulated. In addition, there are no hidden fees and you can enjoy professional support.
To open an account just sign in to the account form on the website. Risk warning: Trading Futures and Options on Futures involves a substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not indicative of future results.
Stage 5 Trading Corp. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
There are many tools to trade forex with order flow. The most well-known tools are the footprint chart, volume profile, and order book. You can exactly see the traded volume on the chart. In the picture below you see the footprint chart in its nature. This chart will give you a professional view of candlesticks. The order book is a limited order book.
That means limit orders are waiting on different prices to get filled by market orders. If the trade happens you will see the result in the footprint chart and the direct order flow. On the other hand, there are more advanced tools like the automatic recognition of big orders or the direct order flow indicator.
In conclusion, the order flow in the forex is always the same. There are tools to show it through different perspectives. You have to know how the limited order book is working which you can read in our order flow article. Technical indicators can not show the real order flow. For traders, it is the only interpretation if you use them. There are a lot of successful strategies for technical indicators but they are useless for order flow trading.
The technical indicator only analysis the candlesticks in the past and different price levels. There are different mathematic formulas implemented which are useless for order flow trading because you do not analyze the real data of the stock exchange. For order flow trading we recommend to do not using technical indicators. Forex Trading is a difficult topic when it comes to order flow trading. There is a lot of false information on the internet. On this page, we showed you how it works correctly.
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Order flow analysis is a unique trading analysis concept that can help you predict with a good amount of certainty where orders imbalance awaits. Many traders will use forex order flow analysis to help with the direction of their traders and confirmation that the market is moving in a specific direction. Order flow, also known as transaction flown, is a strategy used by some traders where they determine the way the price will move (or "flow") depending on the.