YT YouTube2Text

YouTube2Text → Transcripts → Master ORDER FLOW TRADING in Less than ONE HOUR!

Master ORDER FLOW TRADING in Less than ONE HOUR! — Transcript

by Fractal Flow - Pro Trading Strategies · 8,545 words · 1,309 segments · language en · Watch on YouTube

Open in transcriber Summarize with AI Download SRT/VTT

Full transcript

0:00welcome to the ultimate beginners guide
0:01to orderflow trading in this course you
0:04will gain Superior knowledge about the
0:06tools of orderflow analysis in record
0:09time technical analysis focuses on
0:12analyzing historical data to predict
0:14future price movements based on known
0:17patterns in contrast order flow delves
0:20deeper into the Dynamics of how prices
0:22are formed by Shining Light on Market
0:25micr structure meaning how buy and sell
0:27orders are placed matched and ex uted in
0:30the market orderflow analysis possesses
0:33tools for assessing price formation in
0:36real time as well as tools to analyze
0:38how price was formed in the past in
0:41short order flow has the capacity to
0:43unveil information that cannot be seen
0:46with price action reading by itself so
0:48order flow is a great Ally for Price
0:50action reading as you'll see throughout
0:52the course this course is constructed in
0:55a top-down manner first we're going to
0:57quickly study the auction market theory
1:00which provides the necessary theoretical
1:02framework to understand Market micro
1:04structure in orderflow trading Market
1:07micro structure is what allows us to
1:09understand the intricacies pitfalls and
1:12opportunities that exist in the way buy
1:14and sell orders are placed matched and
1:17executed in the market next we're going
1:20to delve into the various actionable
1:22order flow tools and strategies that are
1:25worth paying attention to as a retail
1:26Trader you learn what tools to avoid and
1:29what tools to focus on without further
1:32Ado let's begin by talking about auction
1:34Market Theory the auction market theory
1:37was developed by Peter style Meer who
1:40was a Trader at the Chicago Board of
1:42Trade in the 1980s style Meer also
1:45created the market profile method which
1:47I'm going to talk about in future
1:49courses and is similar to the volume
1:51profile
1:52tool the auction market theory is based
1:55on the idea that the financial Market
1:57serves as a place to facilitate trading
1:59between buyers and sellers in a way that
2:01is like the bidding and offering process
2:03of an auction to keep things simple
2:06buyers always want to buy at the lowest
2:08price and sellers always want to sell at
2:11the highest price the point where these
2:13two opposing forces meet is what is
2:15known as point of equilibrium it's also
2:18referred to as efficiency balance or
2:21fair value notice that auction market
2:23theory is based on the fundamental
2:25principle of supply and demand in
2:28economics pric is the point where supply
2:30and demand curves intersect meaning the
2:33point where buyers and sellers agree the
2:35search for efficiency equilibrium
2:38balance or fair value of a market is not
2:41static buyers and sellers are always
2:43changing their perception about the
2:45market due to many
2:46factors such factors include major
2:49macroeconomic forces news events overall
2:52Market sentiment and Technical factors
2:55to name a few when a new piece of
2:57information emerges that changes the
3:00perception of buyers and sellers related
3:02to the fair value of a market in other
3:04words it creates an
3:06imbalance an imbalanced Market starts
3:09the process of price Discovery meaning
3:11the discovery for the new fair value
3:14when markets are balanced they trade in
3:16the range there is no motive for Price
3:19Discovery since buyers and sellers are
3:21relatively comfortable with the
3:23perception of value of the market when
3:25markets become imbalanced we have
3:28trends one fundamental idea here is that
3:31markets respond to previous areas of
3:33balance and
3:35imbalance balanced markets which are
3:37sideways are recognized as areas of
3:41acceptance imbalanced markets which are
3:43trending are recognized as areas of
3:47rejection price tends to be attracted to
3:49areas of acceptance and repelled from
3:52areas of
3:53rejection all of this of course assumes
3:56that no new information has affected the
3:58perception of buyers and sellers
4:00in auction Market Theory we have three
4:02main components price time and volume
4:06price acts like an auction year that
4:08balances the forces of supply and demand
4:11in the Market at all times time serves
4:13as an indicator of acceptance or
4:16rejection like it can be seen in the
4:18market profile
4:19methodology the amount of time price
4:21spends in a price level shows whether
4:24price accepts or rejects that level
4:27volume helps confirm acceptance or
4:30rejection areas of acceptance are marked
4:33by higher volume and areas of rejection
4:35are marked by lower
4:37volume in auction Market Theory we also
4:40have the concept of value area which
4:42simply represents the price range where
4:4470% of the traded volume occurred within
4:47a specific time
4:49period the price level where the highest
4:51volume occurred is called point of
4:54control this value of 70% is based on
4:57the empirical rule in statistics meaning
5:00that in a gaussian distribution we have
5:0268% of the data falling within one
5:04standard deviation away from the main
5:07Traders round that up to 70% we'll talk
5:10more about this when we look at the
5:11volume
5:12profile keeping these basic principles
5:15in mind it's time now to move on to the
5:18subject of Market micr structure so that
5:21we understand the nuts and bolts of how
5:23price action is formed in the
5:25charts this might seem confusing and
5:27unnecessary at first but it's it's
5:29extremely important to understand
5:31otherwise you'll be completely lost
5:33later let's begin first by talking about
5:36the different kinds of orders that exist
5:38in trading to keep things simple we can
5:41summarize order types in two categories
5:44we have Market orders and we have Penny
5:47orders a market order is an order to buy
5:50or sell immediately for example if you
5:53want to buy at whatever price is being
5:55traded right now you will use a market
5:57order the same is true of course for a
5:59sell order a pending order is an order
6:02to buy or sell at a price different than
6:05what is being traded right now in that
6:07sense we have two main types of pending
6:09orders the limit and the stop order the
6:13limit order is a pending order to buy or
6:15sell at a better price than what is
6:17being traded right now for example a buy
6:20limit order is always below the current
6:22price since buyers always want to buy
6:25low a sell limit order is always above
6:28the current price since sellers always
6:29want to sell High the stop order is a
6:33pending order that becomes a market
6:34order once price reaches a predetermined
6:37level notice that stop orders allow
6:40traders to trade in a worse price buy
6:43stop orders are always above the current
6:45price and sell stop orders are always
6:48below the current price one key
6:50difference between stop and limit orders
6:53is that limit orders are active meaning
6:55that they are directly placed in the
6:57market while stop orders are inative
6:59active meaning that they are held by the
7:02broker if the market reaches the level
7:04where the stop order was placed the
7:06broker immediately transforms it into a
7:09market order that means that only the
7:11broker can see your stop orders the
7:13limit orders are visible to the entire
7:16market so to make this absolutely clear
7:19let's analyze the types of orders
7:21involved in a simple trade with stop-
7:23loss and takeprofit orders let's begin
7:25with the long trade imagine that you
7:28opened the long trade using a market
7:30order if the trade was opened with a buy
7:33order in order to close the trade you
7:35need to execute a sell order of the same
7:38size so both the stop- loss and
7:40take-profit Target orders of a long
7:42trade are sell orders the stop- loss of
7:45a long trade is a sell order that is
7:47below the price you open the trade so
7:49it's a sell stop order in a worst price
7:52the take profit of a long trade is a
7:54sell order that is above the price you
7:56open the trade so it's a sell limit
7:58order in a Better
8:00Price imagine now that you open the
8:02short trade using a market order if the
8:05trade was opened with a sell order to
8:07close the trade you need to execute a
8:10buy order of the same size so both the
8:12stop- loss and take-profit Target orders
8:14of a short trade are buy orders the
8:17stop- loss of a short trade is a buy
8:19order that is above the price you open
8:21the trade so it's a buy stop order in a
8:23worse price the takeprofit of a short
8:26trade is a buy order that is below the
8:28price you open the trade so it's a buy
8:30limit order in a better price one easy
8:33way of remembering all of this is that
8:35market orders get you filled at the
8:37current price limit orders get you
8:39filled at a better price and stop orders
8:42get you filled at a worse price keeping
8:44in mind the buyers want to buy low and
8:47sellers want to sell High notice also
8:49that stop orders can be used either to
8:51get out of a trade or to initiate a
8:53breakout trade for example recall also
8:56the limit orders are active meaning that
8:59they are Place directly in the market
9:01while stop orders are inactive meaning
9:03that they are held by the broker until
9:05the market reaches the level where they
9:07are triggered this is one of the reasons
9:09you need to choose a reliable broker
9:12notice that not all buy orders have the
9:14intention of adding buying pressure and
9:16not all sell orders have the intention
9:18of adding selling pressure in the case
9:20of pending orders the intention can be
9:23to stop or limit price movements this
9:25leads us to different types of Market
9:28players there are basically two types
9:30the aggressive and the passive players
9:33aggressive players are the ones that
9:35initiate price movements and they do so
9:37through the use of Market
9:39orders passive players don't initiate
9:42price movements but they can slow it
9:44down or stop it and they do that through
9:46limit
9:47orders that also means that passive
9:49players demonstrate intent across
9:51different price levels as we'll see
9:53later another way of thinking about
9:55aggressive and passive players is that
9:57aggressive players take liquidity from
9:59passive players and passive players
10:01provide liquidity to the aggressive
10:04players it's important that you
10:05acknowledge a few basic rules about the
10:08interaction of Market players a buy
10:10order must always match a sell order in
10:13other words if you want to buy there
10:15must be someone else on the other side
10:17willing to sell and vice versa an
10:19aggressive order must always match a
10:22passive order with all this concept in
10:24mind let's move on to hypothetical
10:26scenarios in one of the order flow tools
10:28called the order book the order book
10:31shows the buy limit orders below the
10:33current price in the bid column on the
10:35left and the sell limit orders above the
10:37current price in the as column on the
10:40right the order book shows the Dynamics
10:42of limit orders in real time notice that
10:45the order book is very similar to
10:47another real-time order flow tool called
10:49depth a market or D the difference is
10:52that the D is easier to read since the
10:55size of bars in the bid and S columns
10:57are proportional to the number of limit
10:59orders giving an instant perception of
11:02Market depth to the trader however they
11:05basically show the same
11:07information this is a good moment to
11:09explain the concepts of liquidity and
11:11Market depth liquidity is the ease with
11:14which a market can be traded without
11:16causing significant changes in Price
11:19Market depth is the number of orders in
11:21a given price level a deeper Market
11:24means that more trading activity can
11:26occur without causing significant
11:28changes in price
11:30by the same token a shallow Market means
11:32that significant changes in price can
11:34occur with low levels of trading
11:36activity let's take a hypothetical
11:38scenario where buyers for whatever
11:40reason feel that the current price is
11:42low and they decide to buy recall that
11:46market players that initiate price
11:47movements are aggressive players and
11:49they do so with Market orders recall
11:52also that an aggressive order must
11:54always match a passive order for price
11:57to rise from 50 to 51 one aggressive
12:00buyers must take the liquidity provided
12:02by the passive sellers in the 50 price
12:04level first in this example there are 23
12:08sell limit orders in that level to go
12:11from the 51 to the 52 price level the
12:14same process needs to occur of course
12:17notice that in this case the S column
12:19has shallow Market depth so the
12:21aggressive buyers can cause a more
12:22significant rise in price with not a lot
12:24of aggressive power in the higher prices
12:27market depth begins to rise price and
12:30the aggressive buyers require more power
12:32to produce the same change in price the
12:35same mechanics of course happen in the
12:37bid column that is how prices
12:39effectively rise and
12:41fall like I said previously the order
12:44book or the Dum is a realtime tool to
12:47assess the intention of passive players
12:50and here Begins the problem since this
12:52is a realtime tool it is subjected to
12:55different kinds of manipulation
12:57Maneuvers for example buyers can place
13:00significant buy limit orders in a
13:02specific price level with the intention
13:04of attracting the market to that area
13:06but with no intention of getting
13:08filled they can cancel the orders just
13:11before they are hit this problem became
13:14significant especially after the rise of
13:16high frequency trading algorithms in
13:182008 which can basically automate this
13:21process so the market depth reflected in
13:24the order book or Dom doesn't
13:26necessarily correspond to the real
13:28intention of buyers and sellers let's
13:30briefly go over different kinds of
13:32manipulation Maneuvers that can occur in
13:34the order book or
13:36D spoofing this maneuver involves the
13:39placement of large limit orders with no
13:42intent of having them filled in other
13:44words passive players can Place Large
13:47orders that will appear in the order
13:49book or DP to create the illusion that
13:51there is a lot of intent in a particular
13:53price level but in reality these players
13:56don't have the intention of executing
13:58these orders
13:59they just want to induce the illusion of
14:01liquidity or supply and demand on other
14:03Market players such orders can be
14:06quickly cancelled just before price hits
14:08them for
14:10example the problem of course is that
14:12there is no way to tell if the large
14:14orders exist for a legitimate intent or
14:17if they are result from
14:19spoofing Iceberg orders institutional
14:22Traders have access to trading platforms
14:24that allow them to place what are called
14:26Iceberg orders which are limit orders
14:29that appear partially in the order book
14:31or Dum when the visible portion of the
14:33order is executed another portion of the
14:36order emerges and gets
14:38executed the reason behind this is to
14:41hide the intent of having a very large
14:43order appear in the order book a retail
14:46Trader has no way to tell if the ordered
14:48book or Dum is hiding an iceberg ordered
14:51so a price that appears to have shallow
14:53depth might be hiding an iceberg order
14:56which would obviously be
14:57misleading there are other types of
14:59manipulation Maneuvers like painting the
15:01tape and layering but the understanding
15:04of spoofing and Iceberg orders is enough
15:06to understand the misleading nature of
15:08real-time order flow
15:10analysis in conclusion when observing
15:13the order book or the Dom shallow price
15:15levels might actually be deep and deep
15:17price levels might actually be shallow
15:20there is of course no way of telling the
15:22intention of passive players just by
15:24looking at these real-time tools as
15:26retail Traders there is a very high
15:29probability of being misled by more
15:30astute institutional Traders
15:32manipulating the order flow all this
15:35talk about algorithms manipulating price
15:37is related to real-time order flow not
15:40historical order flow this information
15:43might seem inoffensive but it's
15:45importance will grow as we progress so
15:48this deceptive mechanics of the
15:49real-time order flow is one problem but
15:51it doesn't stop there another problem
15:54here is that Traders tend to assume that
15:56buying and selling always have
15:58directional content that's not true
16:01certain kinds of Market participants
16:03don't buy necessarily expecting that
16:05price will rise or sell expecting that
16:07price will fall the key to understanding
16:10that is that there are mainly three
16:11types of Market participants speculators
16:14arbitres and
16:16hedgers speculators are what most retail
16:19Traders expect every Market participant
16:21to be speculators want to capitalize on
16:24the directionality of price movements
16:26meaning buying low and selling High
16:29if the market was made only of
16:31speculators the order book would be less
16:33misleading although the manipulative
16:35tactics we just saw would still be a
16:37problem we also have
16:39arbitragers this kind of Market
16:41participant is not worried about Market
16:44Direction they want to capitalize on the
16:46difference between two markets which
16:48often involves buying one market and
16:50selling another
16:52simultaneously in other words when
16:54arbitragers buy or sell a market they
16:56don't necessarily expect this Market to
16:59rise or fall statistical Arbitrage is a
17:02good example these kinds of Traders
17:04don't trade market Direction They trade
17:07the statistical relationship between two
17:09or more markets for example if an
17:12arbitrager buys Market a and sells
17:15Market B he doesn't care if Market a
17:17Falls as long as Market B Falls more
17:20than a that is a simplistic example but
17:23it illustrates how buy and sell orders
17:25don't necessarily have directional
17:27intent behind them if you want to learn
17:29more about Arbitrage I have an ebook
17:31about it called statistical Arbitrage by
17:34Co integration Co integration is an idea
17:37that won the Nobel prize in economics
17:39and it lays the foundation for Arbitrage
17:41strategies in the institutional trading
17:43World it can also be used by retail
17:46Traders the third type of market player
17:48is the hedger this kind of Market
17:51participant aims to reduce or eliminate
17:54some kind of Risk by using the financial
17:56markets the classic example here is
17:59Delta hedging used by Banks which
18:01involves buy and call options at the
18:03same time that they sell the underlying
18:05Financial instrument following a certain
18:07proportion the aim is to eliminate Delta
18:10or directional risk that's useful to
18:13mitigate some of the credit risk
18:14associated with Landing operations in
18:17summary just because they sold the
18:19market doesn't mean they want it to go
18:21down because they are not trading Market
18:23Direction they are trading Market
18:25volatility I have a video here in the
18:27channel demonstrating how Del the
18:28hedging occurs I'll leave it in the
18:31video description or card the term Delta
18:34here is completely unrelated to the
18:36Delta we'll study later the first
18:38relates to the delta or directional risk
18:40of the market given by the black sches
18:42formula and the latter relates to volume
18:45Delta which is the difference between
18:47bid and ask volume in conclusion not
18:50every Market participant buying or
18:52selling has directional intent like most
18:54retail Traders expect that is a problem
18:57because it obfuscates the order flow
18:59process in real-time tools like the
19:01order book or D the situation is even
19:04worse because there are different ways
19:06of manipulating the perception of intent
19:08through limit orders as we saw if you're
19:11still not depressed let me try again
19:13beyond the problem of manipulation in
19:15the order book and the problem of
19:17ambiguity due to the diverse nature of
19:19Market participants we also have the
19:22problem of hidden volume hidden volume
19:25occurs primarily due to OTC or over
19:28thecount Trading
19:29and dark pools OTC trading is when
19:32trades happen between certain parties
19:34without going through a centralized
19:36exchange this is a problem of course
19:38because it can obfuscate the real level
19:40of Market activity to the general public
19:43this is not a small matter since OTC
19:45trading is usually done by large players
19:48such as pensions funds hedge funds
19:51Sovereign wealth funds and very large
19:53companies just so you can have some
19:55perspective the volume traded in the OTC
19:58markets is a few times larger than the
20:00global GDP in
20:032023 it is estimated that the global GDP
20:06was around1 trillion the volume traded
20:09in the OTC derivatives Market alone was
20:12600 trillion according to the bank of
20:14international
20:16settlements dark pools are private off
20:18exchange training venues where large
20:21institutional investors can execute
20:23trades without publicly revealing their
20:25orders until after the trade is
20:27completed dark tools are primarily used
20:29to minimize the market impact of large
20:32transactions the lack of pre-trade
20:34transparency is clearly a problem if
20:36Traders are looking to analyze the
20:38real-time order flow of a market in
20:41summary the manipulation in the order
20:43book with the tactics such as Iceberg
20:45orders and spoofing the ambiguity
20:47generated by different kinds of Market
20:49participants such as speculators
20:51arbitragers and hedgers and the lack of
20:54transparency due to OTC and dark pools
20:57hidden volume Le lead us to conclude
20:59that the real-time analysis of order
21:01flow done by retail Traders is mostly a
21:03vain
21:04exercise given that trading is a game of
21:07asymmetric information and Retail
21:09Traders are always on the weaker side we
21:11need ways to analyze order flow in a
21:13more concrete way in other words we
21:16cannot rely on tools that show realtime
21:18intent we need to rely on tools that
21:21tell us what in fact happened with the
21:23order flow one of these tools is what is
21:26called time and sales also referred to
21:28as the tape however things happen too
21:31quickly in the tape it's a difficult
21:33tool to use and there are better options
21:35for analyzing the historical order flow
21:38the conclusion here is that we should
21:39focus on tools that highlight important
21:42aspects of historical order flow that
21:44solve the problem of dealing with
21:46manipulation tactics in the order book
21:48or D such as layering spoofing and
21:50Iceberg orders historical order flow
21:53tools will show us what in fact happened
21:56not the misleading intention of various
21:58mark Mark
21:59players however by using historical
22:01order flow tools we still have the
22:03problem of ambiguity and the problem of
22:05lack of transparency or hidden volume
22:08the problem of ambiguity can be
22:10mitigated by changing our perspective
22:12instead of looking at order flow as a
22:14tool to identify directional movement we
22:17look at it to identify levels of
22:19activity the problem of lack of
22:22transparency Still Remains one way of
22:25dealing with this problem is to focus on
22:27Futures Trading because future Futures
22:28are traded on centralized exchanges
22:31unlike Forex for example which is
22:33decentralized you can rate order flow in
22:35currency Futures to obtain more
22:37transparent information and trade on
22:40Forex charts for
22:41example in conclusion use historical
22:44order flow tools focus on identifying
22:47levels of activity instead of
22:49identifying directional intent and focus
22:52on Futures Trading if you want to obtain
22:54more reliable order flow data there are
22:57many historical order flow tools but
22:59we'll focus on three of them for
23:01Simplicity sake the footprint the volume
23:04profile and the cumulative volume Delta
23:07let's begin with the
23:09footprint the footprint shows the same
23:11information given by the time in sales
23:13or tape but it displays it in a useful
23:16and relatively easy way to
23:19observe once again the idea is not to
23:21identify directionality but to quantify
23:24the activity of buyers and sellers in
23:26the price levels within a candlestick
23:28recall that when we looked at the order
23:30book we were analyzing limit orders
23:33limit buy orders in the bid and limit
23:35sell orders in the ask those were the
23:38real-time orders of the market the
23:41footprint is a historical order flow
23:43tool meaning that it shows the orders
23:45that got executed not the orders that
23:47might be executed in this sense the bin
23:50and ass Columns of the footprint
23:52demonstrate aggressiveness meaning that
23:54the bid column shows selling aggression
23:56and the S column shows Buy buying
23:58aggression that might seem confusing but
24:01you must remember that an aggressive
24:02order always matches a passive order in
24:05summary the bid column shows passive
24:07buying intent in the order book but in
24:10the footprint it shows the aggressive
24:12selling that actually took place the US
24:15column shows passive selling intent in
24:17the order book but in the footprint it
24:19shows the aggressive buying that
24:21actually took place When Buyers attack
24:24sell limit orders this activity is
24:26represented in the S column
24:29when sellers attack by limit orders that
24:31activity is represented in the bid
24:33column make sure you understand this
24:36perfectly before we move on to the
24:38features of the footprint chart and how
24:40to use it let's make sure we clarify a
24:42problem related to the matching of
24:44orders let's go back to the simple
24:46example of a long trade with a stop-
24:48loss and take-profit Target orders and
24:50analyze where each of these three orders
24:53will appear in the footprint imagine
24:55that you open a long trade with a buy
24:57Market order that is an aggressive buy
24:59order so it matches a sell limit and
25:02therefore it will appear on the S column
25:04of the footprint if your trade gets
25:06stopped out a sell stop order will be
25:08triggered a sell stop order is a sell
25:11Market order that matches a buy limit
25:13order and therefore it will appear on
25:15the bid column of the footprint the
25:18takeprofit is a sell limit order that if
25:20triggered will match a buy Market order
25:23and it will appear on the S column of
25:25the footprint imagine now that you open
25:27a short trade with a sell Market order
25:30that is an aggressive sell order so it
25:32matches a buy limit and therefore it
25:34will appear on the bid column of the
25:36footprint if your trade gets stopped out
25:39a buy stop order will be triggered a buy
25:42stop order is a buy Market order that
25:44matches a sell limit order and therefore
25:47it will appear on the as column of the
25:49footprint the takeprofit is a buy limit
25:51order that if triggered will match a
25:53sell Market order and it will appear on
25:55the bid column of the footprint it's key
25:58to remember that not all aggressive
26:00orders have intent of adding buying or
26:02selling pressure to the market for
26:04example the stop loss of a sell which is
26:07a buy Market order can match a take
26:10profit from a buy which is a sell limit
26:12order this will appear on the as both
26:15Traders are leaving the market and yet
26:17the footprint would reflect aggressive
26:19buying in the ask the stop- loss of a
26:22buy which is a sell Market order can
26:24match a takeprofit from a sell which is
26:26a buy limit order
26:28this would appear in the bid both
26:31Traders are leaving the market and yet
26:33the footprint would reflect aggressive
26:35selling in the bid with that in mind
26:37let's begin understanding the features
26:39of the footprint chart the footprint
26:42chart shows two columns one in each side
26:45of the Candlestick in
26:46question you can change the level of
26:48resolution of the price levels according
26:50to your
26:52liking the column on the left shows the
26:54bit volume across different price levels
26:56of the Candlestick recall ing that on
26:58the footprint the bid column shows
27:00selling aggression not by intention like
27:03in the order book the column on the
27:05right shows thees volume across
27:07different price levels of the
27:08Candlestick recalling that on the
27:10footprints the S column shows buying
27:12aggression not selling intention like in
27:15the order book it's a mistake to
27:17associate red cells with directional
27:19selling only and green cells with
27:21directional buying only as we saw
27:23previously the cells with lighter colors
27:26show price levels with lower volumes and
27:28logically the cells with darker colors
27:31show price levels with higher volumes
27:34the cells in Black demonstrate the price
27:36level with the highest level of activity
27:39this is known as hvn or high volume node
27:43this can be useful when trying to judge
27:45which price level within a Candlestick
27:47future price action can react to if this
27:50was the price level with the highest
27:52volume is the price where buyers and
27:54sellers found fair value for the most
27:56part and it can be used later support or
27:59resistance another feature of the
28:01footprint is called the value area as a
28:04default the value area is the range of
28:06prices where 70% of the volume occurred
28:10this level of 70% is not arbitrary if we
28:13recall the empirical rule in statistics
28:15we see that 68% of the data occurs
28:18within one standard deviation from the
28:20mean in a gussian
28:22distribution Traders simply round that
28:24number up to
28:2570% this is therefore the range of fair
28:27value value within the Candlestick the
28:30high volume node is simply the peak of
28:32the distribution within the value area
28:35the limits of the value area are
28:37displayed as
28:38V which means value area high and V
28:43which means value area low this is the
28:45same idea of the volume profile but
28:47instead of measuring the volume
28:49distribution in a series of candlesticks
28:51the footprint shows the volume
28:53distribution within the Candlestick
28:56another important feature of the
28:57footprint is called imbalance which is
29:00highlighted by green or red thin bars on
29:02the side of the price levels where the
29:04imbalance occurred it's important to
29:06knowe that we don't compare price levels
29:08horizontally in the footprint We compare
29:11them diagonally like so that's because
29:14When Buyers attack passive sellers they
29:16do that one price level above when
29:18sellers attack passive buyers they do
29:21that one price level below as a standard
29:24the imbalance occurs when there is a
29:25300% discrepancy between price levels
29:29meaning when one price level has at
29:31least three times more volume than the
29:33price level immediately above or below
29:36when the discrepancy occurs in the bid
29:38there is a bid imbalance when the
29:40discrepancy occurs in the ask there is
29:43an Ask imbalance the terms buy or sell
29:46imbalance are not really appropriate
29:48because not every selling aggression
29:49comes from sellers willing to add
29:51selling pressure not every buying
29:53aggression comes from buyers willing to
29:54add buying pressure as we saw before in
29:57the this Candlestick we have three
29:59imbalances in the ask and one in the bid
30:02let's analyze the highest one in the ask
30:04we see that in the imbalance level
30:06there's a volume of 24,000 in the ask
30:09one level Below in the bid we see that
30:11the volume was 6.9 th000 if we measure
30:15the ratio here we see that the ask
30:17volume was 3.46 times larger that is why
30:20this is marked as an imbalance if we
30:23look at the bid imbalance at the top
30:25we'll see that the bid volume was around
30:277 15,000 in comparison to 2.6 th000 in
30:31the ask that's 6.5 times larger
30:34imbalances can also be stacked for
30:37example when there is more than one
30:38imbalance in successive price levels we
30:41have stacked
30:42imbalances another important feature of
30:44the footprint is the volume Delta the
30:47Delta is nothing more than the
30:48difference between ask volume and bid
30:51volume generally speaking bullish
30:53candles have positive Delta and bearish
30:55candles have negative Delta but not
30:57always as we'll see in a moment the
31:00footprint basically serves two different
31:02purposes we can use it to identify
31:04support and resistance levels in
31:06different ways and we can use it to
31:08validate any other type of support and
31:11resistance we find in a Candlestick
31:12chart let's begin with the ways of
31:15identifying support and resistance
31:16levels with the footprint itself there
31:19are mainly two ways of using the
31:20footprint to identify support and
31:23resistance levels consecutive high
31:25volume nodes and stacked imbalances
31:28let's see an example of both single high
31:31volume nodes are usually not strong
31:33enough to provide meaningful support and
31:35resistance levels but when high volume
31:37nodes happen consecutively in the same
31:39price level there's a higher chance that
31:41they will act as support or resistance
31:44in this image you can see an example of
31:47that we can see three different price
31:49levels with multiple high volume
31:51nodes the first has two the second has
31:55three and the third has two
31:58we see price returning to this high
31:59volume area later and then resuming the
32:02movement to the upside in this other
32:04image you can see an example of stacked
32:06imbalances working as support the low of
32:09the large bearish Candlestick is formed
32:11by four stacked imbalances in the ass
32:13colum denoting buying aggression near
32:15the low when price returns to that area
32:18later it reacts to the upside these are
32:20the two main ways of observing support
32:22and resistance levels with the footprint
32:24but in my point of view the best value
32:26we can get from the foot footprint is
32:28using it to confirm support and
32:30resistance levels we would normally find
32:32in a Candlestick chart this requires a
32:35contextual reading of the footprint
32:36chart in light of the support or
32:38resistance level in question before we
32:41observe examples of that we need to be
32:43aware of two important aspects of the
32:45footprint the price and balance
32:47relationship and the price Delta
32:50relationship price and balance
32:51relationship is observing the position
32:54of the closing price of a Candlestick in
32:56relation to the bid and ask imbalances
32:58that occur in the footprint this is
33:01important to identify potential
33:02absortion or initiative of Market
33:05players which are important features of
33:07Market reversals let's observe the
33:10absortion pattern if you see price
33:12closing below an Ask imbalance the
33:14interpretation is that buyers are being
33:16absorbed by sellers since an Ask
33:19imbalance generally means buying
33:21aggression price action should confirm
33:23that by closing above it when it doesn't
33:26we can infer that sellers are absorbing
33:28the buyers if you see price closing
33:31above a bid in Balance the
33:33interpretation is that sellers are being
33:35absorbed by buyers since a bid imbalance
33:38generally means selling aggression price
33:40action should confirm that by closing
33:42below it when it doesn't we can infer
33:45that buyers are absorbing the sellers
33:47the absorption pattern is sometimes not
33:49enough to spot a reversal we need to
33:51confirm it with the initiation pattern
33:54right after the initiation pattern is
33:56nothing more than the agreement between
33:58imbalances in price the buying
34:01initiation pattern occurs when we see
34:03price closing above imbalances in the
34:05ask the interpretation is that in the
34:08imbalances in the ask indeed represent
34:10buying aggression with directional
34:12intent the selling initiation pattern
34:15occurs when we see price closing below
34:17imbalances in the bid the interpretation
34:20is that the imbalances in the bid indeed
34:22represent selling aggression with
34:24directional intent one possible way that
34:27prices will reverse is by the
34:29combination of absortion and
34:31initiation for example imagine that we
34:34observe price approaching a support line
34:36as price moves toward the line we see
34:38price closing below imbalances in the
34:40bid which agrees with the idea of
34:42selling pressure once price hits the
34:44line we see an absorption pattern
34:46meaning price closing above bid
34:49imbalances right after that the market
34:51switches to an initiation pattern we see
34:55price closing above imbalances in the
34:57ask in a clear bullish candle the same
34:59logic of course applies to a bearish
35:01reversal like you can see here the
35:04important point is that you can use this
35:06pattern to help in the confirmation of
35:08any type of support and resistance line
35:10it can be standard support and
35:12resistance channels pitchforks Dynamic
35:15lines like moving averages and Ballinger
35:17bends Fibonacci levels and so on another
35:21important information we can find in the
35:22footprint is the relationship between
35:25price and volume Delta volume Delta is
35:27nothing more than the difference between
35:29ask and bid volume as we saw earlier a
35:32bullish candle usually has positive
35:34Delta and a barish candle usually has
35:37negative Delta positive Delta means more
35:39volume in the ask which agrees with the
35:41idea of buying aggression negative Delta
35:44means more volume in the bid which
35:46agrees with the idea of selling
35:48aggression however bullish candles don't
35:50always have positive Delta and bearish
35:52candles don't always have negative Delta
35:55this is known as Delta Divergence
35:58this is important because if all that
36:00happened in the ask was related to
36:01trading activity directed to adding
36:03buying pressure in the market and all
36:05that happened in the bid was related to
36:07trading activity directed to adding
36:09selling pressure in the market Delta
36:11Divergence would not exist but it
36:13certainly does Delta Divergence is a
36:16sign of absortion so it complements the
36:19patterns we saw earlier when a bullish
36:21candle shows negative Delta it is a sign
36:24that buyers are being absorbed when a
36:26bearish candle shows positive Delta it
36:29is a sign that sellers are being
36:30absorbed for example in this image you
36:33can see that the candle highlighted is
36:35bearish and it has positive Delta that
36:37perfectly complements the fact that we
36:39see price close above imbalances in the
36:41as column which would be a sign of
36:43buying initiation another detail here is
36:46that these are stacked imbalances notice
36:49how price continues going up afterwards
36:52confirming the notion that sellers got
36:53absorbed by more powerful buyers the
36:56footprint showed the volume Delta in
36:58each candle but we can also observe it
37:01cumulatively over time in what's called
37:03cumulative volume Delta or
37:05cvd the advantage here is spotting
37:08exhaustion and absortion signals this
37:10works similarly to spotting Divergence
37:12signals in oscillators in the sense that
37:14we compare the evolution of price
37:16extremes with the corresponding Extremes
37:18in the cumulative volume Delta let's
37:21study the exhaustion and absortion
37:23patterns if price is creating higher
37:25Highs but the CBD is making lower lower
37:27highs it means that buyers are losing
37:29Steam and price might reverse to the
37:31downside soon that is the buying
37:35exhaustion if price is making lower
37:37highs and then CBD is making higher
37:39highs it means that buyers are trying to
37:41go up but sellers are absorbing them so
37:44this movement is not being represented
37:46in price action this is also an
37:49indication that price will go down this
37:51is the buying absortion
37:54pattern if price is creating lower lows
37:56but the cvd is making higher lows it
37:58means that sellers are losing Steam and
38:01price might reverse to the upside soon
38:03this is the selling
38:05exhaustion if price is making higher
38:07lows and the cvd is making lower lows it
38:10means that sellers are trying to go down
38:12but buyers are absorbing them so this
38:14movement is not being represented in
38:16price action this is also an indication
38:19that price will go up this is the
38:21selling absortion pattern we can of
38:23course use the cumulative volume Delta
38:25Divergence patterns to Conta visualize
38:28what happens with price imbalance and
38:30price Delta relationships in the
38:33footprint another important tool of
38:35orderflow analysis is the volume profile
38:38the volume profile is a variation of
38:40style Meers Market profile it simply
38:44displays the activity across different
38:45price levels over a series of candles so
38:48it's a volume at price too Market
38:51profile is similar but it shows the
38:53level of activity in each price level
38:55based on time instead of volume
38:58let's learn the main features of the
38:59volume profile and then we'll learn how
39:01to use it for market
39:03analysis the volume profile is a
39:05horizontal histogram that displays the
39:07level of activity in each price level
39:09based on volume the footprint shows the
39:13volume action inside the Candlestick but
39:15the volume profile shows the volume
39:17action across a series of
39:19candlesticks these two tools are
39:21actually very similar just like in the
39:23footprint in the volume profile we have
39:26the value area which which represents
39:2870% of the traded volume in What's
39:30called the PC or point of control which
39:33is the price level with the largest
39:34volume or the peak of the
39:36histogram some Traders choose to use a
39:39value area setting of 40% to get more
39:42precise readings since the 70% can be
39:44too wide sometimes in the volume profile
39:48areas of high volume show areas of price
39:50acceptance or balance meaning areas
39:52where buyers and sellers relatively
39:54agreed about the fair value of the
39:56market
39:58recall that these areas can act as
40:00magnets for Price areas of fair value
40:03are also areas of high
40:05liquidity areas of low volume in the
40:07profile show areas of price rejection or
40:10imbalance meaning areas where buyers and
40:13sellers disagreed about fair value areas
40:16of imbalance shown by low volume in the
40:19profile have low liquidity recall that
40:22in areas of low liquidity price action
40:24can travel greater distances with less
40:26Market AC ity areas of low volume can
40:30repel
40:31price all of this of course assumes that
40:33no new significant information has
40:35changed the perception of buyers and
40:37sellers in summary areas of fair value
40:40shown by higher volumes in the profile
40:43tend to attract price action areas of
40:46imbalance given by lower volumes in the
40:48profile tend to repel price action this
40:51is very useful to judge the quality of
40:53support and resistance levels and the
40:55power of supply and demand Zone in the
40:58chart there are many details about the
41:00volume profile but for the context of
41:02this course this tool is very useful to
41:04identify previous areas of fair value
41:07where price might get attracted to in
41:09the future and reverse for example in
41:12this chart you can see that I plotted
41:14the volume profile in the Upper price
41:16movement from A to B the idea here is to
41:19understand where in this trend was the
41:21fair value area which is highlighted by
41:24the space between blue lines price comes
41:26back to the fair value area later on and
41:29resumes direction to the upside from
41:31this example it's clear that the areas
41:33of fair value are relative to where we
41:35plot the
41:36profile for example if we change the
41:39profile to this upward price movement
41:41the fair value area changes and we end
41:44up catching another demand Zone price
41:46does react to this demand Zone as well
41:49in summary different profiles will point
41:52to different fair value areas so it's
41:54important to contextualize the volume
41:56profile with other tools in order to
41:58extract the greatest value from it let's
42:01look at some examples of how these
42:03different order flow techniques can work
42:05in
42:06combination in this chart we have the
42:08minis SMP 1H hour time frame observe
42:11that I have marked Market extremes from
42:131 to 3 in the Candlestick chart we can
42:16see a small volume profile plotted on
42:18the downward movement from 1 to two the
42:21idea here is to detect the fair value
42:23area of that particular movement and its
42:26point of control which is represented as
42:28the red line the indicator at the bottom
42:31is the cumulative volume Delta in this
42:34example between lows 2 and three we have
42:37a selling absortion example meaning that
42:39the CBD is producing lower lows showing
42:41an accumulation of negative Delta but at
42:44the same time price action is not being
42:46able to go down this means that sellers
42:48are being absorbed by buyers which is of
42:51course a bullish signal in this case
42:53price is reaching the point of control
42:55as support in number three and that is
42:57happening in the context of a selling
42:59absortion in the cumulative volume Delta
43:02indicator this is a good moment to
43:03employ the footprint chart in order to
43:06understand what's happening with the
43:07candlesticks that are touching the point
43:08of control as support that will give us
43:11further Insight onto why price reacted
43:14so violently after the point of control
43:17here we have the footprint chart of
43:19those two candles in the first candle we
43:21have price closing below two stacked
43:23imbalances and one single imbalance in
43:26the bid which is a sign of selling
43:29initiation however we do see price
43:31closing above an imbalance in the ask
43:33which is a sign of buying
43:35initiation the story here is that for
43:37the most part this candle had a lot of
43:39selling power until it met the support
43:41Outline by the point of control we just
43:43talked
43:44about after touching the line we can
43:47indeed see buyers emerging at the bottom
43:50notice also that we do see a high volume
43:52node occur below the close of the candle
43:54that means that the greatest point of
43:56battle between buyers and sellers
43:58happened there in the area where the
43:59buying initiation began to take place
44:02with that said price closed within the
44:04fair value area which is an indication
44:07that buyers and sellers relatively agree
44:09about the fair value at least in this
44:11Candlestick in
44:12isolation in terms of price Delta
44:15relationship we can see that there is no
44:17Divergence we have a clearly bearish
44:19candle with a negative Delta a positive
44:22Delta in this scenario would have been a
44:24stronger piece of evidence to the upside
44:26in the next candle we see a strong
44:28bullish move the first thing that draws
44:31attention here is the absence of
44:32imbalances in the bid and price closing
44:35above multiple imbalances in thees
44:38suggesting a strong buying initiation
44:41other than that we see price closing
44:42above the high volume node and the whole
44:44fair value area indicating that now
44:47there is an
44:48imbalance buyers and sellers are not
44:50agreeing about the fair value like in
44:52the previous Candlestick Delta is
44:55positive confirming everything we just
44:57just saw the story given by the
44:59footprint can be summarized as follows
45:01price encountered a support while it was
45:04going down with violence and a small
45:06degree of buying initiation began to
45:08take place in the next scandle we see
45:11very strong buyers initiating a movement
45:13with very clear signs that scenario
45:15ended up in a very large bullish move
45:18afterwards let's also now forget about
45:21the origin of the support line given by
45:23the point of control of the volume
45:25profile and the fact that all of the
45:27this was happening within a selling
45:28absortion in the cumulative volume Delta
45:31indicator let's now look at what
45:33happened in the same time but now in the
45:35imin Dow Jones futures recall that the
45:38S&P and the Dow Jones are highly
45:40correlated so it's not uncommon for
45:42relatively the same opportunities to
45:43emerge in different ways in these
45:45markets in this chart you can see that I
45:48plotted an endro Pitchfork in Market
45:50extremes one 2 and three the Pitchfork
45:53then gives us a projection about the end
45:55of four at the median line orderflow
45:58analysis would enter the scene here to
45:59Aid in the confirmation of the median
46:01line as a support level so let's observe
46:04the footprint of the candles that
46:06interacted with the median line in this
46:08case in the first candle we have
46:10ambiguous readings in relation to
46:12imbalances in the bid and ask columns we
46:15have price closing above and below both
46:17imbalances in the bid and ask let's
46:20contextualize that with other elements
46:21of the footprint in the scandle it's
46:24pretty clear that most of the volume
46:26happened in the lower Shadow judging by
46:28the darker colors in there two important
46:31details here are that price seems to be
46:33moving away from the fair value area
46:35notice how it closes almost at the value
46:38area high that gives the impression that
46:40buyers and sellers started to disagree
46:42about the fair value here the second
46:44detail is that we have Delta Divergence
46:47meaning that we have a bearish candle
46:48with positive Delta and that is a sign
46:50of selling absortion this is confirmed
46:53in a way by price closing above the
46:55stack bid in balance at the very bottom
46:57of the candle in the next candle this
46:59notion is confirmed the ambiguity in the
47:02imbalances disappears we have price
47:05closing above a series of imbalances in
47:07the ask and one imbalance in the
47:09bid we also have price closing above the
47:12fair value area and notice also how the
47:14fair value in this candle is higher than
47:16the fair value area from the previous
47:18candle Delta Divergence also disappears
47:22and we now have a Delta that agrees with
47:25Buyers when you combine all these
47:27elements in a context we can see price
47:29turning at the medium line of the
47:30Pitchfork and the result is already
47:32obvious a massive upper movement just
47:35like we saw in the S&P as you can see in
47:38these examples order flow analysis gives
47:41a more granular view of what's happening
47:43between buyers and sellers it's almost
47:45like putting candlesticks on an X-ray
47:47machine some people claim you should
47:50stop using candlesticks and focus on the
47:52footprint instead that's misleading
47:55recall that candlesticks are the best
47:57representation of price the footprint is
47:59about volume activity price and volume
48:02are the two types of information
48:04generated by the market but price is at
48:06the top of the hierarchy volume only
48:09helps contextualize what happens the
48:11greatest power comes when we combine
48:13these tools not when we choose one over
48:15the other we can go a lot deeper into
48:18order flow analysis but this serves as
48:20an introduction let's now move on to the
48:22advantages and disadvantages of using
48:24orderflow starting with the advantages
48:27number one order flow is an effective
48:30way of analyzing volume action which in
48:33combination with price action forms a
48:35reliable framework of analysis two it
48:39provides multiple ways of seeing Market
48:41information in ways that might not be
48:42obvious by looking at Price action in
48:45isolation three it allows traders to put
48:48an x-ray on price reversals four it
48:52provides granular Market Insight while
48:55analyzing the real-time reliab ility of
48:57support and resistance levels which is
48:59fundamental in any serious training
49:01strategy five it can also provide new
49:04ways of seeing support and resistance
49:05levels that might not be obvious just by
49:07looking at Price action there are of
49:10course a few disadvantages too number
49:13one orderflow analysis can be
49:15overwhelming to learn in the beginning
49:17due to the way the tools work and the
49:19intricate nature of Market micr
49:22structure two like we saw order flow
49:25analysis is not the void of problems
49:27there is the problem of ambiguity the
49:29problem of manipulation and the problem
49:32of lack of transparency even though
49:34there are ways of dealing with these
49:35issues they cannot be completely
49:38eliminated three orderflow tools can
49:41generate confusion if the trader lacks
49:43the ability to put these tools under the
49:45appropriate perspective four the
49:48real-time analysis of orderflow tools to
49:50validate support and resistance levels
49:52requires Great familiarity with the
49:54contextual analysis of footprint
49:56Elements which can be a challenge
49:58especially in lower time frames since
50:00market analysis requires greater speed
50:04this is it for this course I hope you
50:06have found value in it if you wish to go
50:08deeper into price action reading please
50:10check out my course called fractal
50:12trading mastering price action and
50:14Beyond in the video description for more
50:16information visit my website fractal
50:18flowpro
50:20docomo at support froff flowpro
50:23docomo the video please help support the
50:26channel by clicking the like button
50:27subscribing to the channel activating
50:30the notifications leaving your feedback
50:32Below in the comment section and sharing
50:34this video with your trading Community
50:37thank you very much for watching and I
50:38hope to see you in the next videos take
50:40care

About this transcript

This page contains the full transcript of Master ORDER FLOW TRADING in Less than ONE HOUR! by Fractal Flow - Pro Trading Strategies, generated from the public captions YouTube serves with the video. The transcript has 8,545 words across 1,309 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

What you can do with it

Use the transcript to take notes, quote the speaker, build a study guide, generate a summary with ChatGPT or Claude via the YouTube Summary tool, or export it as a timed subtitle file with YouTube to SRT. You can also re-open it in the transcriber to translate the transcript into 100+ languages.

Free YouTube transcript tool

YouTube2Text is a free YouTube transcript generator — no signup, no daily limit. Paste any YouTube link and get the full transcript instantly, with timestamps, click-to-jump, translation to 100+ languages, AI prompts for ChatGPT, Claude, and Gemini, and exports to TXT, SRT, VTT, or Markdown.