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Orderflow Trading Explained: Big Trades, Absorption & Heatmap Levels — Transcript

by Christopher Creamer | Orderflow Trader · 4,490 words · 627 segments · language en · Watch on YouTube

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0:00What's up? It's Thrax. We're back for
0:01our third video in our footprint chart
0:03trading series. In our first two videos,
0:06we went over the basics. If you missed
0:08those, you might want to go back and
0:09watch it because it may make it easier
0:11to understand what we're talking about
0:12here today. But in this video, we want
0:15to go a little bit deeper into order
0:16flow and talk about a framework
0:19utilizing big trades absorption and heat
0:22levels on the DOM to understand the
0:24auction or the battle between the buyers
0:27and the sellers to make informed trading
0:30decisions. So, we're essentially looking
0:32at big trades get executed on the tape.
0:34And what I mean by big trades is I'm not
0:37talking about like big trade as in a
0:39good risk-to-reward or a big P&L. I'm
0:43talking about large size being executed
0:47at a specific level at market. And then
0:49we're looking for whether there's a
0:52continuation or a reversal following
0:54that big trade. And then we're utilizing
0:57the depth of market or the DOM and heat
0:59levels. You don't need them, but I use
1:02them as targets or levels that we want
1:05to watch for. So, what exactly is a big
1:09trade? Like I mentioned before, a big
1:11trade is essentially where unusually
1:14large size is executing at a specific
1:16level. So, it's representing a market
1:19participant with meaningful capital
1:21stepping in. So, unlike smaller prints,
1:24these orders actually carry information
1:26value because they signal intention. So,
1:30someone with size is trying to get
1:32positioned into a trade and we need to
1:35pay attention to that. And you might
1:37ask, why do we need to pay attention to
1:39that? It's because aggression in the
1:42market is what's actually driving the
1:44tape or moving the auction forward or
1:47not, right? We all understand that
1:50there's aggressive orders and passive
1:52orders. Passive orders or resting orders
1:55don't move the market. We should all
1:57know this, but resting orders don't move
2:00the market. So price is only moving when
2:03someone is crossing the spread with
2:06size. So like an aggressive buyer
2:09hitting the ask or an aggressive seller
2:12hitting the bid trying to push price in
2:14one direction or get their order filled.
2:16So when a big trade hits the tape, the
2:19market's really going to react in one of
2:21two ways. The first way being acceptance
2:25or continuation. So a big trade hits the
2:28tape, price then expands in the
2:30direction of that trade and it's
2:32essentially showing us that the
2:34aggressive side's pressure overcame the
2:36rest in liquidity and it's likely that
2:38price is going to continue in that
2:39direction rather than reverse. The
2:43second way that the market reacts is it
2:45could be absorption or exhaustion
2:47essentially a reversal. So, if big
2:51trades are hitting the tape and price
2:52begins to stall or price doesn't move or
2:56even reverses, then it's essentially
2:59telling us that the resting liquidity is
3:01absorbing all of that aggressive
3:02pressure uh instead of letting price
3:05actually move through. By watching the
3:07interaction between the buyers and the
3:09sellers on the footprint chart utilizing
3:12something like the big trades indicator,
3:15you can see whether the aggressive
3:16orders are actually moving the auction
3:18forward or if large passive players are
3:21dominating at that level. So just for
3:23context, this is MNQ which is micro
3:27NASDAQ futures. This is the five minute
3:30chart. these big trades, these numbers,
3:34they are going to be probably higher
3:36obviously than if you were looking at
3:38the mini contracts or the mini NASDAQ
3:42futures. So essentially what we're
3:44looking at here is this is the footprint
3:46chart. Right now we're zoomed out a
3:48little bit so we don't have the numbers
3:50showing on the bid and ask ladder but
3:52for this scenario we don't really need
3:54it because we are utilizing a few
3:57different things here within the candle
3:59itself. So we have our red candles that
4:01are bearish. The blue candles are
4:04bullish. Within each candle we have the
4:06volume showing us where contracts were
4:09traded and as well as the PC or the
4:14point of control highlighted here with
4:16these yellow rectangles. And then we
4:19have big trades right here, one right
4:23here, one right here, here
4:27and here. The big trades are represented
4:30by these bubbles here. Now, the bubbles
4:34have a number inside of them. And
4:35essentially what that number is telling
4:36you is how many contracts were actually
4:38executed at that level. So in this
4:41example here, we see that we're caught
4:43in a chop or a range on the five-minute
4:46chart. Sellers try and push further down
4:48and they fail to do so. Buyers step in
4:50here and here trying to push price
4:52higher and they fail. Sellers come in
4:54again. And then what ends up happening
4:56is we break out of this range and go
4:59into a distribution of price where we
5:03have massive sell orders aggressively
5:06hitting the bid pushing price down. So
5:09this is essentially telling us now here
5:11is the move. We are going lower. And
5:14when you see this happen, this is a
5:16perfect example of something that you do
5:19not want to try and reverse. If you see
5:21all of this selling pressure coming in
5:23here and maybe you had a level right
5:26here or whatever, maybe let's say you
5:29were looking at some type of level right
5:32here
5:33and you were considering buying in this
5:35area. When price is coming down here and
5:39you start to see all of this pressure
5:41here, here, here, you do not want to buy
5:44it here. If your level was right here,
5:46you do not want to buy it because at
5:49that point, you're essentially stepping
5:50in front of a train. I don't want to
5:52step in front of a train and I hope that
5:54you guys don't want to step in front of
5:55a train either because you are going to
5:57have your stop loss just get obliterated
6:00really quickly. So, you can use this to
6:03understand where price is trying to move
6:05to when the move is actually being
6:08initiated or the catalyst for the move
6:10to actually move in the direction with
6:11the trade. The second example here is
6:14when we are looking for a reversal. This
6:16is the five-minute chart again on micro
6:19NASDAQ contracts. We see a five-minute
6:22candle come down, come down, come down,
6:24and then we see our first bullish
6:26candle. Now, we might be thinking, is
6:29this actually going to reverse right
6:31here or is this just stalling out before
6:35we continue lower? Now, when this candle
6:38does print, this candle right here,
6:42when it does print bullish, we see
6:45buyers stepping in here and buyers
6:47stepping in here. So, essentially what
6:49that's indicating to us is let's say
6:51that we have a level sitting here and we
6:53were looking for a reversal off of this
6:55level and we wanted to make sure that
6:58this level wasn't going to just get ran
7:00through. So, let's imagine that as price
7:03is playing out, we are moving with speed
7:06to the downside, making you question
7:09whether or not that your level is valid
7:11still or if it's just if it's just going
7:13to get sliced through. Once we bounce
7:16off of here, if this is your level, we
7:19want to see if buyers are actually
7:20stepping in, validating that level,
7:23saying that they're trying to take back
7:25control of the auction and move price
7:27higher. So when we see these big trades
7:30step in, we acknowledge them, but we
7:34don't necessarily see these big trades
7:36and then immediately enter into the
7:38position because we need to see how
7:40price reacts. So just as a note, as a
7:43reminder, when a big trade enters the
7:46market, we're not using that as a signal
7:49to enter a trade in the same direction
7:50as that big trade. When the big trade
7:53enters the market and it ex it gets
7:55executed on the tape, we're looking to
7:58see how price is going to react
8:00following that big trade. So in this
8:02instance, we have the big trades here.
8:06Then we have this fivem minute candle
8:08open up. It pushes down and creates a
8:10wick where these big trades were
8:13executed and then closes bullish. This
8:16is our indication that this is
8:18potentially going to be a reversal to
8:21the upside and we can try and position
8:23ourselves into this trade for a
8:26reversal. So in summary, big trades show
8:30real size stepping in with market orders
8:32and they matter because it's basically
8:35saying that someone isn't waiting
8:36around. They're taking initiative.
8:38They're trying to move price. The big
8:40trades are an attempt to move price and
8:43if price follows through following that
8:45big trade then we can look for a
8:47continuation. If price stalls after that
8:50big trade or big trades it's absorption
8:53or potentially exhaustion. So it might
8:56be aggression being absorbed by resting
8:58liquidity essentially saying that
9:00they're getting dominated at that level
9:02and they're not going to break through
9:03it. So the market's either going to
9:05accept the trade and price is going to
9:08expand with it or it's going to absorb
9:10those trades and price is going to stall
9:12and then potentially reverse. We look at
9:15the big trades coming in and also where
9:18are they coming in because they often
9:20show up at key spots. So, these are
9:22things like VWAP or highs and lows or
9:25heat levels on the DOM because if
9:28there's 300 contracts sitting at a
9:31specific level, obviously we're going to
9:33need to enter with some pretty decent
9:36size at market to be able to push
9:38through the resting liquidity. So, it
9:40makes those areas useful as reference
9:42points for continuations, reversals, or
9:46targets. In this example here, we are
9:48obviously in an uptrend. Okay. And I
9:52don't know about you guys, but for me,
9:54sometimes I attempt to try and top tick
9:57a trade, right? I try and uh enter in at
10:02the top of a uptrend and think that I'm
10:04about to catch a reversal and when it
10:06works out, it's great. But a lot of
10:08times it doesn't work out. Now, when I
10:11utilize the big trades indicator, this
10:13is what I'm looking at when we're in an
10:15uptrend. So, for example, we see big
10:17trades step in here, here, and a ton of
10:21big trades step in here. Buyers are
10:23obviously looking to push price higher
10:26within this area. Even though there's a
10:28red candle right here, within this area,
10:31there is no sign of any type of selling
10:33pressure. There's no sign of any type of
10:36reversal that potentially could be
10:38happening to the downside. When we see
10:40something like this or when I see
10:41something like this, if I really want to
10:43take price lower, this level right here
10:48needs to be invalidated. Meaning that
10:50sellers need to get past this area
10:52because oftent times what's going to
10:54happen is if a lot of buyers are
10:58entering in right here on this candle,
11:00if price comes up and comes back into
11:02this level right here, they're going to
11:04want to defend their position into this
11:06level right here. they're going to
11:08defend their position and then again
11:10buyers step in and push price higher.
11:12Buyers step in and push price higher. So
11:15when you're looking at this, you can
11:17determine that maybe right now is not
11:20the best time to try and catch a
11:21reversal. We see a ton of aggression
11:25trying to push to the upside
11:28again. Why are we going to try and step
11:30in front of a train now? Yes, if you
11:33scalp, who cares? You could have just
11:36shorted right here, caught like five or
11:3910 points to right here, and that was
11:41your trade. But that's just not how I
11:43trade. Uh I'm looking for bigger moves
11:46than that. So, I need to be aware of
11:48these areas when they show up here
11:51because I don't want to reverse this
11:53uptrend until this becomes invalidated.
11:56One thing we need to talk about is we
11:59need to talk about resting liquidity. I
12:00need to explain what that is. So resting
12:03liquidity is essentially limit orders
12:05waiting in the book at specific price
12:07levels. You can see them right here,
12:10right here. All of these are passive
12:12orders, right? They're limit orders. So
12:16they're basically traders saying, "I'm
12:18willing to transact here, but only if
12:20price comes to me." So it's not price
12:22movement by itself. It's potential
12:24liquidity. And that's a key word,
12:26potential, because at any time these
12:28orders can get pulled from the book and
12:30they will no longer be there. this heat
12:32level can exist all the way until price
12:34comes up here and then they pull the
12:36orders and then it disappears. So it's
12:39potential liquidity that can be absorbed
12:42or fuel moves once aggressive orders
12:45interact with it. So most traders, the
12:48way they think about it is they equate
12:51resting liquidity with obvious spots
12:53like previous highs or lows or round
12:56numbers like psychological numbers like
12:59how it is here at 25,300.
13:02We have orders sitting right here. Or
13:04let's say that in this scenario there
13:06was a low here and there was a high here
13:09and maybe orders were sitting right
13:11above the highs and orders were sitting
13:13right right below the lows. Yes, those
13:16levels do attract orders, but that's the
13:19surface view because in reality, resting
13:23liquidity actually shows up all across
13:26the book. Okay, so it's not just based
13:29on obvious technical levels and you can
13:32utilize the DOM or you can utilize heat
13:35maps and you're going to see a couple
13:37things. either a big area right here or
13:41a stack of areas right here, levels.
13:45These are where orders are sitting or
13:48you can see these thick bands of heat
13:50and depending on whatever color you're
13:53using, it will show up as a thick band
13:56of heat telling you that essentially
13:57there is resting liquidity sitting right
13:59here. They may align with highs and
14:01lows, but they can also appear at hidden
14:03levels such as VWAP or large trader
14:07inventory zones or iceberg orders that
14:09refresh. Um, but it is key that not all
14:13liquidity is equal because some of these
14:16orders are here to actually get filled.
14:19Some of it's there to act as a wall,
14:21meaning that, you know, it doesn't even
14:23want to get filled and it's trying to
14:25essentially scare price away. And some
14:28of it is spoofing. And if you don't know
14:31what spoofing is, it's essentially where
14:33someone is placing large limit orders on
14:35the book and then they are just removing
14:37them, trying to pull their trades away
14:40before price actually gets there. They
14:42never had an intention of it getting
14:44filled in the first place. So it is
14:46important to understand that when you're
14:47looking at heat levels or if you're
14:49trying to utilize them as a target
14:51because you could be targeting this
14:54level, let's say, and maybe this wasn't
14:58a high, right? Maybe this wasn't
14:59liquidity sitting at a high, but rather
15:01it was just somewhere in the middle of
15:04the market abyss and you're targeting
15:06this as a level and then halfway to the
15:10target the orders disappear. Okay. Well,
15:13now where are you targeting? are you
15:15going to target the same level? So, it
15:17is important to understand that yes,
15:20these can be removed. They're passive
15:22orders. They're limit orders. It is
15:24important to note what they can be
15:27because they could be buy side bids. So,
15:30traders waiting to buy at a certain
15:31price. They could be sell side offers or
15:34traders waiting to sell at a certain
15:35price. So they could be acting as like
15:38stop limit orders where you know traders
15:40can say that the these are stops and
15:43stops. But it's not only stops, it's
15:45also breakout entries or just passive
15:48liquidity of large players providing
15:51fills without chasing price. And so why
15:54do these matter? Well, they matter
15:56because these heat levels or these
15:58levels on the DOM often act as magnets
16:01for price. The market tends to test
16:03where liquidity is and to push through
16:06them aggressive buyers or sellers, the
16:09big trades, they have to step in with
16:12size because if big trades can't push
16:15through, then the level is going to
16:16absorb and actually hold. So now now
16:20that we understand what big trades mean
16:22and what resting liquidity looks like,
16:25let's put them together and see how they
16:27actually shape up the battle between the
16:29buyers and sellers and how we can
16:31actually use it or how I use it to make
16:34informed trading decisions. I'm looking
16:36at the interaction between big trades
16:39and resting liquidity in two main ways.
16:41The first main way is I'm reading the
16:43live auction. So, I'm looking after a
16:45big trade prints, whether there's going
16:47to be a continuation or absorption. So,
16:51big trades punch through a heat level,
16:53the market accepts that aggression, and
16:55we look to ride the move towards the
16:57next liquidity zone or the next target
17:00that we have. Or in some cases, big
17:04trades continuously or even once slam
17:07into a heat level, but price stalls. it
17:10reverses and the resting liquidity then
17:13absorbed all of that aggression and we
17:15can look for exhaustion reversals off of
17:17that same zone. The way that I actually
17:19look for entries is I'm using big trade
17:22levels as trade references. So when big
17:24trades print at a level that price often
17:27becomes the reference point because
17:29participants who committed to that size
17:31will often defend their position. So,
17:33this is a example here of a real trade
17:36that I took because there's two ways
17:38that you can really use this. If the
17:40market has a big order here for longs
17:44and we have a heat level sitting right
17:46here, what we can look for is we can
17:49look for price to come back, retest this
17:52level here and we can watch for the
17:54defense of this level and we can enter
17:56with the trend using the big trade as
17:59the risk anchor to then target the
18:02liquidity that we're looking to target.
18:04And we can also use it for failed
18:06attempts. So absorption or exhaustion.
18:08So if let's say this was our high and
18:13big trades come in and hit this level
18:16but they fail to continue to push price
18:18higher then what we can do is it can be
18:22a signal for trap traders and that can
18:24set up a reversal trade as those
18:26positions actually unwind and then start
18:29to come lower. We'll take a deeper look
18:31at some of these examples here. In this
18:33example, and these are all from actual
18:35trades that I took during the day when I
18:38saw big trades step in right here. Big
18:41trades step in right here. When this
18:43candle opened up right here, what I was
18:45looking for is I marked out a level
18:47here. And I'm waiting to see whether or
18:50not this candle is going to respect
18:52this. Now, if this red candle came down
18:55and closed down here, I would be less
18:57likely to try and take a continuation to
19:01let's say this being the target. Once
19:03this candle closes within this range, we
19:06have a stacked imbalance here. We have
19:08big trades. We can enter in a long
19:10position to continue higher. And we can
19:13set our stop loss either right below
19:16this candle or right below these lows to
19:19then continue our trade higher. In this
19:22example, what happened here is we were
19:23chopping for a bit. This was closer to
19:25market open this day and I saw buyers
19:29step in here. So when this candle opened
19:32up, my first thought was I'm looking for
19:35price to actually respect this level and
19:39come down and continue higher. But what
19:41ended up happening, as you can see, is
19:43we have massive sellers hitting the bid,
19:46hitting the bid, pushing price lower.
19:49They do it again here with a lot of
19:51contracts, 770 aggressive sellers
19:54hitting the bid. So what we can then do
19:56is utilize this level where the big
19:58sellers stepped in likely to try and
20:01defend their position after big buyers
20:04failed and we can set our stop loss at
20:08the top of this candle and look for a
20:11position to then come down into here.
20:13And as we see more sellers come in the
20:17market, we know that we're on the right
20:19side of the direction of the market and
20:22where it's moving. So again, big trades
20:25show us aggression. Resting liquidity
20:27shows us where that aggression actually
20:29matters. And the combination, the
20:31acceptance versus the absorption at key
20:34liquidity levels. It's telling us the
20:37story of the auction. It's allowing us
20:38to read it and it's allowing us to see
20:42what buyers and sellers are doing in
20:44real time. So there's no guessing
20:48involved. There's no predicting
20:49involved. It's just reading and
20:52reacting. And that's how we can utilize
20:55this framework to try and take trades,
20:58try and trades.
21:01Now, obviously, there are times where
21:04the market is chopping and order flow
21:07can be all over the place and you can
21:10potentially read it wrong. But at the
21:12end of the day, I find it very useful
21:14for my own trading. And the last part of
21:17this video is I'm just going to take you
21:20over to the ATS platform right now, show
21:23you how to get big trades actually set
21:25up on your chart so you can utilize
21:27them. Okay, so here we are on ATS. If
21:30you want to add the big trades indicator
21:34to your chart, what you're going to do
21:36is you're going to click up here. It's
21:38gonna say indicators
21:40and we can search for big trades. Now,
21:44there's a couple important things to
21:46note here is I usually and I'm just
21:49going to tell you how I keep it on my
21:51chart, but you can mess around with
21:52these settings and put it to however you
21:55want to put it. Um, but I keep it on
21:58cumulative trades. I do not keep it on
22:00separated trades. And the most important
22:03thing here besides the visuals is the
22:06filter. So you can either autofilter it,
22:09which is what I recommend because what
22:12you're essentially doing when you're
22:14auto filtering the trade, the big
22:16trades, is it's accounting for the
22:19actual volume that's coming through on
22:21average for each candle and specific
22:24level. And if it's unusually large, then
22:27it's going to print a big trades bubble.
22:29Now, you can take it off and you can
22:32decide that you only want to see big
22:36trades pop up if it's 300 contracts or
22:38more. Or if you want to be more
22:41sensitive, 200 contracts or more. Or if
22:44you only want to see the biggest trades
22:45possible, you can do 500 contracts or
22:48even 900 contracts. And it is important
22:52to understand though that this the
22:55numbers I'm talking about right now is
22:56for micros on the NASDAQ. So these
22:59numbers are going to be different if
23:01you're trading gold, if you're trading
23:03GC, MGC, CL, MCL, ES, MEES, or even just
23:09NQ. These numbers are going to be
23:12different. But what I would do is I
23:14would keep it on auto filter. Depending
23:16on what time you usually trade, whether
23:18it's New York session, Asia session,
23:21London session, you're going to find
23:24what the typical amount of contracts are
23:27that are going to signal for that
23:30specific slot of time that's going to
23:32signal a big trade for your asset. Then
23:36after that you can refine it or optimize
23:39it as you want when it comes to a
23:42specific amount whether you want it to
23:43be you know more uh sensitive or less
23:48sensitive when it comes to identifying
23:50these bubbles. And then what happens as
23:53well is on the visual side of things
23:55when you first load it up it's going to
23:57show as a rectangle. I like to keep it
24:00as a circle. I just think it looks nicer
24:02but you can keep it as whatever you
24:04want. a diamond, a rectangle, a
24:05triangle, it doesn't matter. And then
24:08that's about it as far as for colors and
24:10stuff. You can change the colors and
24:12then you just click add to chart. I'm
24:13not going to do that because I already
24:14have it on my chart and I have it how I
24:16want it to look like. And so we can then
24:20see them on our chart. So we go back on
24:22the five minute chart and they will
24:24start appearing on your chart showing
24:26you where the big trades were actually
24:28stepping in. You can go back and you can
24:31back test this if you want. you can just
24:34put it on and look at them while you're
24:36live trading and walk forward and
24:38forward test it. But it is important to
24:41um mess around with them a little bit.
24:44Understand how it's actually working.
24:45Practice on actually reading the auction
24:48and how price is interacting or reacting
24:52after big trades are being printed. And
24:54then you could begin to use them for
24:56trading decisions. I don't always show
24:58it on my screen, but I do always have
25:01this up and I am always looking at this
25:04when I am trading. The last thing to
25:06mention though is that I do not only
25:09take trades based off of big orders. I
25:13have my strategy. I trade my strategy
25:16and I use footprint and I use things
25:19like the heat levels, the DOM levels,
25:21the big trades, the PC, the volume, the
25:24delta. I use all of that in confluence
25:27with my actual strategy and I recommend
25:29that you do the same. If you're not
25:31familiar with this platform, this is the
25:33Atas platform. If you want a 14-day free
25:35trial, you can click the link in my bio.
25:37They have a good back testing engine.
25:40They have great order flow footprint
25:42charts. They do offer heat map as well,
25:44and you can have these same indicators.
25:47If you want to get your chart set up the
25:50same way that I have my chart set up,
25:52you can go look at my TOSS settings
25:55video that I posted a little bit ago and
25:58you can download the file to then import
26:02the template that I have here to make
26:04your chart look like mine. Although,
26:06it's not going to have the big trades in
26:07here. So, just add it the same way that
26:09I showed you how to add it. And then,
26:12yeah, that's it for this video. I will
26:15catch you guys in the next footprint
26:16trading series video. And until then,
26:20peace.

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