What Is Orderflow? Candlesticks vs Footprint Charts Explained — Transcript

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1. 0:00Now, most traders are trying to read the
2. 0:02market from candlesticks alone, and they
3. 0:04don't even realize that they're missing
4. 0:06one of the most important layers of
5. 0:08information. Candlesticks alone don't
6. 0:10necessarily show you what's actually
7. 0:13happening in the markets. They show you
8. 0:15what already happened. So, in this
9. 0:17video, I'm going to break down what
10. 0:19order flow actually is when we're
11. 0:21looking at charts like this, where we
12. 0:23can see what's happening inside the
13. 0:25candles, and why it matters, and why
14. 0:27relying on candlesticks alone is one of
15. 0:30the biggest limitations that most
16. 0:31traders never fix. So, if you've been
17. 0:33trading for any amount of time, you
18. 0:35probably already know support and
19. 0:37resistance, patterns, breakouts, trend
20. 0:40lines, and yet you might still be
21. 0:42inconsistent. Now, you might catch good
22. 0:44trades sometimes, but under pressure,
23. 0:47things fall apart. And it's really
24. 0:49important to know as a trader on what's
25. 0:51actually moving price. Most traders are
26. 0:53making decisions based on the appearance
27. 0:56of price and not the mechanics that are
28. 0:58actually pushing it behind the scenes,
29. 1:00behind the candlesticks themselves. And
30. 1:03that is the gap. So, at the core of
31. 1:06order flow or auction mechanics, we're
32. 1:10viewing the market as an auction. Now,
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66. 2:13using code match. Now, let's get back
67. 2:16into the video. And now, every single
68. 2:18tick is a transaction on a chart. It's a
69. 2:20transaction between buyers and sellers.
70. 2:23And there are two types of participants
71. 2:25in this market. There are aggressive
72. 2:27participants, and then there are passive
73. 2:29participants. Aggressive traders use
74. 2:32market orders. So, this is where you're
75. 2:34entering, clicking buy market or sell
76. 2:36market, and you're getting filled at the
77. 2:37next available price. When you're doing
78. 2:39this, you're crossing the spread and
79. 2:41you're forcing trades to happen
80. 2:43immediately. Now, passive traders are
81. 2:46traders who are using limit orders. They
82. 2:48sit in the book, or they sit at certain
83. 2:50levels, they place a limit order or stop
84. 2:52order, and they're waiting to actually
85. 2:53get filled. Now, price is only going to
86. 2:56move when aggressive orders enter the
87. 2:59market and overwhelm the available
88. 3:02resting liquidity on the other side.
89. 3:05That's it.
90. 3:06The market does not move by passive
91. 3:08orders. Someone needs to be there to
92. 3:11take the initiative to cross the spread
93. 3:12to attempt to move price. And that is
94. 3:14the entire engine behind price movement.
95. 3:18Now, here's the problem. Candlesticks
96. 3:20alone don't show any of that. What they
97. 3:23show you is they show you four things.
98. 3:25They show you the open,
99. 3:27the close, the high,
100. 3:29and the low of a single candle. That's
101. 3:32it. But, what they don't show you inside
102. 3:34of this candle is they don't show you
103. 3:36who was aggressive, where size actually
104. 3:38came in in this candle, and whether
105. 3:40buyers actually succeeded or whether
106. 3:42they got absorbed or trapped. A bullish
107. 3:44candle doesn't necessarily mean that
108. 3:46buyers are in control. It means price
109. 3:49closed higher, and there's a difference
110. 3:51to that. Because, like let's say in this
111. 3:52candle, you can have aggressive buying
112. 3:54or there was aggressive buying at the
113. 3:56extremes of this candle. We can make an
114. 3:57assumption, but price couldn't continue
115. 4:00higher. And if you can't see what's
116. 4:01happening in real time, you're reacting
117. 4:04to something that's already finished.
118. 4:06Now, order flow is the layer that shows
119. 4:09you what's happening underneath the
120. 4:11candle. Instead of just seeing the
121. 4:13result, right? You're seeing the
122. 4:15interaction between the buyers and the
123. 4:17sellers. So, inside of every footprint
124. 4:20candle, we can see the bid and the ask,
125. 4:22the volume at the bid and the ask. We
126. 4:24can see delta. We can see where trades
127. 4:26were actually executed and where
128. 4:28participation showed up. Now, instead of
129. 4:30just guessing what happened inside of
130. 4:32this candle, we can actually see it. We
131. 4:35can see where buyers were aggressive,
132. 4:37where sellers stepped in, where price
133. 4:40potentially stalled, or where it
134. 4:42accelerated, right? And when we use
135. 4:45order flow, all order flow is is just
136. 4:47data, okay? We're not using order flow
137. 4:50necessarily to predict the market. It's
138. 4:53just about reading what's happening in
139. 4:55real time. And the most important thing
140. 4:57about order flow and the way that I use
141. 4:59order flow is a single concept. And this
142. 5:02concept really changes everything and
143. 5:04it's the concept of effort versus
144. 5:06result. Just because there is aggressive
145. 5:09buying, right? It doesn't mean that
146. 5:12price
147. 5:13has to go up or that price will go up.
148. 5:16And just because there is aggressive
149. 5:17selling, doesn't mean that price is
150. 5:20going to go down or has to go down. What
151. 5:23matters is how the market responds to
152. 5:25that effort that we're seeing on order
153. 5:28flow, on footprint candles. Because if
154. 5:31buyers are aggressive, let's say in this
155. 5:32candle that I showed you on the normal
156. 5:34candlestick chart, if buyers are
157. 5:36aggressive here and price isn't
158. 5:38successfully moving higher, well, then
159. 5:41that is information. This is potentially
160. 5:43absorption. And if we were to go down
161. 5:44here and take a look, if we see sellers
162. 5:47being aggressive or aggressive selling
163. 5:50in this area, in this entire area, we
164. 5:52see sellers trying to be aggressive and
165. 5:54push price lower, and price isn't
166. 5:56actually moving lower or they're not
167. 5:58being successful with their effort, then
168. 6:00it's essentially the same thing. Now, on
169. 6:02the flip side, if we were to go look at
170. 6:05a move, right, and we see that effort is
171. 6:08moving price significantly, that can
172. 6:10tell us that there's little to no
173. 6:12resistance by the other side or the
174. 6:13other party or sellers in this case. And
175. 6:16this creates imbalance, and you can see
176. 6:18the stacked imbalances of buyers over
177. 6:20sellers inside of the candles with these
178. 6:22bold numbers that I have on my chart.
179. 6:24But there's other ways that you can view
180. 6:25it depending on how you set up your
181. 6:27footprint chart. But this is the
182. 6:29difference between reading the market
183. 6:31and just reacting to it. Now, this is
184. 6:34important because this is where most
185. 6:36people actually get it wrong. Order flow
186. 6:39itself is not the strategy, okay? It
187. 6:43does not give you trades necessarily by
188. 6:45itself just because you have more data.
189. 6:48The way that I use it is I use it as a
190. 6:50confirmation layer. And I still need
191. 6:54context, location, and structure. Order
192. 6:58flow is just telling me is what I'm
193. 7:00expecting actually happening right now,
194. 7:03and it confirms whether the market is
195. 7:04accepting or rejecting a level. And
196. 7:07without that, you're essentially just
197. 7:09guessing, but with it you're reading
198. 7:11real information. Let me turn this off
199. 7:13for a second. Let me show you an
200. 7:14example, okay? Now, let's say you're
201. 7:16looking at a normal chart, a normal
202. 7:19candlestick chart, and let's say you
203. 7:20trade support and resistance. And so
204. 7:23here we had previous resistance that now
205. 7:26you may consider, oh, this becomes new
206. 7:28support. Maybe that's the way that you
207. 7:30trade. Let's just say for example, okay?
208. 7:32Now, when we actually go and look at
209. 7:34footprint and what actually happened
210. 7:36here at the execution level of the
211. 7:39auction, well, what do we see? We see
212. 7:42sellers pushing back into this level or
213. 7:44this area or previous resistance that is
214. 7:47now being used as support. And on a
215. 7:49candlestick chart, you may just see us
216. 7:51moving into this area. Maybe it's
217. 7:52choppy. Maybe we're kind of whiplashing
218. 7:54back and forth. But on the footprint,
219. 7:57they are failing to push price lower and
220. 7:59we are also seeing the other side or the
221. 8:01counterparty of buyers begin to step in
222. 8:03in this area as well. We're seeing large
223. 8:06volume being transacted at these lows
224. 8:09and prices failing to continue lower.
225. 8:11This is telling us that sellers are
226. 8:13aggressive here, but they are getting
227. 8:15absorbed by passive buyers. And
228. 8:18understanding that or reading it that
229. 8:20way is completely different or different
230. 8:23information than if you're to just be
231. 8:24looking at like, let's say a box on your
232. 8:26chart and candlesticks wicking into a
233. 8:28level. And when we get this type of
234. 8:30confirmation that yes, this level is
235. 8:32valid and we can confirm that by using
236. 8:35order flow, well, then that is the edge.
237. 8:37At the end of the day though, it's not
238. 8:38that candlesticks are wrong. I'm not
239. 8:40telling you that you need order flow,
240. 8:42okay? But candlesticks alone, they are
241. 8:45incomplete. And if you're really serious
242. 8:48about improving your trading or
243. 8:50improving your existing strategy, then
244. 8:53you do need to know what's actually
245. 8:55happening underneath the chart
246. 8:58underneath these candlesticks. And if
247. 9:00you want to see how I actually apply it
248. 9:02in real time, I break it down daily and
249. 9:05I build a full framework around this.
250. 9:07Now, I don't necessarily trade support
251. 9:08and resistance, but I'm just giving you
252. 9:10guys an example, right? Based off of
253. 9:12what I'm looking at on the chart. But
254. 9:14this is the basics to order flow. We are
255. 9:16just looking at the market in terms of
256. 9:19an auction. We're looking at the
257. 9:21interaction between passive and
258. 9:23aggressive orders and we're thinking in
259. 9:27terms of effort versus result. And in
260. 9:29the rest of my videos, I go about how
261. 9:32I'm actually applying this with the
262. 9:34framework that that use in the framework
263. 9:36that I trade, but the purpose of this
264. 9:38video is just explaining the difference
265. 9:40between only using candlesticks and
266. 9:43incorporating the actual mechanics
267. 9:46beneath it through order flow and
268. 9:48understanding the interaction between
269. 9:51buyers and sellers because that's what's
270. 9:52actually moving price. Price is not
271. 9:55moving necessarily because of a pattern.
272. 9:58It's moving because of the interaction
273. 10:00between buyers and sellers, passive and
274. 10:03aggressive participants in the market.
275. 10:06And if you guys want to know how I'm
276. 10:07actually using the framework that I
277. 10:09built around this or how I trade every
278. 10:11day using something that I call the
279. 10:12auction resolution model or framework,
280. 10:15you can check the description below. I
281. 10:17built like I spent a lot of time and I
282. 10:19made these PDFs that go over a lot of
283. 10:21the information or how I actually view
284. 10:23the market and how I use it to take
285. 10:25trades. Go ahead and check it out in the
286. 10:26WAP. It's like 60 to 100 pages. Read it
287. 10:30and I'll catch you guys next time.
288. 10:31Peace.