Video Transcript:
Order Flow is a powerful tool to confirm trade entries. One of the easiest ways to use it is to wait for the price to reach a strong support or resistance zone and then watch who becomes aggressive either buyers or sellers. When price reaches strong support, you want to see aggressive buyers jump in to confirm your long trade. And when the price reaches strong resistance, you want to see aggressive sellers jumping in to confirm your short trade. So in this video, I’ll show you exactly how to go about this.
Another concept is aggressive traders. You want to keep an eye on those, especially when price reaches a strong support or resistance zone. So imagine that we had a resistance here. Again, it doesn’t really matter if it was based on Volume Profile or VWAP or whatever. We had a resistance. And when the price reached that resistance, aggressive traders started to show up. Since this is a resistance, you want to see aggressive sellers. In this case, you can see the aggressive sellers mostly here. You can see all those selling imbalances. That means sellers are way more aggressive than buyers.
What happened here is that price hit the resistance and there was some kind of absorption right here the first confirmation. Then after the absorption took place, other sellers started to jump in with their market orders. Those are the market orders and that’s what started to move the price downwards. Those are the aggressive traders using market orders. The volumes you see on the bid are sellers using market orders. This is what drives the price, because if everybody used limit orders, the price wouldn’t really move. The price moves because of market orders because of aggressive traders. When aggressive traders are present, that’s when the price starts to move, because they trade with market orders.
You can spot them like this and it is a signal for you to join them as well and enter the short trade. Again, this is important. You want to keep track of this only when the price reaches strong support or resistance. Then it can serve as confirmation. It’s not like you see aggressive traders going up or down and then immediately push buy or sell whenever you spot aggressive buyers or sellers. It doesn’t work like that. You want to be patient. You want to wait for price to reach an important area support or resistance and then wait for confirmation. That confirmation could be limit orders, absorption, or aggressive traders. So you need to keep an eye on that, but only around support and resistance zones.
Let’s imagine again that there was a resistance here. When the price hit that resistance, there was some kind of absorption. But that’s not really what I want to focus on now. I want to focus on what happened next aggressive sellers. Heavy volumes on the bid right here. Aggressive sellers, and then aggressive sellers here as well. Those selling imbalances. Those are aggressive sellers jumping in right after the level got confirmed with absorption. They start to jump in because they want to participate in the move that’s likely to come, and you should do the same.
When you spot this, then you enter the trade. The sooner you spot it, the better. When market orders start to appear, it usually happens quickly, especially if market participants are really aggressive. There usually isn’t much time to act, so you need to be quick.
What I like to see is first a confirmation of the level, for example absorption or limit orders. After that, market participants often start to jump in with market orders. When you spot the absorption, you can enter your trade immediately after that. But if the absorption is not very strong or you are not fully confident about it, then you can wait for additional confirmation. That confirmation can be aggressive traders other traders jumping in with selling market orders. That could be the second confirmation that confirms your trade entry if you are not fully sure after the first signal.
Now let’s check out another example. Imagine that we have a support here. The price comes towards the support and hits it. That might be a buy limit order. It might also be absorption. Sometimes it is not perfectly clear, so you may not be completely sure about the confirmation. In that case, you want to see additional confirmation.
That confirmation could be aggressive traders. In this example we have a beautiful buying imbalance. This is actually a stacked imbalance because three imbalances are on top of each other, and we also have another imbalance here. As you can see, the volumes on the ask are rather heavy. Buyers seem much more aggressive than sellers. Those are aggressive traders in this case aggressive buyers jumping in. When you spot them, you jump in as well.
So this is confirmation by aggressive traders. Remember that aggressive traders use market orders. If there is an uptrend, aggressive buyers appear on the ask. If there is a downtrend, aggressive sellers appear on the bid.
I hope you liked the video and found it useful. If you want to get access to my custom-made Order Flow software and my Order Flow trading course, then go to my website trader-dale.com and click the “Trading Course and Tools” button. This will bring you to the page where you can browse my trading education and indicator packs. If you are interested in Order Flow, then what you want is the Order Flow Pack.
Thanks for watching the video. See you next time and happy trading. 📈
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