In this article you will learn which indicators are the most valuable when it comes to day trading using order flow tools. All these indicators capture one common thing in different various ways which provide true intention and positioning in the market and that Volume.
The indicators covered will be in order from the very lowest time frame of execution relevance for entries to trade management and finally the overall macro picture in order to formulate a trade plan.
There are various ways to trade but if you are not creating intra day thesis's around the actual orders transacted you are missing a huge part of the puzzle that is key when interpreting true intention of market participants who hold control.
The basis of trading using order flow is to identify, executed orders and advertised orders and derive context from them in order to create a thesis around and execute a trade.
As an intra day trader I am not very concerned with advertised orders i.e. resting limit orders. so we will focus around indicators that revolve around actual executed orders.
If you wish to do a bit of a deeper dive into each indicator on this blog post, feel free to check them out here.
1. Depth of Market (DOM)
The depth of market is probably one of the most critical indicators for any true order flow trader. The amount of data extracted from the DOM will show you, price, size of executed orders and pace of the overall move in any direction.
Pace of the overall move inside the DOM is one of the most important factors shown in this indicator, from here you can gauge momentum of the buying and selling at any specified price that is crucial to the participating bull or bears of any given move while also understand the size of the executed orders that resulted in the move or lack there of.
Key Information DOM Provides
- Gauge Pace of Movements Up / Down
- Identify Order Blocks at Key Price Levels
2. Footprint Charts
This Indicator displays the bid / ask market orders executed in a ledger based chart similar to the traditional candle stick charts that can be adjusted to any time frame of your choosing. The footprint chart can be used to passively gauge the participation of a given intra day trend move by analyzing all the executed orders coming through the last few candle prints and derive context in the event that there are signs of "absorption" or "exhaustion" potentially signaling the end of the intermediate trend move. You can also find aggressive market orders also known as "imbalances" that can form during key resistance or support levels .
Key Information Footprint Charts Provide:
- Identify trend exhaustion, continuation or reversals
- Find intra day support / resistance through executed imbalances
3. Volume Profiles
All the indicators are meant to provide a top down analysis of price action to formulate a day trading plan using volume based indicators and at the highest macro view we will have the volume profile. The volume profile provides context of all the executed orders throughout any given session in the market and consolidating them in a histogram style set of data. This information can be used to identify the various different forms price can be distributed by understanding the different volume profile shapes and how to derive context from these to properly create a trading thesis based on all the recent executed orders within the more recent auction process.
Key Information Volume Profiles Provide:
- Macro view of price being distributed
- Key value areas to identify trade entries
- Determine probability of trend continuation or balanced session.
Conclusion
It is my firm belief that less is more when it comes to trading and using these 3 simple indicators can help us understand areas of interest to focus on for trade opportunities. If utilized properly you can find macro areas of interest using the volume profile to find areas of interest, trade execution using the Depth of Market and manage the trade properly using footprint charts.
The most crucial element of all these is the screen time that is required in order to combine all these and take your trading to the next level, which is why I live stream every single day Monday - Friday using these components to trade!