In this article, I want to show you everything about Market Depth and Order Flow Analysis. Order flow is a significant topic. I can guarantee you that any trader earning consistently in the market is using order flow at some level. I want to explain and break down some basics for the market depth and order flow analysis. Which both seem like complicated topics, but I will try to be as understandable as possible.
Many people like complicating and making these topics seem like they are too hard to get a grasp on but with the right teacher, everything can be explained in a simple yet powerful way. Hopefully, I will be able to deliver these complex analyses in simpler terms so that everyone can understand them.
What is Market Depth and Order Flow Analysis?
From my own experience, I know that these two concepts may seem too complicated when starting out. Especially since you will see a lot of numbers when you open up the tool. This might deter many people who would want to go back to trading with indicators. But for those that stick around and get more involved, this is a great thing to learn. I will explain them as simply as possible.
Market Depth is the amount of interest shown by the number of orders waiting to get filled. Now whether they get filled or pulled out, that’s a different story. But this is what we call the resting orders or the passive orders. This shows the interest in a product for a specific price.
Order Flow Analysis is simply the analysis of the flow of order, simple as that. When you look at how the price moves through the depth and how it gets filled, that’s order flow analysis.
Once you feel like you have learned Order Flow, don’t expect that everything is over, you need to apply yourself. Looking at the graph and understanding, it is a skill, and if you do it for some time, you will see the benefits of it come to you.
Doing Order Flow Analysis is mandatory in trading, however tough learning curve it may have it’s still very useful.
You’ll start learning things that you don’t really know you’re learning but then they’ll start to click and that’s maybe the best way I can explain it.
How I use Market Depth and Order Flow Analysis
In the picture below, you will see my setup. That’s how I use the market depth and order flow analysis in my day-to-day trading. I go through a particular framework for generating and creating high-quality trade ideas every day.
I’ll have a very zoomed process, and I drill that all the way in, and then when I have my ideas, and I know what I’m doing, I look at the heatmap chart, which is the order flow.
Looking at a chart like this it’s not something that you will immediately understand, in fact, it will look too complicated. And that’s okay since you are not meant to understand it, there are instructions out there to use these tools. If you are one of my clients, you already know about this since I have made multiple videos explaining everything there’s to the tool.
Now what I’m doing here is, I already have a high-quality trade idea, I let it shape up and form. This helps me figure out when to pull the trigger and go in at the best entry price possible.
Doing a short-term analysis using my trigger chart and order flow will help me refine my entries and I’ll use it to manage positions that I’m in.
Every legit trader is using Order Flow in some shape or form so it’s really important to learn if you want to make profits like they do.
Order Flow is crucial for trading, and I wouldn’t do what I do without using it. So if you haven’t incorporated it into your trading system, then I would suggest you do so.
Suppose you’re looking for a good tool other than what I use. Which is only available to my clients and people who have enrolled in my Volume Profiling course. I would suggest ‘Bookmap,’ which is a great tool and offers a great service. I have to admit this has largely influenced my tool. If I hadn’t built that, I would probably use this one.
Mistakes of using Market Depth and Order Flow
New people who learn about the Order Flow Analysis often mistake zooming in and only seeing the small picture. They obsess about every large order in or every amount of liquidity and every tick that is happening. This is a mistake that you should avoid at all costs.
If you’re looking at only the 15-minute chart, for example, you will not see a thing, but it can definitely impact how you would make your trade.
Newbies usually get stuck on the noise and fail to see the bigger picture. Yes, that information is important, but it’s not enough to make a trade choice purely of that.
Don’t start trading with it right away because that’s what people do, they learn a couple of things about it, and then they start doing things solely based on this, and it’s a big error.
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Watch Your Risk & Happy Trading!
-Korbs
Order Flow and Market Depth Frequently Asked Questions (FAQ)
What is Market Depth?
Market Depth is the amount of interest shown by the number of orders waiting to get filled. Now whether they get filled or pulled out, that’s a different story. But this is what we call the resting orders or the passive orders.
What is Order Flow?
Order Flow Analysis is simply the analysis of the flow of order, simple as that. When you look at how the price moves through the depth and how it gets filled, that’s order flow analysis.
What is Order Flow Trading?
The order flow trading it’s a strategy of trading that anticipates the movement of the market based on the current orders. The order flow is visible to both buyers and traders.
