In this article, I want to show you everything about Market Depth and Order Flow Analysis. Order flow is a very important topic, and I can guarantee you that any trader who is 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.
A lot of 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 and especially since when you open up the tool you are going to see a lot of numbers. This might deter a lot of 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 and I will explain them as simply as possible.
Market Depth is the amount of interest which is shown by the number of orders that are waiting to get filled that people have placed. 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’re looking at how the price is moving through the depth and how’s it getting 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 and how I use the market depth and order flow analysis in my day-to-day trading. I go through a process of a very specific framework for generating and creating high-quality trade ideas every single day.
I’ll have a process that’s very zoomed out 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 then 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 and I let that idea 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 really important for trading and I wouldn’t be able to 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.
If you’re looking for a good tool other than the one that I use which is not for sale but 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 my tool has been largely influenced by this, and 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 make the mistake of zooming in and only seeing the small picture. They obsess about every large order that comes 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 there are thing that you are not going to see but can definitely impact how you would do 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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