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What is Order Flow?

What is Order Flow?

    The Order Flow provides information to interpret the spread of a volume bought and a volume sold at a given price.

    Trading today manages to attract thousands of people who, on a daily basis, take on the challenge and commitment to inform themselves, orient themselves and turn these investment strategies into a way to constantly generate money.

    Today, the Internet allows us to find tools and strategies to obtain much more information about the trading movement, this is what can be known as datafeed. This large volume of information leads programmers and creators of websites dedicated to trading to develop different ways of representing the information that comes from the different operating markets.

    This flow of volume of information is transformed into a graph thanks to the programmers in order to make an interpretation of these data in a more specific way. This is where the Order Flow comes into play, or also known as Foot Print, which would be a result of how that flow of data volume can be represented. 

    What is Order Flow?

    It is a system of tools aimed at interpreting and visualizing volumes of negotiations in the sale of an online market in real-time. This allows the trader to observe the necessary information about the businesses that are agreed to buy, on the one hand, and sell on the other, and their market price.

    What can a trader do with Order Flow?

    In the end, with these interpretations that allow the Order Flow to be captured, a trader will be able to identify the most disputed or tentative price levels for buyers and sellers, these levels represent the supports and resistance of these in the market, therefore, the Order Flow makes it easy to interpret these support and resistance levels before they occur, which is another scenario, would have to wait for the graph to expose said resistance level in the next test.

    What information does it provide?

    The Order Flow provides information to interpret the spread of a volume bought and a volume sold at a certain price and the time that elapses from one price to another, also known as tick to tick.

    Advantages of using the Order Flow

    As already mentioned above, the Order Flow provides a broader and more detailed view of the actions within the market, which are reflected in graphs and which indicates what the next action will be compared to the price when it is located in a certain area that, for now, it cannot be captured with charts such as Japanese candles or bars. Another advantage of using the Order Flow is the ability to identify at the moment. Who is in control of the market either on the side of buyers or sellers

    Also allowing to visualize attractive price levels for traders. One of the most outstanding advantages of using Order Flow is given the ability to react in real time. As a consequence, decision-making in one situation or another. From the foregoing, it is possible to mention the hypothetical case that there is an error that leads to a mistake at the beginning of a market operation. This, thanks to these tools, we could know it up front and be able to act immediately without having to assume a greater loss.

    Capital Protection

    It is allowed to have investment capital protection against danger. At the same time, it offers us to extend profitable positions in order to get the most out of it, making the trader more focused and dedicated when implementing his trading plan. From tape to graphical representation One of the ways to interpret or visualize transactions in the market is to read tape, which has been the rapid interpretation of “Time & Sales” data.

    This style of interpreting transactions on tape is often tedious and a good interpretation is not always guaranteed as minute details can be escaped that may ultimately be important. With the Order Flow, the interpretation is significantly simplified while identifying the type of dynamics implemented in the market and the behavior of the price throughout the operations, these interpretations are arranged in cluster charts.

    Ribbon Graphics

    Necessarily, the trader must know about tape charts, since the Order Flow is a representation of it, only then would a broad interpretation of what happens in the market be obtained, creating operational and successful strategies. Candlestick chart The traditional candlestick chart only focuses on 4 points: low, high, close and open of a time division.

    The candle in the Order Flow, apart from containing these points, contains other data of great importance visible depending on the platform used. This is how the candle in Order Flow is separated by divisions horizontally, each division is a minimum price variation. These are the clusters that carry the number of transactions within a period of time.

    Colors in the Order Flow?

    By default, each cluster comes with a default color: red and green. Based on this, market operations can be classified into two groups: IDB negotiations or cross-market sale with limited purchase and ASK negotiations or cross-market purchase with limited sale. This being the case, the colors play the following role: Green clusters would indicate the predominance of contracts crossed by Ask versus those crossed by Bid and red would indicate the opposite.

    For the Order Flow, the color depends on the difference between the Bid and the Ask, indicating if there were more Bid or Ask operations at a certain price. These colors, whether red or green located to the left of the cluster, would form the body of the candle, thus indicating whether there is a high or low in operations.

    Conclusions

    In a rough way, this great tool helps us to observe the working mechanism in the supply and demand market. Here you can see the “pressure” and who takes the initiative and control of the market, key movements that traders should be aware of.

    Order Flow often seems like a complex tool. It can be thought that it is only for specialists in the field. But with knowledge, instruction, and training you will be able to interpret and simplify data in your trading strategy.