Okay as I said last night, order flow trading can be used in many ways. One of the main ways is to use it as the purest form of scalping… many bank algos trade the flow in short term fluxes. But I’m not going to go into that are discuss it further.
Personally when I trade flow data, I use tick charts, but I understand that not everyone has that available to them or understands them.
So this approach will make it more simple to follow.
Heres what your going to need in order to trade order flow in the most basic of ways.
5 minute chart
Reliable flow data, contacts, or paid for supplier from a respected provider, not a micky mouse one, if you choose to go down the Walt Disney route then chances are your trading flow that doesn’t exist… never has or is no longer valid. So don’t be miserable, and bloody pay for a proper provider and respected!
Fast execution trading platform/account
Not every OF level is taken notice of by flow traders/scalpers… but the flow is still there.
First of all, when a level is reported on having a bid or offer, don’t be naive in thinking thats the only levels with flow… first of all flow is every where, every level, every tick is flow. But the ones reported are from the bigger money.
Also when a level is given there will still be fair sized bids or offers each side of the level. So if I said there was bids @ 1.5650, then the pro money bids would likely start around 1.5655ish and be down as low as 1.5645ish. Normally a 5 pip range on both sides of the level, but it can be as much as 10 pips both sides.
What you want to be interested in, is the 5 minute candle that actually attacks the level reported, and read the pattern or action that takes shape… when I say pattern, I don’t mean 1-2-3’s or any other chart formation, what I mean is how the 5 minute candle reacted on close at the level.
I’m looking for proof that the candle was bid or offered, using spikes, or the actual type of candle its self and where it closed.
Also only ever trade the level once… not twice, not three times, not four times, not five times or more…just ONCE!
The level maybe tested many times, but the first test will east much of the bids… any other tests will just be eating what remains there in terms of cash flow, could be minor, could be a lot… but the first attempt is where you make your decision only.
I only posted a very small amount of flow last night on twitter…
Lets start with the AUD/USD flow… (stochastic and MA’s are not used)
As I was typing and making the chart above, price attacked the lower bid line…
What most flow traders do, is have a code, or fast execution button that if clicked, will instantly take a trade with a pre-fixed stop and money management and targets set, based on multiple contracts.
When order flow scalping, you must remember the moves will be small, when bids or offers are hit… it does not mean price will dip or rallies 50 or 100 pips… the effects are normally 3-20ish pips 90% of the time.
On the pre-fix I mentioned above, most order flow traders will take 2-3 contracts, one contract will be closed at 3 pips+ spread and the stop moved to entry on the second and third automatically, the second contract is normally closed around 6-8 pips. Then the stop will trail price by 5 pips on the third contract until stopped or manually closed. Stops are normally around the 10 pip mark.
Thats just a basic outline on some risk and style some flow traders work it… you can do what ever suits… but remember 90% of the time the move will be 3ish to 20ish pips.
This type of order flow trading has limited and small risk, not in terms of the stop size, but the fact that you are trading the bid or offer from a large fund, bank, corporate ect ect ect… so the chance of success is high not just on the given trade but over time.
On the charts above for the Aussie the first move @ 1.0350 was good for around 5 pips. The first move on 1.0330 was good for around 10 pips. The first move on 1.0285 was good for around 10 pips and the first move on 1.0275 on the second chart was good for 10+ pips…still going. Why are the 2 last moves better?
Simple… we have more volume since its London trade. The first 2 moves during over night sessions was low volume Aussie trade on a new market open.
