[B][U]What Is Order Flow Trading and What It Is Not[/U][/B]
Order Flow Trading is a term that can create a lot of confusion. Some people think it is trading directly from flow information from banks (info that only a small circle of people have access to and they surely won’t share it on the internet), some think it is tape reading and some that it is simply another form of price action.
There is no clear definition and in the end, all above mentioned methods are based on anticipation of future order flow in the markets. The way I view it is that OFT is a mindset. Instead of just looking for technical patterns, we go one step ahead and think about what other market participants might do. It’s all fear and greed in the markets and we can see this every day in the market.
It’s a big change for newbies, especially those that previously used only technical analysis. But like any other activity, it becomes easier with time and you start to view the market with completely different eyes. You are aware how price is moving, in which manner it moves (not as good as bank flow info, but PA gives some good insights), your knowledge about other participants helps you avoid common mistakes and finally, your knowledge about market inefficiencies will help you combine all this and exploit those opportunities in live trading.
One could argue a lot about the term of OFT, but for me, it is a way of thinking – a different approach to the markets than the common ones, not something limited to a particular method. I don’t have any private bank flow information, but still, my knowledge about market microstructure and other market participants are giving me an edge in the markets.
How did I got into it? I found a thread on another forex forum from the user „Darkstar“ that mentioned OFT. It looked all quite complicated and even after reading the whole thread, it didn’t make too much sense for me. I then found his website later and bought his book (I don’t want to be accused of promoting here anything, so NO link, but a quick Google search for „order flow trading darkstar“ or the title of the book - “Order Flow Trading for Fun and Profit” should do it). It has a very high price for a book, but it changed a lot for me and it was a turning point for my trading career. The chat room is a bit unorganized sometimes, but there are some great traders there willing to help. The forum unfortunately is almost dead, another reason why I picked BabyPips as platform for my thread. Again, I don’t want to promote here anything, I just think it is fair I share how I discovered OFT and give other the opportunities to check out the source where I learned it. After all, there is also some free material availaible about it.
[B][U]What are the steps to learn OFT?[/U][/B]
[ul]
[li]Learn about market microstructure (how price change, type of orders, liquidity etc.)
[/li][li]Learn about the other market participants (commercials, banks/dealers, real money, sovereigns, large speculators)
[/li][li]Exploit market inefficiencies
[/li][/ul]
I will cover various topics in the upcoming articles and go gradually from Step 1 to Step 3.