We have certain rules when we trade Order Flow and these rules have been taught to us by Market Profile.
Following these rules keep you on the right side of the auction process, in itself a parameter for successful intra day trading.
Just To Recap :
1) Buyers will buy most dips above previous value area high(VAH), as long as it holds.
2) Sellers will sell most rises below previous Value area Low (VAL), as long as it holds.
3) Buyers are stronger above day’s vwap.
4) Sellers are stronger below day’s vwap.
5) Use the edge/extremes of the vwap bands to exit positions and not to add new ones
5) Reversals can happen at/ near known Market Profile reference points/ Pivot Levels.
The larger OrderFlow is a sentiment indicator and shows us where the money is flowing . It determines a positional bias for us. The messages generated by the larger orderflow are sent directly to twitter.
You would get better results only if you trade the right side of the auction process as indicated by the larger orderflow.
The smaller day time frame auction can be well traded using the green pink line. The green line would mean that buyers are more in control and the pink would mean that sellers are controlling.
Let’s look at the auction below to see how that plays out :
The day time frame trend is well defined by the green – pink OrderFlow.
A green would mean that buyers are more in control than sellers in the drive and the reverse is true when the OrderFlow is pink.
To avoid noise , one can wait for the delta shown in the lower pane to turn red or have a few reds in the pane to see that the seller has started taking control.
The greens work better if the market is above value high and vwap. In such cases the pink orderflow will be short lived as buyers keep coming back to buy dips as explained in the rule section above.
The converse is true for the pink orderflow.
As a conservative trader, if you can trade the Smaller Order Flow on the right side you would still have a lot of winning trades.
When you enter your trade, just ask your self these 3 questions :
1 ) Are you on the right side of the trend ( Larger OrderFlow )
2 ) Are you on the right side of vwap ( above for buy/ below for sell)
3) Are you on the right side of value ( above for buy/ below for sell)
Most of the time, trading one side of the market ( right side), makes a lot more sense than both sides.