At the close of the session every evening we post the day’s orderflow charts in this section here.
OrderFlow is nothing but the ebb and flow of the market and gives us an insight into trader’s mindset across the trading spectrum. Most traders operate at pre- known levels where they enter or exit positions depending on their outlook of the market.
At Vtrender we know that every buyer meets a seller and unlike other systems of Orderflow which track the quantity of buyers and sellers ( at the end of the day this number is equal) we track traders who are aggressive and enter or exit the market aggressively.
To do this we follow a system which computes every uptick of price made as a buy and every downtick as a sell. Thus if market orders enter the system it creates a series of upticks and the system registers those as buys. Similarly in a fast moving market a number of limit orders get converted to market orders and we also get upticks or downticks.
The aggressive trade needs to be tracked as this is a trader who is in a hurry to get in or get out and often against the flow of a regular market.
To use a metaphor, in a crowded train station where every person is rushing in one direction the person rushing in the opposite direction always is the subject of attention. We track these people to see what they are upto as many times they may be having some information which would be different from that of the crowd.
Here is an example of the chart we use in the Trading Room and the correct way to read it would be as pointed in the chart
So if a market is going down and orderflow does not show us sellers entering in the downmove then we know that the market may be getting ready to move in the opposite direction causing pain to existing shorts. Similarly in an upmove when the market is going up and the orderflow is red then sellers are using the higher prices to establish short positions and longs are getting riskier.
As an example I want to place the charts of the week 7th to 10th Oct and of the Nifty Oct F.
Read the chart above from Risght to Left.
The chart shows that the drop to 7850- 7880 early last week did not have many sellers and the market rose a 100 points to 8008 to attract new sellers before the sellers closed all in profits at around the same levels as Tuesday’s closing prices.
In reading the daily Orderflow one needs to be careful to note that all the market’s participants are not day traders and do not close and open positions in the same session.
Market Profile identifies the various traders as scalpers, day time framers, shorter term and longer term players. Within the Longer term category there are many sub categories each with their own view and percieved value of the market. Thus if a multi year resistance like 6400 gets broken there would still be institutions who would make fresh purchases as their outlook and view may be over several years too.
So when we have a look at the day delta one needs to understand that it is a delta which is part of an ongoing auction and one needs to keep a view of the larger auction playing out in the Market. Thus a positive delta one day in a down moving auction may not mean the end of an auction which is on the short side unless the entire down move has reversed and delta gone positive.
Here is another chart which captures the most recent larger auction in the multi day timeframe and the delta here needs to be monitored regularly as it is the larger time frame.
Please direct queries if any to Vtrender@gmail.com.