Using Order Flow for Reversals and Breakout Trades

Published on: November 22, 2017

In this video, we take a look at a reversal trade and a breakout trade. Not only that but the 2 setups are triggered at the same price – just at different times of the day.

This is a dilemma for many traders when the market returns to a high/low, will it be a double top/bottom, or will the market break out and make new highs/lows? There’s a trade on either way – but which will it be this time round?

Reversal trades and breakout trades may be initiated from the same location but they are very different in terms of the way the trades set up. For a reversal trade, you can take advantage of the reversal without having to get in at the very point it reverses. There is a lot of manipulation at reversal areas, so it is often best to let the market reverse first and then get in when you have confirmed the reversal. It will cost you a few ticks on the entry price, but you will be right a lot more often. In the video, we take a look at how to use high volume nodes to determine at which point the market has officially reversed. We also look at how to use order flow to time the entry.

Breakout trades on the other hand, are much faster. You are trading into the stops of people that think (in this case), the low will hold. The moment the low breaks, there is a good chance the market will break down hard. You can’t really let the market break before getting in, you have to get in before it breaks – but how will you know that’s about to happen? The signal from the order flow in this case is an increase in order momentum as you get to the level. It’s not hard to spot, but you do have to be brutal with your trade management and exit if the momentum fades.

In the video, we first go over the theory of using high volume nodes to play reversals, and we then look to see how it plays out in real time.