2 Simple Order Flow Skills to Dramatically Improve Your Trading Results
Learn how to reduce losing trades and manage winners more effectively with these basic order flow techniques
Quick Wins for Tangible Results
In this article, we’ll explore two practical ways that traders can improve their results using some of the simplest and easiest-to-learn Order Flow skills to:
- ✓ Reduce the number of trades that go straight against you
- ✓ Get out of trades that don’t pop (at a small loss or profit)
These are two “quick wins” that will make a tangible difference to your trading. Let’s consider a system with a 50% win rate and a 1:2 risk reward, here’s the sort of gains you should be aiming for:
| Before (200 trade sample) | |||
| Result | Count | Per Trade | Total |
|---|---|---|---|
| Winners | 100 | $1,000 | $100,000 |
| Losers | 100 | $500 | $50,000 |
| Win rate | 50% | P&L | $50,000 |
| After (200 trade sample) | |||
| Result | Count | Per Trade | Total |
|---|---|---|---|
| Winners | 114 | $1,000 | $114,000 |
| Break-even | 20 | $0 | $0 |
| Losers | 66 | $400 | $26,400 |
| Win rate | 57% | P&L | $87,600 |
But How? Without Advanced Order Flow Skills?
Maybe first we’d better explain what are basic vs more advanced order flow skills. Basic skills are those you can learn in weeks, the low hanging fruit. Skills you develop doing targeted drills. Drills that come with the Jigsaw tools. Basic skills are often overlooked because people feel that they need to be able to read the market like a story book in order to benefit. The most basic skill is reading momentum, the ability to perceive that the market is moving and won’t stop just yet as opposed to slowing down or meandering around. A more advanced skill would be to watch a market ‘switch gears’ – a sequence of events that commonly occurs in a reversal (momentum down => Slowdown => Absorption => Participation upside => momentum up).
Fact is though – even though reading momentum is a basic skill, you can really use it to your advantage to eradicate many of your losing trades.
A Basic Order Flow Skill: Reading Momentum
The best way to think about this is crossing the road - when you cross the road, you read the momentum of the cars to figure out when it's safe to cross:
- If there are no cars, you cross.
- If there are lots of cars coming at you at moderate speed - you don't know when you can cross.
- If it's just one car coming fast, you let him pass and cross.
It’s the same with order flow, you read the momentum of trades coming your way. You can do this after a couple of weeks of practice. What you will notice is that it’s about speed and participation:
- Slow moves with no commitment, don’t trouble you.
- Fast moves with not much volume tend to fade quickly.
- Moderate-paced moves and fast moves with lots of volume printing – you want to stand out of their way.
And that’s the first change you need to make: Considerably reduce the number of trades that immediately go against you by reading momentum. If you see momentum against you – do not enter the trade. Simple but very effective.
The Second Improvement: Cut Trades Early When There’s No “Pop”
The second improvement you can make to your trading is to cut trades early when you don’t see a “pop”. A pop is best described as “a short momentum move in your direction”. We’ve all been in trades where we enter and nothing much happens, it just sits there doing nothing for minutes that feel like hours.
You Should See A Reaction Quickly
If your setup is causing a reaction you should see it quickly. On the S&P500 futures - it's not going to move 100 ticks your way immediately but 8-12, given current volatility - that's reasonable if people are reacting. If not - if it just slowly bounces up and down around your entry price with no clear direction? Then it's not happening, this is a bum trade.
As a trader who likes to scale out of trades, where my first scale-out (in current volatility) will be 8-12 ticks – it’s all about whether it can get to that 8-12 ticks and fill me very early on. I want to see a quick burst of trading towards that point and a fill. After that – I’m happy to let the trade run.
This is using the same skill that we used above. Reading momentum – the most basic skill we teach at Jigsaw in our Order Flow Foundation Course, that comes with our tools. You don’t want it against you before your entry and you do want it on your side afterwards.