The most basic ‘tell’ in trading order flow is the Order Flow Absorption signal. It’s the one that’s probably easiest to read and the one that traders like to adopt early on in their Order Flow career.
In this video, from Richard Bailey at AXIA Futures they show an Order Flow Absorption reversal at the low of the day using the Jigsaw daytradr platform. The trader was actually in a breakout short trade at the time but it became obvious that despite selling, the market couldn’t continue down.
There’s a few different names for these Order Flow Absoption events. Some people call it “stopping volume”. It’s often referred to as an “iceberg order” too. It doesn’t HAVE to be an iceberg order but in this case it is. We can see that as the market moves down to 157.67, there’s a few hundred contracts on the bids but a few thousand contracts trade there. As we trade, the bidders are adding more and more contracts.
Whatever you call it – it’s usually the first thing new order flow traders see and what usually gives them that “aha” moment in their trading. Order Flow Absorption isn’t the only thing you should look for though, it’s just one of many signals you get from order flow – some more ‘subtle’ than others. So don’t just trade the obvious signals, spend time on the less obvious, more subtle things too. These are often even more rewarding for the simple fact that there’s a lot of people that don’t see them.
As you can see, it’s not that hard to see. You will also hear Richard talk about how traders react to this event playing out. So be aware that you don’t need to buy the low or jump in when you see the absorption, you can wait for traders to jump on board en-masse to the upside and then jump in – which is using another order flow skill – the ability to read momentum.