One of the most beneficial uses of Order Flow is using for trade confirmation and often that means to not get into the market. Of course, lot’s of traders are so focused on getting into trades, they only want trade confirmation to tell them to get into a trade. Sometimes, though – the best thing to do is stand aside.
This price ladder trading session from Axia Futures uses the Jigsaw daytradr to look at a move in the German Bund that technically appeared good for a continuation lower but which ran out steam at the lows. While this was happening the Italian BTP was making an inversely correlated move and attempted to break through its high, but also wasn’t able to sustain its momentum.
Richard replays the tricky price action that could be observed in the Bund and derives a lesson in reading patterns of order flow. We see how the Bund was initially able to easily trade down through prices but then the bid started coming back and no sellers were willing to attack the low, even when the bid reduced in size. This signaled a clear lack of momentum for this technical move to play out. Trade confirmation techniques tell us, it’s time to stand aside.
Finally the Bund made one last attempt to break lower and any traders who hadn’t been watching and understanding the price action would likely have been suckered into the trade before seeing the bid quickly return. Even though a trade may appear technically sound, the price ladder often reveals the true nature of a market.
At Jigsaw, right from the start in the “new to Jigsaw tools” video, one of the things we tell aspiring Order Flow traders is to observe “how easily a market moves up vs moves down”. This sounds like quite an abstract concept and it demonstrates the difference between theory and practical application. Theory is great in trading Order Flow is no different – but you need to observe and interact to make the most from it.
It’s worth watching this one a few times, first just follow Richards lead. Then with the sound off – watch the action around .65-.67 and think about the amount of times sellers got it to tick down but it couldn’t hold down. Now – think about when you’ve been in a trade and the market has gone your way 3 or 4 ticks but just can’t seem to escape your entry price. It’s the same thing, order flow is telling you that the market can’t hold any moves up. When this occurs, you can choose to de-risk by getting out OR just to stand like a deer in the headlights, watching it ’till the market reverses and takes you out!
The bottom line is this – there will always be another trade. So when using trade confirmation techniques, don’t just use them to give yourself permission to trade. Use them to stand aside too.
If you are interested on more information about adding Order Flow to your trading, get our free video course here