Is Order Flow Trading the Highway to Success

Is Order Flow Trading the Highway to Success

Submitted by adil on Tue, 07/22/2014 - 10:23

What is Order Flow Trading?

For most of the traders, order flow trading has remained a mystery – a mystery that everyone wants to unveil but fear of losing investment capital hampers such trading expeditions. This article is for all traders who want to know this trading method.

Option Flow Trading:

Order flow trading can be executed in various forms of trading systems. It is based upon anticipating the prices in situations where big market players have very large pending orders. Option flow trading is not a very difficult strategy to implement, but the problem why it is not widely used is described below.

The key to option flow trading:

Option flow trading is based upon picking the levels. Most traders are too frightened to pick levels, mostly because traditional trading gurus advice to refrain from such practices. Classical trading cookbooks have always advocated trading based upon current situation, not according to what trader thinks might happen. Surprisingly, if you will try picking levels, there are more chances that the price movement will prove wrong all the levels you set. But it doesn’t mean picking levels is bad. The fact is, there are certain rules that should be kept in mind to correctly pick levels that will later help in implementing option flow trading.

Different order flow trading practices:

It is also a fact that many traders are implementing order flow trading without knowing about it. When someone trades by identifying support and resistance levels, and analyzes price action when the price movement is close to reaching the levels, it is also a form of order flow trading. If you have experience, you can increase your profits by entering the market early without confirming the price action. This practice increases the risks, but also opens new profit-making opportunities.

Another important factor is to choose a tight stop position so your trade will not get affected if the price movement suddenly moves away after reaching the level.

Rules about picking levels:

There is little doubt that picking levels merely based upon speculation will not prove to be profitable. The best thing is that the levels you have picked can be tested many times before entering the market. Following tips will help you in picking the right FOREX pair and the correct levels to trade on:

• Choose the most liquid FOREX pair, usually it is the EUR/USD, but the movements are limited with this pair.
• Pick levels by analyzing multiple high and low points from recent daily charts, also take into account trend lines, round numbers and pivot points.
• If the selected pair is already in the normal range, it is an encouraging sign.
• During the most liquid part of the day, check if the pair has reached the desired level without hitting any obvious levels. If yes, chances are considerably increased of a good trade.
• Use tight stops, because really good trades usually do not exceed the level for more than a few pips.
• When the trade goes about 40 pips (this value is for EUR/USD) in your favor, try to protect your trade and lock-in some of the profits.

Order flow trading provides many profitable opportunities on daily charts when the price movements are not following any specific trend.