ORDER FLOW: 3 Key Patterns to Spot Reversals

Hello everyone, it’s Dale here. In this video, I’m going to show you three order flow patterns to spot trend reversals. You can trade this with any trading instrument that you want. I personally prefer currency futures and indices like the ES or the NQ.

Regarding the time frame, what I prefer is fast time frames like 1-minute, 5-minute, 10, 15, or up to a 30-minute time frame. So, we are basically going to be talking about intraday trading. This is not for position trading—only for intraday trading.

Alright, now the software I’m going to use is my custom-made Order Flow for the NinjaTrader 8 platform. You can use any other software that you prefer; all the functions should be there, so no worries about that.

Alright, so let’s get started. Let’s start with the first pattern, which is called absorption.

The first reversal pattern is called absorption. Absorption basically tells you that either buying or selling pressure is being absorbed. That means if you look at the footprint chart—the order flow chart—you will see huge volumes both on the bid and ask.

If you take a look at this example right here, the price was going upwards, and then there was a high-volume node with huge volumes both on the bid—that’s here—and on the ask—that’s right here. Unusually huge volumes, right? And that’s the absorption.

Those heavy volumes, in this example, are telling us that buyers were pushing the price upwards, and we see their aggressive orders on the ask. But at the same time, at this price level, sellers started to sell aggressively as well. We can see them here—those are aggressive sellers—and the price stopped moving. That’s important. With absorption, the pressure—either buying or selling—gets absorbed. That’s why the price stops moving, and heavy volumes accumulate either at one price level or across a couple of very close price levels. In this case, it was just one high-volume area.

So in this example, this is where the absorption took place, and after that, the trend changed because the buyers ran out of fuel, sellers took over, and there was a change of trend. This is the bearish scenario of absorption.

Now the other picture here shows the bullish absorption. What you can see here is that the price was going downward. Sellers were pushing the price down, and then the price stopped here and buyers stepped in. They started to buy, but at the same time, sellers were selling—but the buyers were buying everything the sellers had to sell. That’s why the price stopped moving. Sellers were selling, and at the same time, buyers were buying. The price stops moving, huge volumes are accumulated at this price level, and eventually, sellers run out of fuel and buyers take over.

So that’s absorption.

Let me show you a couple of examples. What you see here is a footprint chart. I believe the symbol here is the ES. It’s not too important what the symbol is. You can see that the price was going upwards, but then there’s this huge high-volume node with massive volumes on both the bid and ask. It’s important that the heavy volumes are on both the bid and the ask.

So again, buyers were buying aggressively, but at the same time, sellers stepped in and started to sell. That’s why the price stopped, and eventually, buyers ran out of fuel and sellers took over. There’s the change of trend. That’s absorption, right here.

As I was saying, you need to look for huge or unusually large volumes. I don’t have exact values for each instrument for what constitutes “unusually huge volumes,” because every session, instrument, and time frame is different. But if you look at the chart and see what the usual or standard volume is—like here, or here, or here—then you’ll know when you see something like this, that it’s unusually large. It’s an unusually huge order or volume cluster.

This was the bearish scenario. Now let me show you the bullish scenario.

What you can see here is that the price was dropping, and then a huge heavy volume cluster formed. In this case, it’s not just at one price level but spread over a couple of levels. This is absorption—unusually large volumes being absorbed in this area. Again, sellers were selling, but at the same time, buyers were buying. The price stopped for a while here, and then there was a reversal.

Alright, so when you spot absorption, there’s a solid chance the price will reverse because the pressure is being absorbed and it’s likely that the price will soon turn and go the other way.

Alright, that’s the first reversal pattern: absorption.

The second reversal pattern is a change in delta.

I should probably explain what delta is before we continue. Delta is the difference between ask and bid. If you look, for example, at this footprint here, delta is the sum of ask volume minus the sum of bid volume. If the number is positive, then the delta is positive; if the number is negative, then the delta is negative.

In this particular example, the delta is negative. That means sellers, who show up on the bid, are more aggressive than buyers. So that’s what delta shows us. My software displays the delta below each footprint. Other software may do it differently, but every platform has delta, so don’t worry—it’s a common feature.

The cool thing about delta is that price often likes to follow it. What I look for is a change in delta because the price tends to follow it.

Let me show you an example.

What we see here is price going up, but then there’s a footprint with a negative delta. By the way, this footprint is bullish. You can see it here—the candle would look like this, and it’s a bullish candle. But the delta is negative, which is unusual. Usually, with a bullish candle, like this one, the delta is positive.

In this case, it’s different, and it signals a change in trend. Sellers stepped in—they’re more aggressive than buyers—so the trend is likely to change. The divergence between price and delta is that we are looking at a bullish footprint, but the delta is negative. That’s the divergence. Basically, price goes up, delta goes down—that’s the divergence.

Let me show you a few examples.

Here you see a little downtrend. In that downtrend, we have negative deltas, which is normal—when price goes down, delta should also go down. But then we have a bearish footprint with a positive delta. This tells you that buyers stepped in and are more aggressive than sellers. A trend change is likely to happen. In this case, the next footprint also has a positive delta—another sign of aggressive buyers. So delta is telling you buyers are stepping in and the trend will change.

Let me show you one more example.

Here, the price was going up. We had positive deltas below all these footprints—everything as it should be. But this is where you should be alert. We have a bullish footprint, but at the same time, a negative delta. In other words, aggressive sellers are stepping in. Even though price is going up, delta is going down. So we have divergence between price and delta, and this is a sign that a trend will change.

Another signal comes in the next footprint, which also has a negative delta. Then the next one also has a negative delta—and here we go—downtrend. So a change in delta is a powerful tool for tracking trend reversals.

Now, before I show you the third pattern for spotting reversals using order flow, let me quickly show you how you can get your hands on my custom-made order flow software and my order flow trading course.

You can get it on my website, Trader-Dale.com. Click the “Trading Course and Tools” button, and it’ll take you to this page. Scroll down a bit, and you’ll find the Order Flow Pack, which includes my custom-made order flow software, order flow video course, and my custom-made Volume Profile indicators.

But let’s get back to the third pattern.

The third pattern is imbalances.

An imbalance means one side of the market becomes significantly stronger than the other side—buyers significantly stronger than sellers, or vice versa. When I say “significantly,” I mean three times or more. That’s how I use imbalance: I set it to three times or more. You can use different values like four times, five times—you can set that in the indicator settings. I use 300%, which means I look for values that are three times or more greater.

Let me show you an example.

The imbalances are highlighted in blue—my software does that. One important thing to know about order flow is that you read the footprints diagonally. For example, here you compare 18 to 0—that’s how you compare bid and ask. Or compare 104 to 17. If one of those numbers is three times or more larger than the other, it gets highlighted in blue. That means, at that price level, either buyers or sellers are way more aggressive.

For example, in this case, 104 contracts vs. 17—the 104 is highlighted in blue because it’s more than three times greater. That means sellers were way more aggressive than buyers.

In this example, you can see price moving very aggressively up. All those imbalances on the ask mean buyers are in control—buyers are way more aggressive. But then there’s a reversal, and sellers take over—they are now way more aggressive than buyers. You can tell by the imbalances here.

This is called a stacked imbalance—three imbalances on top of each other. My software highlights them in red like this, showing the strength of sellers. Sellers are dominating—they’re way stronger than buyers. This often happens when there’s a trend reversal.

Let me show you a couple more examples.

Here, price was going up, but if you look at the imbalances, you can see aggressive sellers were way stronger than buyers. These are selling imbalances, telling you that aggressive sellers are stepping in. Aggressive sellers drive a downtrend—like this. So, this is a sign that the uptrend is likely over, sellers are taking control, and the price will likely reverse.

You can also notice the delta. As we discussed earlier, the price was going up, but there were negative deltas. That’s the first sign the trend could change. After the negative deltas, you see the selling imbalances—and that’s where you should pull the trigger.

One more example.

Here we have a strong downtrend. After the downtrend, we see signs of aggressive buyers—imbalances right here, stacked imbalance here, and another stacked imbalance here. Aggressive buyers are taking control, meaning the trend is likely to change.

This isn’t just about imbalances. Notice the delta here. At the low of this reaction, the delta turned positive. Also, we see a sign of absorption—unusually large volumes on both bid and ask.

So in this case, we have all three patterns: absorption, change in delta, and imbalances. And see how beautifully it worked.

One more thing before we wrap up.

These reversal patterns work best in significant areas on the chart. For example, if you see a strong daily high—like this one—and price returns to that area, then open the order flow software at that zone and look for these patterns. This is where you want to see them—at significant support or resistance zones formed in the past.

That zone could be formed by a price action formation like a pin bar, an important swing high or low like the high or low of the day, a Volume Profile zone like a heavy volume zone or daily Point of Control, or it could be VWAP.

Whenever you see a significant support or resistance zone, look for these order flow patterns. They’ll tell you and confirm whether that zone is likely to hold and reverse the trend.

That’s how you can make the most of these patterns.

I hope you guys liked the video. Let me know what you think in the comments, and I’ll be looking forward to seeing you next time. Until then—happy trading!