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Video Transcript:
Hey everyone, it’s Dale here. In this video, I want to show you how to use Order Flow to spot the limit orders of big players. This is super useful because you can use it as confirmation, which will make your trade entries way more precise and your results more consistent. So, let’s get to it.
What I’d like to cover now is confirmation by limit orders. At this point, I’d like to remind you that a selling limit order will appear on the ask, and a buy limit order will appear on the bid.
Imagine the price goes up and reaches some resistance. Let’s say there was a resistance zone let me mark it. In that resistance zone, you notice 857 contracts. That’s a really huge number if you compare it to the rest of what you see here, especially when it shows up at resistance.
Now you need to think about what this is telling you. Huge volume appears at resistance, and it appears on the ask. It could either be an aggressive buyer using a market order, or it could be a sell limit. Remember, we are at resistance. If somebody big probably an institutional trader jumps in here, does it make sense to enter a long when the price reaches resistance? It makes no sense. It’s more likely that somebody big was waiting with a limit order at this resistance level, and when the price reached it, their limit order got filled. In this case, it’s more likely that this heavy volume is a sell limit, and it is confirmation for you to enter a short trade as well.
Let me show you another example to make it crystal clear. What we have here is a price action chart a 30-minute time frame with Volume Profile and VWAP indicators. There is a support level marked by the blue line. It is based on heavy volumes and is located at the beginning of a heavy volume zone. It is also at the first deviation of the weekly VWAP. So this was a support.
I found this support using Volume Profile, VWAP, and price action. When the price was close to that support, I opened the Order Flow software and looked for confirmation. Since we are talking about limit orders, you can probably guess that the confirmation in this case will be a huge limit order.
Here is how the price was dropping toward that blue support line. When it hit the support, 1,146 contracts showed up just one tick above it. Now you need to think about what this represents. Since this is on the bid, it could mean either an aggressive seller using a market sell order or a limit buy. Which one is more likely? Remember, the price reached support. Is somebody big entering a huge short at support? Not very likely. What’s more likely is that somebody big was waiting at the support with a limit buy order. So it is more likely that this is a limit buy, which means confirmation for you to enter a long trade.
Let me give you one more example. If you look at the Volume Profile, you can see the Point of Control. The Point of Control is essentially the strongest area in the Volume Profile because it shows where the volumes were heaviest throughout the whole day. This is the daily Point of Control. Price likes to react to Points of Control, so potentially this level was support.
If you don’t want to trade this blindly, you will want confirmation from Order Flow. The price moves away from the Point of Control, then makes a pullback to it. As it hits the Point of Control, 678 contracts show up on the bid. Again, you need to think: is this a market sell or a limit buy? Since the price reached support, it’s not very likely that somebody big would enter a short at support. It’s more likely that somebody big was waiting there with a limit buy order. So it is very likely that this is a limit buy and confirmation for you to go long.
As you can see, this is an unusually huge number compared to the rest of the volumes. Nothing else is even close to it. That’s how you can spot a huge limit order.
I hope you liked the video and found it useful. If you want to get your hands on my custom-made Order Flow software and complete A–Z Order Flow training, head over to my website, trader-dale.com. Click on “Trading Course & Tools” scroll down, and you’ll find the Order Flow Pack, which includes the course, Order Flow software, and my custom-made Volume Profile indicators.
Thanks for watching, and see you next time. Until then, happy trading.
