🤐 Order Flow Secrets: How to Track Institutional Limit Orders

Hello everyone, it’s Dale here, and today I want to talk about something that confuses many order flow traders. If you look at the picture in front of you, there’s a footprint chart. The price is moving downward, and suddenly there is a huge order on the bid side of the footprint. Many traders think that strong sellers just jumped in and that the price should start dropping rapidly. However, as you can see, that didn’t happen. On the contrary, the price turned and moved upward. This is confusing for many traders who struggle to understand why, despite a large order on the bid, typically associated with sellers, the price goes up.

The issue is that many people believe the bid side only shows sellers, but that’s not entirely true. If someone buys with a limit order, it will also appear on the bid side of the footprint. So, this could be sellers, but it could also be a passive buyer entering a long trade with a limit buy order. So, which one is it?

Imagine this scenario: the price is dropping, then a huge order appears on the bid. Is it a seller with a sell market order, or is it a buyer with a limit buy order? Order flow will never tell you this. Order flow only shows the orders coming from the exchange and whether the order was executed at the bid or the ask. It doesn’t tell you whether it was an aggressive seller or a passive buyer entering with a limit buy. It’s up to you to interpret this, and as I always say, order flow trading is all about context.

For example, in this case, let’s say there was a strong support zone based on the bigger picture, like volume profile. If the price was dropping towards that support zone, and when it hit that support, a huge order appeared on the bid, it makes more sense that this was a buyer waiting for the price to reach the support and then entered a limit buy order. The alternative is that this was an aggressive seller, but does that make sense? If the price is dropping and hits a support zone, why would a strong institutional trader enter an aggressive sell order at that point? Why would they take the risk that the price might reverse and ruin their trade? In this scenario, it makes more sense that this was a buyer.

Now, let me show you a picture from a webinar I had some time ago. In it, you’ll see everything in one image. This is a footprint chart, where the left side shows the bid, and the right side shows the ask. It clearly shows that on the bid side, there could be either aggressive sellers entering with market sell orders or passive buyers entering with limit buy orders. On the ask side, you have either aggressive buyers entering with market buy orders or passive sellers entering with limit sell orders.

Many people don’t know this and are confused. They think the bid side only shows aggressive sellers and the ask side only shows aggressive buyers, but you also need to be aware of the limit orders because they can complicate things.

Let me show you an example of a trade from our live trading room that demonstrates how to use this in your live trading. I’ll start from the bigger picture and explain the reasoning behind the trade. We were trading the EUR/USD, and the analysis was made on a 30-minute chart. There was a heavy volume zone from which strong selling activity had started, so we were considering going short from this level—at the beginning of that heavy volume zone.

I mentioned that this was a risky trade because there was a weak high and heavy volumes close to that high, which could attract the price and push it upward to test those volumes. I also said that there was aggressive rejection of lower prices, which signaled strong buyers approaching our level, and that I considered risky. However, I said it was risky until I got strong confirmation from the order flow that someone big entered a short position. Let me show you what I saw.

I was looking at this chart of Euro futures on a 5-minute time frame. The price was moving up towards our resistance level, but then I saw 563 contracts on the ask side of the footprint. As I mentioned earlier, context is key. This was clearly a huge order, the largest on the entire screen, making it significant. Since it was on the ask side, it could either be an aggressive buyer or a limit sell order.

Given that the price had reached a resistance zone, it was more likely that this was a large trader waiting with a limit sell order, trying to go short from that resistance. It is less likely that a buyer would buy exactly at resistance. Because of this context, it was clear to me that this was more likely a limit sell order, and that made me pull the trigger and enter the short trade.

You can use order flow in this way when you’re uncertain about a trade. Like in this case, I initially thought the trade was risky, but then I saw strong confirmation and decided to enter because I saw significant trading activity that suggested a short trade.

There was one more thing I want to show you. This is from a filtered chart that only shows single orders larger than 30 contracts, filtering out the market noise and displaying only the big orders. This was also a 30-minute chart, and here was our resistance level. The price was approaching that resistance, and a huge order appeared. That’s the limit order I mentioned earlier. On this filtered chart, you can see that it was indeed a huge order, confirming that someone big was waiting at that resistance with a limit sell order. The price then started reacting.

I took just a few pips from this trade because macro news was coming, so I closed the trade before the announcement. Afterward, the price shot up, and as I had predicted at the beginning of the trade, it tested the weak highs and took out the liquidity above. But that’s not the main point of this video.

What I really want to teach you today is how to understand the order flow chart and how to make the distinction between market orders and limit orders. It’s all about context. If this huge order had appeared somewhere else, like here or here, it wouldn’t have had any significance to me. But since it appeared at resistance, it was significant and confirmed that the price would likely react to that resistance and move downward.

If you’re interested in joining our live trading room, I’ll drop a link below this video. You can watch a video about the Funded Trader Academy, see what’s included, and determine whether it’s something you’re interested in. If you think it’s the right step for you, you can book a call with me or another trader from our academy, and we’ll walk you through the course, chat with you, and help you decide if it’s the right fit for you.

Thanks for watching, and I look forward to seeing you next time. Until then, happy trading!