Order Flow Trading for Beginners: How to Read It Step-by-Step

Most traders open the Order Flow software and they have no idea what they’re looking at. It’s just numbers flying everywhere. It’s a matrix. They can’t really make heads or tails of it. But in this video, we’ll break everything down and I’ll show you the most important things you need to know when reading the order flow. We’ll talk about volume clusters, high-volume nodes, imbalances, delta, cumulative delta, and so on. And in the end, I’ll also show you how to organize everything together to create your own order-flow workspace. All right, so let’s get to it. The first thing, and maybe the most important thing, is volume clusters. A volume cluster is a place where heavy volumes were traded. It’s important because big trading institutions usually reveal their trading activity in those volume clusters. On the screen, there are two significant volume clusters here. It’s this one and this one. When you see a volume cluster, it’s usually a sign that somebody big was trading there probably some trading institution. The reason why those are important is that first, they are footprints of somebody big, and second, price likes to react to heavy volumes. So for example, if you take a look at this volume cluster, price moves away from it and makes a pullback, and when it goes back to the area where this volume cluster was formed, price reacts there. So it worked as a support, right? Heavy volumes often work as strong supports and resistances. That’s why volume clusters are important. They show significant supports and resistances and the activity of the big guys.

Now I actually like to look for volume clusters on this type of chart. It is a footprint chart which shows total volumes, which means bid plus ask. The previous chart was showing bid and ask separately, but this one is showing the total bid plus ask. For me, it’s easier to read and easier to spot those heavy-volume zones. This is the first one I was showing you. This is the second one I was showing you. They simply stand out more visually. It’s easier for me to read the chart, so that’s why I use this kind of chart to look for those volume clusters. If you look at this example, then we have a rather significant volume cluster right here. What it could represent is that when the price was dropping and reached this place, maybe there was some support here, somebody big started to trade here, heavy volumes were traded, and eventually this resulted in a change of trend. It all happened around this significant volume cluster right here. Again, I can show you this on that volume chart. In my opinion, it’s just better visible there. This is that volume cluster that changed the direction of the trend.

Now speaking of the importance of heavy volumes, I also need to mention high-volume nodes. There is a high-volume node in every footprint. My software draws a black bracket around that high-volume node, and it’s the place where the heaviest volumes were traded in each footprint. In each footprint there is a high-volume node, and it shows where the heaviest volumes were traded in that particular footprint. I’m not saying you need to trade every high-volume node you can see on your chart, but it’s usually handy to know where the heaviest volumes were traded in each footprint, especially if you have, for example, high-volume nodes next to each other like in here. My software highlights that in yellow, and it represents support or resistance. So for example, in here, there was a pullback to this double high-volume node and the price reacted there. So you want to keep track of the high-volume nodes as well because, as I was saying and I’ll probably say it many times in this webinar heavy volumes are important. Always keep track of heavy volumes.

Another very important thing here is delta. Very simply put, delta is the difference between buyers and sellers and shows who is stronger whether buyers or sellers. If delta is positive, like for example in this footprint, that means buyers were in control in this footprint. If delta is negative, like in here, then in this footprint sellers were in control. Delta is ask (that’s the sum of those volumes) minus bid (that’s the sum of those volumes), and my software prints the delta below each footprint. So in each footprint you can tell who was in control buyers or sellers. Needless to say, limit orders can mess things up. They mess delta up. So it’s not the holy grail of all indicators. Otherwise it probably would be, but it’s not because we have limit orders which can mess things up. But still, I consider delta a very powerful tool and I always keep track of it.

Speaking of delta, I also like to use the cumulative delta, which is nothing else than how delta was developing since the start of the day. If you look at this picture here, then there’s a summary at the bottom of the screen showing the cumulative delta. So the first footprint of the day was delta -62. The next delta is -10. So -62 – 10 is -72. That’s the cumulative delta. It shows how delta was developing since the start of the day. The next delta is positive, it is 12. So -72 + 12 is -60. Now I must say this is quite challenging to keep track of if it’s just numbers at the bottom of the screen. That’s why I use this chart. It’s also cumulative delta, but in this case it is a simple line chart. It shows the same thing how delta was developing since the start of the day. If you look at it like this, it’s way easier to read. One simple look and you know that cumulative delta is dropping and sellers are in control. Very simple and very effective. I really like to use cumulative delta. I’ll show you how later. By the way, my software also gives you the option to use this line chart of cumulative delta rather than just the summary at the bottom. So if you get my software, you’ll get this one as well. Very handy feature.

Another thing that’s very important to keep track of is imbalances. An imbalance is when one side of the market is way stronger than the other. For example, buyers were way stronger than sellers or sellers way stronger than buyers. The definition of “way stronger” is three times or more. So take a look at this footprint and this number here, 313. It’s highlighted in blue. That means it is an imbalance. My software highlights those so I can spot them easily. You always compare diagonally that’s how you read order flow like this. You compare 313 to 96. If 313 is three times or more than 96, then it gets highlighted in blue and it shows imbalance. Sellers were way more aggressive than buyers here. If we look further in the chart, we have imbalance here, then imbalance here. Those are selling imbalances because they are at bid. But there is, for example, a buying imbalance right here. It shows at ask, which means buyers were in control here because we are comparing 35 contracts and 108 contracts. So that’s why it gets highlighted in blue because in here buyers were more aggressive. The way I use those imbalances is I often look for stacked imbalances. A stacked imbalance is when more imbalances are stacked on top of each other. In this footprint, you see all those blue numbers those are imbalances. If they are stacked on top of each other, then they are stacked imbalances and they often represent a strong support or resistance zone, because this is a place where sellers in this case, sellers were way more aggressive than buyers. My software highlights those areas. For example, in here we have a stacked buying imbalance and it gets highlighted like this and represents strong support. So if there is a pullback, the price is likely to react there. This is how I like to trade imbalances, especially the stacked imbalances. So remember, an imbalance or stacked imbalance shows aggression and strength of either buyers or sellers.

As I was saying, it is very important to keep track of what the big picture is, and for that I like to use volume profile. Volume profile is that thing on the left side of the screen, this histogram right here, and it is a daily profile which shows how volumes were distributed through the whole day. One quick look and you know there’s a significant volume zone here, another significant volume zone here, light volumes here, light volumes here. This gives you the big picture, which is so important when trading with order flow. I know order flow is all about the details, but it only works if you know what’s going on in the bigger picture. That’s why volume profile is so important and why it’s also part of my order-flow software.

Now I’d like to do a little summary of the things I showed you. There are a couple of them. So right now, you can see all of them on one screen. And basically, if you open an order-flow chart like this one, these are the things you should focus on and always keep in mind. You should keep track of the volume profile where the heaviest volumes are and what important areas in the chart are. You should keep track of the heavy volume clusters. You should look for high-volume nodes like this one, this one, this one. Then you should look for stacked imbalances like those. You should look for multiple high-volume nodes like this one, this one, or this one. You should keep track of delta below each footprint and also cumulative delta. So if you open an order-flow chart, these should be the things that stand out. Don’t try to read every single number on your screen. That won’t help. You’ll just get lost in that matrix. Just read those things and the order flow will start to make sense. It won’t be complex. You just need to know what to look for, and these are the most important things.

Now at this point, I’d like to show you my workspace. You can copy it, you can let it inspire you. Here’s how it looks. On the top left, there’s a chart a 30-minute chart showing total volumes. It’s not a bid-and-ask chart, only total volumes. On this chart, I look at the bigger picture because it’s a 30-minute chart. I look for significant volume clusters like this one. I look at the volume profile. As I was saying, this is the bigger picture. Another chart that shows the bigger picture is this one. It’s something I call the Trades Filter. It only shows single trades that were bigger than X amount of contracts. So it filters out all the noise and shows only the big orders. For example, here, one order of 182 contracts. As you can see, in this case, this actually turned the trend from downtrend to uptrend. So this is the Trades Filter. Very useful feature. It also gives me a bigger-picture look.

Then on the right side of the screen, there is this chart. This one gives me a more detailed look because this is a bid-and-ask chart. It is a five-minute chart and I use this one to look for order-flow setups, confirmation setups, and nuances. I also use this one to look at deltas and all the stuff I’m going to show you today regarding trade confirmations or other order-flow setups. So this is the detailed look into bid and ask. And the last chart is this one. It’s a combination of two charts. The first one is a one-minute chart of price, and below that a one-minute chart of cumulative delta. I compare those and look for divergences there. So this is how the order-flow workspace looks.

And in order not to lose the bigger picture, I also have a volume-profile chart with simple candles on my other screen. It looks like this. I have volume profile here, which is a weekly volume profile. Then there’s a volume profile I can move around like this that’s the flexible profile. I also have a weekly VWAP here. By the way, this is a 30-minute chart. So this is the big picture. I look for my levels here first, and then I trade those levels with order flow.

So that’s about the workspace. By the way, if you’d like to join our trading community, you get access to all these indicators, to the volume-profile indicators. We’ll install everything for you, set everything up the workspaces, the data, the platform, everything. If you want to join us, head over to my website, Trader-Dale.com. If you click Trading Course and Tools, then it’ll take you to this page. Here you can browse my education and indicator packs. This is the Order-Flow Pack, which includes a 12-hour course on order-flow trading, my order-flow software, and my volume-profile software. You also get tech support, which will install everything for you. There are also other packs you can get here the Volume-Profile Pack, the VWAP Pack, the Smart-Money Pack. You can get them separately here, or scroll down a bit and you can get all four together for a discounted price.