AUD/USD: Order Flow analysis – How to predict turning point in a spike

There was an unexpected announcement made in today’s Asian session. It was said that the trade deal between US and China would be terminated.

Price Action

This news caused some pretty wild movement all over the markets. One of the most active currency futures in the Asian session is the 6A (AUD/USD futures) so let’s have a look at what happened there!

If you look at the price action chart below, you can see that there was a 70 pip spike. Unfortunately, this is all what the price chart can tell us. It can’t predict the turning point of this spike (it’s low). So, if you are trading in a situation like this, then simple price action won’t really help you.

Order Flow analysis

What can help you however, is the Order Flow! If you look at the picture below, you will see the detail of the price spike the AUD made.

There were massive volumes traded a little bit above the turning point. Those volumes were traded on Bid as well as on Ask. What it means is this:

Sellers were pushing the price aggressively downwards. They did so by placing aggressive Market orders. What happened next was that buyers started to show up and they started to absorb the selling pressure. This means that even though the aggressive sellers were jumping in with Market orders, the buyers were able to buy all the selling pressure.

This is called the “Absorption“. It usually occurs around turning points and the main sign is that you see massive volumes appear both on Bid and also on Ask of the footprint.

I marked that in the picture below. The main thing to notice is the unusually heavy volumes both on Bid and on Ask.

6A 09-20 (AUD futures), 30 Minute Order Flow chart:

Price and Delta Divergence

Apart from the Absorption, there was also one more very important signal telling you that the price was likely to turn. It was a divergence between price and Delta.

Simply put, what Delta shows the difference between aggressive buyers and aggressive sellers.

In the picture below you can see that the price went downwards, but by that time the Delta has already turned upwards. This is called the “divergence between price and delta“.

In this case it told us, that even though the price was going downwards, buyers were entering their positions!

In a situation like this the price usually follows Delta. That’s why this divergence was another signal that the price would most likely turn.

6A 09-20, 1 Minute chart:

Summary

To sum this up – when the price of the AUD went downwards sharply today, there were two signals that the price would turn up again:

First, the Absorption which was telling us that buyers were absorbing the selling pressure.

Second, a divergence between Price and Delta telling us that even though the price was dropping, more and more buyers were jumping in and that the price was likely to turn upwards again.

Where to get Order Flow & Delta

You can get my custom made Order Flow + Delta here:

TD Order Flow Software & Training – Click Here

The Order Flow Package includes Lifetime Access To:

  • Order Flow software
  • Order Flow Video Course (12 hours long)
  • Volume Profile Pack

Additionally, you can get our proprietary Order Flow software as a standalone product via the Order Flow page I’ve linked to above.

Happy trading!

-Dale

A MAJOR Support on AUD/USD NOW!

There is now a lot of attention on the AUD/USD. The reason for this is that it has just hit it’s 11 year low!

There are fundamental reasons for this (fires, Coronavirus,…) but I don’t really believe the AUD can fall indefinitely. Sooner or later it will bottom out and I think this moment is coming!

Look back in the past

When a trading instrument falls to its multi-year lows and you want to look for a place where it could bottom out, then it is best to load some historical data and check out if the price was as low or lower in the past.

If you load enough of historical data, then chances are that you will find out that the price actually was as low or even lower at some point in the past.

Check out the volumes

The next thing you want to do is to use Volume Profile tool to look into volumes and their distribution. The important thing is how the volumes were distributed in the past, when the price was as low as it is now.

When you do this, you may be able to identify a strong Support which would mark a place where the price could stop falling and reverse.

I did just that on the Monthly chart of AUD/USD:

AUD/USD Monthly chart analysis

In the chart above you can see that the price is now hitting an area where it already was in 2009.

The first thing that should get your attention should be the strong rejection of lower prices (in 2009). I marked it in the chart.

This rejection tells us that the price was falling rapidly. There were three months of crazy selling. Then the price turned and went into a crazy uptrend.

This means that sellers were pushing the price downwards but then very strong buyers came in and with massive force and aggression started a new uptrend.

You can learn more about the Rejection setup here:

Rejection setup explained

Volume Profile analysis

If you look into the volume distribution in this rejection area from 2019, then you can see that there was a significant Volume Cluster created around 0.6500.

This Volume Cluster points us to the place where the buyers who turned the price in 2009 placed lots of their buying positions. For them, this is the most important place in this whole rejection!

As you can see, currently the price is getting into this area again. Will those buyers from 2009 still be there defending their positions? I think they will!

I know it is over 11 years, but strong volume zones like this one don’t just get forgotten. Markets have good memory!

Do you want ME to help YOU with your trading?

Join one of my Volume Profile Educational courses and get my private trading levels, 15 hours of video content, my custom made Volume Profile indicators, and more!

What happens now?

Now I think the chances are that the downtrend will stop and possibly turn. Price is approaching a strong volume area which will most likely be defended by strong buyers. Those buyers will try to push the price upwards again.

Remember that this is a Monthly chart, so this may not happen today or tomorrow! It could take a few months! With trades like this patience is the key!

Check out the Swap!

If you are into trading such long-term trades as this one then there is one thing you should always consider before entering your position! The thing is Swap.

Swap is a payment you will pay (or sometimes receive) when you hold any forex position overnight.

If you trade on Monthly charts it is possible that you will hold your position for many weeks or months! Every day you will pay (or receive) Swap.

IMPORTANT: Every broker has a different Swap!

My advice is that before opening a long-term position you check your brokers website and see what is the swap you will pay or receive. There should be a table that will look like this:

 

In this table you should be able to see the trading instrument you want to trade and Swap for Long and Short positions.

In this example, you would pay $3.79 (per lot) every day you hold a Long on AUD/USD and $0.09 if you hold a short.

Ideal scenario is when the Swap is positive and you actually receive money for holding your position.

This was for example the case of a short on EUR/USD I held over a year. Apart from +1.600 pip profit I was also getting a positive Swap every day. Because I held the trade over a year, the positive Swap increased my profit from this trade by 20%.

I wrote more about this EUR/USD trade here:

EUR/USD short trade: Prediction

EUR/USD short trade: Commentary

I hope you guys liked today’s article. Let me know what you think in the comments section below!

Happy trading!

-Dale

Recommended Forex Broker

Having a solid broker with low spreads and commissions is ESSENTIAL for PROFITABLE TRADING! Check out my recommended brokers