The goal of an order flow trader is to make predictions about the future market price by thinking about how and when orders are going to come into the market from traders making decisions. Having access to information like this can make analyzing the market much easier, because instead of having to guess where things like orders are located in the market, you can just use the indicators to find them out for you.
These indicators will not only make it easier for you to predict when a large reversal might be about to take place in the market, but will also give you important information about where traders have got their orders placed, which will help you anticipate where and when stop loss hunts may occur.
Lets start by taking a look at what I think is the best order flow trading indicator you can use in the market. Information like what percentage of traders have currently got trades open in the market, and the prices at which these trades have been placed, can all be discovered from reading the two graphs the order book shows. To the left you can see a small image of what the Order Book tool looks like.
The Open Positions graph shows you information about the Oanda traders who currently have trades open in the market. It gives you an idea of the prices at which these trades have been placed, the amount of traders who have got trades placed at these prices, and whether the trades are currently open at a profit or loss. The Open Orders graph you can see to the left of the image gives y0u information on all the orders Oanda traders currently have open in the market.
An open order is an order which has not yet been executed by the market. It may be an order to have a buy or sell trade placed at a specific price, or it could be a stop loss or take profit order placed by someone who has already got a trade open.
Oanda never actually specifies which orders the graph shows, but by understanding how retail traders trade, you can determine that the blue bars represent the stop loss orders placed by traders who already have trades open in the market.
These insights will make it easier for you to predict when orders are going to enter the market, which in turn will help you determine when and where the price is likely going to move.
The Historical Positions Ratio is an indicator which allows you to see what percentage of Oanda traders had long and short trades open at a point in the past. For example, using the indicators graph I could go back and see what percentage of Oanda traders had long trades open at the end of last Friday.
This information on its own is not that useful, but the fact that the Positions Ratio allows you to see how the percentage of open positions have changed overtime, means you can use it to spot when an overly large number of traders have got long or short trades open in the market, giving you an idea of when a large reversal might be about to take place. The black line you can see running through the graph shows you what the market price was over X number of days.
Now you can also see that there two different sections of the graph, one colored blue and one colored orange. The blue section shows the percentage of buy trades Oanda traders had open at that time in the market, and the orange section shows how many short trades they had open. The best way to see how many traders had trades open is move your cursor over the black line market price line itself. When you move your cursor over the line a small box will appear, and show you what percentage of Oanda traders were long and short at that time in the market.
This image shows what the percentage of open positions was on June 29th The fact that the number of traders with open long trades is increasing the further the market falls, tells you that traders are becoming more and more certain the market is soon going to reverse, which is what ends up doing a couple of days later on July 11th.
The majority actually end up closing their buy trade at a loss, because when they initially got their buy trade placed the market was falling, and it continued to fall for a significant length of time after their trade had been executed. Which means by the time the market reverses, most of the traders with long trades open have already spent an extended amount of time holding onto a losing trade. Holding onto a losing trade is a psychologically demanding experience. For them, the pain of having to potentially endure another draw down is just too much to bear, especially after the reversal itself has caused the size of the loss on their losing trades to decreased dramatically depending on where they actually got their trade placed.
It may not be as useful of an indicator as the order book we just looked at, but it does still contain important insights about the market which can help you with your trading. The only advice I can give you a the moment, is to watch for signs of a reversal taking place when there is an extreme percentage of traders with long or short trades open in the market.
Historical Open Positions Ratio. Instead of showing you what percentage of traders had buy or sell trades open in the past, it shows you the prices at which they had placed their buy and sell orders at in the past and the present , and also gives you an idea of how many buy and sell orders had been placed at a particular price in the market.
You can see that there are four graphs in total. The two which you need to be concentrating on are the two seen at the top, titled Buy Orders and Sell Orders. These two graphs show you where all the buy and sell orders have currently been placed in the market and where they have been placed in the past.
The gradient of the color you can see on each graph gives you an indication of amount of orders that was placed at that price. The deep red colour you can see in the sell orders graph, indicates that a high percentage of sell orders had been placed around this point, whilst the deep green colour you can see in the buy orders graph shows you where a large number of buy orders had been placed.
Something which I have found the indicator to be pretty useful for, is finding out the big round number prices which have a high probability of causing the market to reverse. In one of my articles on support and resistance levels , I mention how large reversals usually tend to begin near big round number prices, as traders tend to put their orders around these prices to enter trades and set stop losses.
With these graphs, you can now easily see which of the big round number prices hold the highest concentration of orders, allowing you to find the prices that have a high probability of causing the market to reverse. Historical Open Orders Graph. I will be doing some articles in the near future on the Historical Open Orders and Open Positions indicators to show you how to better use them, so check the site in a few weeks time to see if their complete.
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