Order Flow Indicators – A Complete Guide

I’ve compiled a list of the Best Order Flow Indicators I have used over my 20 year trading career to share with you.

At my first trading job, GPC in Chicago, we learned to trade order flow by reading a Level II. It was an amazing strategy to trade back then. You literally could feel the pulse of the market.

However, relying solely on Level II (advertised prices) as a strategy became impossible as the majority of market volume became dominated by algorithms.

I had to adapt and expand my trading strategies or I would have been done trading. I knew what style of trader I was already but I was missing the clarity on supply and demand that a Level II used to give me.

I started studying volume intensely and tried every volume indicator known. In time I developed a fundamental understanding of volume allowing me to define new trading edges, some of which I will share with in this post.


Order Flow Trading

Order Flow has become a buzz world in the online trading world the past few years, but nobody seems to clearly define it.

Here’s my definition…

Order Flow Trading is a type of trading strategy where trading edges are defined through the analysis of advertised orders and/or executed orders.

Now that we’re on the same page… The important thing to point out is there’s two different ends of the spectrum. First is the analysis of advertised orders seen in the book. Second is analysis focused solely on executed orders. Personally, I lean towards executed orders but indicators like time & sales and a Level II still play a role in my trading.

All the order flow indicators we cover in this post will be focused on executed orders. However, liquidity viewed through a Level II is still a very valuable tool. Training your mind to be able to read a Level II in real time takes experience, but something I highly recommend.

Note: Level II is especially useful if you trade lower float stocks.


Best Order Flow Indicators

I already have dedicated individual posts to the first three order flow indicators we’re going to discuss. Therefore, I will discuss them in less detail here but include links to the in depth posts.


1 – Footprint Charts

Footprint charts come in several different variations. Let’s take a look at the main ones and how they can be used.

5 Minute Bid/Ask Footprint Chart

Bid/Ask Footprint

The Bid/Ask footprint chart above displays all of market orders that traded on the bid and the ask for every price level. I primarily use these charts on a longer time frame to find stacked imbalances.

Two Bid/Ask Footprints Displaying Buy and Sell Imbalances

Stacked imbalances are simply multiple buy or sell imbalances that form in a tight range. Stacked imbalances illustrate extreme buyer or seller aggression.

Best Uses:

  • Confirm reversals, breakouts, or trend continuations
  • Use for future Support/Resistance
  • Discover Unfinished Auctions
eMinin S&P 500 Delta Footprint

Delta Footprint

Volume Delta measure the difference between buying and selling power. It’s calculated by taking the difference of the volume that traded at the offer price and the volume that traded at the bid price.

Best Uses:

  • Trading Delta Divergences: Absorption & Exhaustion
eMinin S&P 500 Volume Footprint

Volume Footprint

The volume footprint chart is the primary footprint I use. Volume is a very in depth topic, which is why my next post is a deep dive into the volume profile.

Best Uses:

  • Determining S&R through High Volume Nodes
  • Finding Low Volume Nodes (low liquidity) for breakouts
  • Determining if the market is balanced or imbalanced to make sure you’re trading the correct strategy
  • Use HVN range to determine R on potential setups

If you’re interested in taking a deep dive read this in depth guide on Footprint Charts.

Note: I use MotiveWave for my charting software


2 – Delta Indicators

We briefly discussed what delta is now let’s take a look at two different indicator

5 Minute Chart of eMini S&P500 Displaying Volume Delta

Volume Delta

The Volume Delta Indicator takes the value of delta for a session and plots it on a positive/negative bar graph allowing you to quickly see when price and delta are diverging.

On the above chart we have divergence at the 10:15 a.m. candle. Sellers were aggressively hitting the bid represented by a negative delta yet price closed higher.

Best Uses:

  • Spotting Potential Reversals
  • Confirming Trend Continuation
Chart with Cumulative Delta Indicator Displaying Divergence

Cumulative Volume Delta

The cumulative volume delta indicators plots the cumulative value of delta on a price graph.

In the above example price makes new high but delta does not. This is an example of Exhaustion. Price went back to highs but buyers were less aggressive this time (displayed by delta) and price began to fall.

Best Uses:

  • Trading Divergences (Exhaustion and Absorption)
  • Trade Management

If you’re interested in learning more about volume delta and cumulative volume delta read this post.

Chart Displaying Nyse Tick Divergence and Extreme Reading at High

3 – NYSE Tick

If you trade any U.S. stocks or index futures this is a very handy indicator. It takes experience to become proficient but once you do you will boost your strategies by timing your entries and exits a little better.

This indicator works best for scalpers on short time frames.

NYSE TICK = Stocks on Upticks – Stocks on Downticks

I consider the NYSE Tick similar to delta but for the entire market. It’s a real time display of buyer and seller aggression for the entire market.

In the example above you will notice the extreme tick reading at highs (Blue Highlight) and divergence forming at the 2:17 candle.

Best Uses:

  • Better Entries
  • Trade Management
  • Confirm Breakouts
  • Find extremes highs and lows on the day

If you’re interested in learning more about the NYSE Tick read this post.

15 Minute Chart Displaying Volume Weighted Average Price

4 – VWAP

Volume Weighted Average Price, known as VWAP, is an indicator every trader should use no matter your trading style. Why?

VWAP not only works really well, but it’s used by every big trader and most institutional traders.

VWAP = (Volume * Price) / Volume

Best Uses:

  • Take profit when playing fades
  • Retracement Trades
  • Mean Reversion
  • Support and Resistance
Footprint Chart Displaying Two Volume Weighted Moving Averages

5 – VWMA

The Volume Weighted Moving Average indicator calculates the average weighted price by volume over a period of N bars.

Volume Weighted Moving Average = SUM(vol*price)/SUM(vol)

Doesn’t a moving average that’s weighted based on the amount of volume traded make sense? BAM! VWMA is it. You can use similar to any other moving average as well as VWAP which we just discussed.

Best Uses:

  • Trend Trading
  • Trade Management
  • Support & Resistance

6 – Time & Sales

The time and sales (the tape) indicator shows you the time, price, and size of executed orders.

Speed and size are the key metrics when analyzing the tape to forecast future market direction. You can identify buyer or seller aggression (momentum) by seeing an acceleration of multiple buy or sell prints.

Best Uses:

  • Highlight Large Orders
  • Identify Momentum
5 Minute Chart with Open High Low and Close Indicator

7 – OHLC Indicator

The Open High Low Close indicator is pretty self explanatory. Most platforms have some additional options you can use. Personally I use the Developing High/Low Lines, Previous Day H/L Lines, Initial Balance H&L on almost every one of my carts.

Uses:

  • Support and Resistance
5 Minute Chart of eMini S&P 500 with Volume Indicator

8 – Volume & Volume Profiles

There’s a reason why volume is a standard indicator on every single chart platform out there. In the above example you can see volume increasing as price broke out of the range to the downside.

Volume Profiles are such an integral piece of order flow trading that I wrote an entire guide that you can read here. Volume should be number one on this list but sometimes I save the best for last. Your dedication has paid off for nearing the finish line.

Uses:

  • Breakout Confirmations
  • Trend Confirmations
  • Determining Balance

Conclusion

You should become familiar with all of these order flow indicators. Every single one on this list will provide you with another trading edge.

If I was brand new to order flow I would definitely start by focusing on volume and volume profiles.

To become an expert using any of these order flow indicators it will take experience. The only way you’re going to get that is more screen time, so get after it!

What’s your favorite order flow indicator? Leave a comment below!

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Adam

Adam is the founder of Jumpstart Trading. He began his trading career in 2003 as a proprietary equity trader for GPC, which at the time was the second largest prop firm in the United States. While with the firm he achieved top 10 performances and became one of the youngest trainers for the firm. In 2008 he moved on to trade his own capital while developing multiple trading strategies and algorithms. He has quickly become recognized as one of the elite order flow traders in the industry. Today Adam primarily focuses on U.S. Index futures.

6 Comments

  1. Hi Adam, thanks for the amazing post. I’m just getting into trading. Very interested in Order Flow, everything seems much more logical than anything I have looked at. Any suggestions on what to focus on first?

    1. Hi Mike! Thanks for the comment and the kind words.

      I’d start by focusing on volume and volume profiles. Learning different setups or patterns is easy. Where most traders fail is learning how to apply context around those patterns to make them profitable.

  2. Hello Adam and thank you for this superb summary of order flow indicators! in your previous comment you say, “Where most traders fail is learning to apply context around these patterns to make them profitable.” Could you explain in more depth what you mean please…?

    1. Thanks for the compliment!

      When you apply context to a trade you’re essentially defining the market conditions that have to be present in order for your strategy to be profitable.

      For example, if you trade some sort of trend strategy, you need to be able to determine when the instrument you’re trading is balanced (range bound) or imbalanced (trending).

      Obviously if the markets balanced you wouldn’t want to be trading a trend strategy.

      Read the post on Auction Market Theory and then Volume Profiles and it should come together a bit for you.

      Great quote… “Without context words and actions have no meaning at all”, Gregory Bateson

  3. Oh okay, I understood, you mean that we can greatly help ourselves with order flow indicators if we apply our entry conditions with our trading plan (OUR context therefore). You want us to understand that applying the exits/entries of the indicators whose understanding you give us on this page out of context would not be of much use; and you are completely right. Thank you again for your feedback!!

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