Order flow trading — Video below
Al Brooks’ trading room Q&A
Order flow trading, in the guise of DOM (Depth of Market) trading, and the ubiquitous Time & Sales, has generated a number of questions over time in Al’s trading room.
Al’s response is consistent with what you would expect: we do not need anything but the chart in front of us, along with price action to trade profitably. True of course. But some of us, self included, like to add a little complexity, and fun!, to our lives and order flow trading is one such activity!
For an Ask Al blog post, a trader had asked Al if he used Time & Sales, and if so, is it any benefit. Al gave a definite NO! to using Time & Sales, which is absolutely correct. Time & Sales is useless, but that is only true for the typical data most traders pay for. Unless traders are prepared to pay for unfiltered tick data, giving us every tick (trade) that takes place, we cannot interpret and make use of order flow.
See Al’s entertaining response here: Ask Al: Trading with Time & sales
Time & Sales, the DOM, and order flow trading
To clarify differences between various terms banded about for ‘reading the tape’ as these practices are often called, I thought a presentation and demonstration video might help here. Al noted his Time & Sales answer might make me ‘mad’, given that I occasionally give Al examples of how this stuff helps a price action trader! So here it is.
The Flipper — DOM trading the Eurex
If famous traders like Paul Rotter, ‘The Flipper’ can make money with order flow, it may be worth a look for others. But it needs to be said, that my use of order flow is secondary to price action, and acts as support. Some use enhanced DOMs only, scalping ticks from the market. Not my style, but maybe yours. As Paul Rotter has noted, even he moved away from pure DOM trading (after making $millions!) and now looks at technicals. We are not that different.
Order flow support for price action trading
Video duration: 1 hour 2 mins
Anybody interested in following up the order flow tools introduced in the video can find them on the Jigsaw Trading website. There is also a sophisticated graphical tool, Auction Vista, that comes with the Jigsaw toolset but not shown here. I am quite happy with basic tools. An insane amount of free information, much in video format, on how to use order flow can be found on the same site.
Video outline
- 00:00 – Introduction preamble
- 01:00 – Agenda review
- 01:48 – Order flow trading background, Depth of Market
- 05:55 – Market auction process
- 12:15 – Trading with the DOM, prop shops, order flow tools, us vs them
- 15:25 – How to use order flow
- 22:00 – Market replay examples intro
- 24:50 – 21 October, 2016
- 53:30 – 27 October, 2016
- 59:00 – Learning order flow trading
- 60:25 – Unfiltered data need
- 61:03 – Review and close
- 62:10 – End
Postscript: Ref question in Al’s trading room on use of order flow. As discussed in video, for me, order flow is ‘support’ for price action. My trading decisions are still 80%+ price action, with 20% or less weighting for order flow. Sometimes a pure order flow setup appears (without price action setup) that I will act on, but not the norm. And as Al noted in room, order flow is very much short-term unless you use a footprint chart or similar to add historical chart data.
