Order flow and graphics footprint offer students an interesting approach to generating income through trading. By analyzing order flows and volumes traded, it is possible to identify imbalances between supply and demand, and thus anticipate price movements. We explain how to understand and use these tools to develop a profitable trading strategy, while effectively managing your risks.
Understanding the basics of Order Flow
Buy and sell orders
Order flow represents the flow of buy and sell orders on a market. By analyzing this data, you can gain valuable insights into current conditions and the psychology of participants. This will enable you to make informed short-term trading decisions.
Take the example of an economics student who wants to generate additional income through trading. By studying the Order Flow on a currency pair like EUR/USD, it will be able to identify times when buyers are more aggressive than sellers, and thus anticipate a potential increase in the price. This information will allow him to open a buying position at the right time and take advantage of the upward movement.
Understanding the dynamics between buyers and sellers is essential to successfully completing this order flow training. When buyers are more aggressive, they absorb available supply, pushing prices higher. Conversely, when sellers dominate, they put pressure on prices by selling off their positions. Order flow allows you to see in real time who controls the market.
Imagine you observe a sudden influx of buy orders on a stock market, with volumes significantly above average. This information, visible through order flow, tells you that buyers are taking control of the market, which could cause prices to rise. As a student, you could then take this opportunity to open a buy position and take advantage of the uptrend.
The essential tools
To take full advantage of order flow, you need to become familiar with footprint charts. These display the volume traded at each price level, within the allotted time of a candlestick. This allows you to easily spot areas of interest where supply and demand clash.
Let’s take the example of a computer science student who wants to apply their analytical skills to trading. Using a trading platform like Sierra Chart or Ninja Trader, it will be able to display Footprint charts and identify price levels where volumes are greatest. This information will allow it to identify key areas of support and resistance, and adapt its strategy accordingly.
The graphics footprint highlight market imbalances. For example, a large number of contracts traded at a specific price indicates intense buyer or seller activity. This information will help you identify support, resistance and potential reversals. With practice, you will be able to interpret these signals to optimize your position entries and exits.
Imagine you see heavy volume on a Footprint chart at a recent low. If prices rebound following this build-up in volume, it may mean buyers are defending this level and it could become key support. As a student, you might then consider opening a buy position above this level, placing your stop-loss below to limit your risk.
When analyzing order flow, charts show traded volumes based on supply and demand, not just price.
Key signals to identify
Purchase and sales volumes
Footprint charts reveal the aggressiveness of buyers and sellers through traded volumes. Large volume blocks at a specific price level indicate strong interest in that area. If these blocks appear during an upward movement, it suggests strong buying pressure. Conversely, large blocks during a decline signal aggressive selling.
Consider the case of an applied mathematics student analyzing Footprint charts on the crude oil (WTI) market. If it spots significant volume blocks above a key resistance level, this may indicate increasing buying pressure. If prices manage to break through this resistance, he could then seize the opportunity and open a buy position, placing his stop-loss below the resistance-turned-support level.
Spotting these aggressive buy and sell signals allows you to identify potential trend reversals. For example, if after a bullish phase you suddenly see massive selling blocks on the Footprint charts, this may indicate a running out of buyers and a potential bearish reversal. Monitor these signals to adapt your strategy accordingly.
Imagine that you are following the price of a stock in which you have a long position. If you see larger and larger sell blocks appearing on the Footprint charts, this could mean sellers are taking control of the market. As a student, you could then decide to reduce your exposure by closing part of your position, in order to limit your potential losses in the event of a bearish reversal.
Support and resistance levels
Order Flow highlights price level indicators where supply and demand balance, creating supports and resistances. On the Footprint charts, these levels appear as areas where volumes are high and prices struggle to advance. As the market approaches these areas, watch the price reaction carefully.
Take the example of a finance student who trades in the foreign exchange market. Analyzing the EUR/USD Footprint charts on a 30-minute timeframe, he spots a major resistance zone where prices have already been rejected several times, with significant volume blocks. If prices approach this zone again, he may then consider opening a short position, placing his stop-loss above the resistance.
If prices bounce off a support level revealed by Order Flow, this confirms buyers’ interest in this area. A buying opportunity may then present itself, with a stop-loss placed below the support. Conversely, if prices struggle to break through resistance highlighted by the Footprint charts, you can consider a sell, with a stop above this level. Order Flow helps you identify relevant entry and exit zones.
Imagine spotting a key support level on a Footprint chart that prices have repeatedly bounced off of, with large blocks of volume. If prices retest this level and buying volumes increase, this may confirm the strength of support. As a student, you could then open a long position above this level, placing your stop-loss below, to take advantage of a potential bullish rebound.
Proponents of order flow analysis believe that a trader should focus on how the market is moving and not get distracted by external fundamentals.
Enrich your strategy with order flow
Integrating order flow into its strategy
If you already have a proven trading strategy, order flow can strengthen it. Instead of relying solely on traditional technical analysis, incorporate signals from Footprint charts to confirm your decisions. For example, before taking a buy position based on an uptrend, check to see if the order flow shows sustained buying pressure.
Consider the case of an international business student who uses a trading strategy based on moving averages. Before opening a buy position when the short-term moving average crosses above the long-term moving average, he can learn to check on the Footprint charts if the buying volumes are large and if the prices are progressing with ease. This confirmation by the order flow will reinforce the validity of its buy signal.
This combined approach eliminates the « noise » of the market and allows you to focus on what matters: the real behavior of participants. By crossing the signals of your usual strategy with those of order flow, you will filter the best entry points and increase your success rate. Gradually test this integration to measure its impact on your performance.
Imagine that your trading strategy is based on chart patterns, such as triangles or flags. If you spot a bullish continuation pattern, such as a flag, you can wait for confirmation from the Order Flow before opening your buy position. For example, if volumes are high during the flag correction phases and low during the progression phases, this can confirm the validity of the pattern. As a student, this double confirmation will allow you to optimize your entries and reduce the risk of false signals.
The graphics footprint
To develop a standalone order flow-based trading strategy, define clear entry and exit rules leveraging chart signals footprint. For example, you may decide to open a buy position if you identify a large volume block in an uptrend, with a stop below the low of the relevant candlestick.
Let’s take the example of a computer science student who wants to create an automated trading strategy based on order flow. It will be able to define an entry rule that identifies large volume blocks above a short-term moving average, with a closing price higher than the opening price (green candlestick). Its algorithm will then automatically place a buy order, with a stop-loss below the candlestick low and a profit target based on a predefined risk/reward ratio.
Also set profit targets based on levels highlighted by order flow, such as major resistance or a psychological round price level. Don’t forget to include a trailing stop rule to protect your gains. By defining these rules based on Footprint charts in advance, you will be able to make quick and rational decisions in all circumstances.
Imagine that you are developing a trading strategy based on order imbalances. You can create a rule that identifies candlesticks with very large buying or selling volume relative to the average, and open a position in the direction of the imbalance. For example, if a candlestick has a buy volume 3 times the average of the last 20 candlesticks, your strategy will automatically place a buy order. As a student, this systematic approach will allow you to take advantage of market imbalances without being influenced by your emotions.
Order flow analysis helps us recognize the latest buying and selling volume data and allows us to focus on the study of Price Action by analyzing variations in Japanese candlesticks.
| Order type | Description | Meaning |
|---|---|---|
| Aggressive buy order | Large volume at offer price (ask) | Strong buying pressure |
| Aggressive sell order | Large volume at ask price (bid) | Strong selling pressure |
| Passive buy order | Large volume below offer price | Potential support |
| Passive sell order | Large volume above ask price | Potential resistance |
Risk management and performance optimization
Establishing immovable rules
Even with a well-established Order Flow strategy, risk management remains essential. Set a maximum percentage of your capital to risk on each trade, for example 1% or 2%. Systematically place a stop-loss to limit your losses in the event of a sudden market downturn. You can base this stop on key levels revealed by the Footprint charts.
Let’s take the case of a student who has trading capital of €1000. By applying a risk rule of 1% per trade, he will only be able to risk €10 on each position. If his Order Flow analysis suggests he open a trade on EUR/USD with a stop-loss of 20 pips, then he will need to adjust his position size accordingly. Thus, even if the market develops unfavorably, it will limit its risk of loss of liquidity to an acceptable level.
Also keep a detailed trading journal to track the evolution of your equity curve. Write down your observations about market conditions, signals exploited and emotions felt. This information will help you adjust your strategy and identify your strengths and weaknesses. Strict risk management is a fundamental prerequisite for success.
