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Emini Futures | Trading The Order Flow


Trading The Order Flow

This post could have easily been called "the trend is your friend" or "don't fight the trend" or "friends don't let friends call..." you get the picture. I hope you get the picture because tonight our post is primarily a continuation of last night's theme and will consist mostly of pictures because a picture is worth a thousand words right?

So if I'm talking about the trend, why use Order Flow as the subject? The two are different. No one would argue that today was a trend down day but as you can see from the first chart below, orders were flowing in both directions. Yes you can pick a team and trade "do or die", or you can follow the flow.

What is Order Flow?

Order Flow is the process by which price moves.  Every time you see price move on your chart, enough market orders have been executed to consume the liquidity of the best bid or ask at the moment. Enough traders placing enough trades eventually overcomes the best bid or ask and that is what moves the price.

Price is not moved by a mystical time frame or magical indicator. In order for price to move, enough traders must execute enough orders to absorb the liquidity at the best bid or ask. If no orders are executed, price does not move. Not only must there be orders executed, there must be enough orders (sufficient volume) executed to move price. Successful traders understand that the outcome of their trade will be determined by the behavior of other market participants. Institutions, retail traders, whoever is sitting at the global table will ultimately impact your trade. Not through manipulation but by a process far more subtle.

Despite our finest analysis whether technical, fundamental or both, you and I are not big enough to move the market. Neither is a Butterfly in the Amazon. Yet the Butterfly Effect is indeed a scientific fact. So which is it then that creates this Order Flow? The correct answer is: All the above.


S&P 500 Emini Futures

The first chart which I mentioned earlier in the post shows the back and forth order flow on a classic Trend Down Day. The fact that it played out in typical Zone to Zone fashion is almost as beautiful as the Butterfly itself.

Order Flow Between Weekly Trading Zones
(click to enlarge) 


The next 3 charts highlight each and every trade setup in the S&P 500 Emini Futures today on our featured trading platform dtPro.


(ES) Part 1 05/30/12(ES) Part 1 05/30/12


(ES) Part 2 05/30/12(ES) Part 2 05/30/12


(ES) Part 3 05/30/12(ES) Part 3 05/30/12


Drop by our Live Emini Trading Room and I will apply the indicators that called each and every one of these trades to the tick. Past performance is no guarantee of future results. However, what is the best indication we have of future results? Past performance. Alas, we must work with what we have. Come join us and we'll be happy to answer all your questions.


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Emini Podcast for Wednesday May 30, 2012

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    Emini Futures | Trading The Order Flow - emini news blog - Emini Trading

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