Order Flow Analysis

You need tick-by-tick data showing whether each trade occurred at the bid or ask price. For footprint charts, you need this data reconstructed into price/time bars. For DOM analysis, you need Level 2 market data. Check with your broker/data provider for availability.

Bid volume is volume traded at the bid price (sellers hitting bids = selling pressure). Ask volume is volume traded at the ask price (buyers lifting offers = buying pressure). Delta = Ask Volume - Bid Volume.

Order flow is most effective on liquid instruments with consistent volume. On TSX, focus on SXF futures, CGB futures, and large-cap stocks like RY, TD, ENB, SHOP. Illiquid instruments produce noisy, unreliable order flow.

Specialized platforms include Sierra Chart, Bookmap, ATAS, Jigsaw, and NinjaTrader with order flow add-ons. Some brokers offer built-in footprint charts. Ensure the platform supports your data feed and Canadian markets.

They complement each other. Price action shows what happened; order flow shows who made it happen. Best results come from combining both - using price structure for levels and order flow for confirmation/timing.

Look for unusually high volume at a price level (2x+ average) where price doesn't move through. In footprint, you'll see large bid volume at support (or ask volume at resistance) with price holding. The defender is absorbing incoming orders.

Standard is 3:1 (ask volume 3x bid volume or vice versa). Some traders use 2.5:1 or 4:1. The higher the ratio, the fewer but stronger imbalances. Start with 3:1 and adjust based on your instrument's characteristics.

First identify divergence (price new extreme, delta doesn't confirm). Then wait for confirmation: delta shift, absorption at the level, or price reversal pattern. Enter on confirmation with stop beyond the extreme. Don't trade divergence alone.

Absorption: A large participant defending a level by absorbing orders; price holds. Exhaustion: Aggressive participants failing to move price despite their effort; they're getting trapped and reversal is likely. Absorption = defense; exhaustion = trapped.

Use Market Profile for structural levels (POC, VAH, VAL, IB). Look for order flow confirmation at these levels. Absorption at VAL = strong support. Sell imbalances at VAH = resistance holding. This combination is very powerful.

Watch the DOM for orders that keep refreshing at the same price after being filled. If 500 lots at 1185 gets filled and immediately shows 500 again, there's likely an iceberg. Continuous refreshing indicates hidden institutional size.

Momentum ignition shows as sudden aggressive orders creating a spike, often triggering stops. Identify by: very rapid price movement, then immediate slowdown or reversal. Often fade the ignition after initial spike settles, with stop beyond the spike extreme.

Delta rotation examines how delta changes at different prices within a footprint bar. Bullish rotation: delta more positive at higher prices within the bar (buyers stronger as price rises). Use to confirm or question the bar's direction.

Define: 1) Structural context (profile levels, S/R), 2) Order flow signal (absorption, imbalance, divergence), 3) Confirmation required, 4) Entry rules, 5) Stop placement, 6) Target. Backtesting is challenging due to data requirements; forward test with small size first.

Monitor order flow in related instruments. SXF order flow can lead large-cap TSX stocks. Divergence between correlated instruments (strong buying in one, not the other) may resolve toward convergence. Sector ETF flow can lead individual stocks.