Why do Eagletrader traders rely more on order flow trading?

Order flow(Order
As a real-time mapping of market participants’ behavior, Flow is gradually becoming the core analysis tool for professional traders. It helps traders capture subtle changes in market trends by revealing the distribution of buying and selling orders, trading dynamics and liquidity changes. In this article, EagleTrader will analyze the principles, core strategies and practical applications of order flow transactions to help you build a more accurate trading system.

Order flow Trading principle

Order flow refers to a real-time data collection of all unsold pending orders and sold orders in the market, including price, quantity, direction and transaction speed. Its core value lies in:

Survey market sentiment:The concentrated occurrence or withdrawal of large-scale orders reflects the trends of institutions or main funds.

Predicted price breakthrough:order-intensive areas of key prices (such as support/resistance levels) may become the trend turning point.

Identify liquidity traps:The “empty” areas in the order book (sparse orders) are often accompanied by violent price fluctuations.

Note:There is no concentrated order book in the foreign exchange market, and it is necessary to indirectly infer the market in-depth data (such as CME’s EUR/USD contract) or professional order flow tools (such as EBC’s DOM analysis).

Core strategies for order flow trading

1. Ultra-short-term breakthrough strategy

is suitable for high liquidity currency pairs (such as EUR/USD, GBP/USD). When a pending order at a certain price is consumed quickly (such as buying in a large number of market orders), it indicates that the price may break through. For example:

Long signal:Sell orders near the resistance level are eaten continuously, and the trading volume is enlarged.

Short Suggestion:Buy orders near the support level are traded in large quantities, accompanied by a rapid decline in price.

2. Footprint pattern and reversal signal

Analyze the distribution of trading volume at specific prices through the “footprint chart”:

Absorption model:High trading volume but price stagnation, implying that the main funds are absorbing funds or distributing, and the trend may reverse.

Tirm mode:The price rose sharply/slashed sharply after the trading volume surged, and then the trading volume shrank, indicating that the trend was about to decline.

3. Liquidity imbalance trading

When there is a significant pending advantage on one side of the order book (such as buying orders far more than selling orders), the price may be corrected in the opposite direction. For example:

If the price at 1.1000 accumulates a large number of buy orders, but the price fails to break through, it may trigger a stop loss and lead to a decline.

Order Flow Analysis Tool

1. Market Depth (DOM)

Show the number of pending orders at different prices to help identify key support/resistance zones. For example:

If there is a 5,000 order for the price of 1.0500, you should be wary of selling pressure when the price is close.

2. Time and sales data (Tick Data)

Track transaction records and capture large-scale transaction trends. For example:

The consecutive market price of more than 100 lots may push the price to rise in the short term.

3. Market Profile (Market Profile)

See the distribution of trading volume at different prices to identify high liquidity areas (Value Area). For example:

When the price breaks through the previous day’s trading volume-intensive zone, the probability of trend continuing is high.

Combining market structure and risk control

1. Key prices resonate with order flow

Combining order flow analysis with traditional technical analysis:

When the order flow shows that there are a large number of sell orders at a certain resistance level, and the RSI indicator is overbought, the short signal is more reliable.

2. Stop Loss and Fund Management

Dynamic Stop Loss: Adjust the stop loss position according to the changes in order flow. For example, if the support level is broken, close the position immediately.

Avoid excessive dependence: Order flow data may be manipulated by institutions (such as false orders), and needs to be verified in combination with multi-dimensionality.

Order flow trading provides traders with a unique perspective beyond chart analysis by decoding the behavioral logic of market participants. However, its effectiveness depends on in-depth interpretation of data, flexible application of strategies and strict risk management. Only orderOnly by combining single flow analysis with market structure and capital management can traders continue to make profits in the market.