Order Flow Trading

Order Flow Trading is typically looking at the amount of volume that has recently traded vs. waiting for the stock to hit your pre-determined price before you act on it. One can also look at order flow as simply buying pressure or selling pressure, there are several ways to measure this, but my favorite is with a 7 period RSI of the most recent buy or sell trades.

So, what am I looking at here?

This is a 5-minute chart of AAPL stock and has both an overlay of my 7 periods RSI with MACD indicator (looks like a metal chain by the way), this allows me to look for the momentum that continues into price action. You will notice the volume bars have stopped after each red day which signals a buying opportunity. This is due to my 7 period RSI being under 15 per the rules I will outline below, and knowing that over time we should expect better results with lower time frames.

The reason why this is so important you ask?

It's all about capturing the majority of the move

. By confirming that we have both volume and momentum before entering a trade, you will be taking trades with a very high probability of success. In addition to this, it also allows you to see if there is going to be a period of consolidation or congestion in the stock.

So now that I have your attention, let’s get down to the nitty-gritty, shall we?

I will be covering the main rules to this method, these are often referred to as TF (time frame) Rules. Rule 1 is for 5 min charts, rule 2 is for 15 min charts and rule 3 is for 60 min charts or higher. First things first, one must have the 5 min chart open to begin with for this method.

Once you have your 5 min chart open, press F5 until you are in "price" mode then type in "RSI". Now that we are in price mode, simply input #1 is input 7 periods into our RSI formula box. This will give us our current RSI value.

Now that you have your current RSI value, it's time for rule #1. If the current RSI is above 50 then this means we are currently in an uptrend and all you need to do is use price action to find an entry. If the RSI was below 50 then it would mean we were in a downtrend and the same method would apply.

Once you have found your entry (this is where volume comes in), it's time for rule #2. If you were looking at a 5 min chart, then this means that our 15 min chart has to be in an uptrend or downtrend as well.