After 8 Years Of Trading, These Are The BEST Trading Tools I Use

In episode three of this order flow series, I want to go over two of my favorite trading tools that I use every single day. In fact, I cannot trade without both of these tools. They are very, very powerful and they essentially provide key information and very important data that I use to my advantage to understand how strong buyers and sellers are. In episode two of this order flow series, we went over footprint charts and how to stop relying heavily on a candlestick chart and start relying on the data behind each candlestick. And that is what both of these tools that I'm going to explain in this video do. It is a better visual and in my opinion, easier for beginner traders to spot key patterns that are essential for high quality trading setups. If you're new to my channel, this is episode number three of an eight video series going over order flow trading. I would recommend subscribing to my channel and also follow me on my social media. I'll post it in the link in the description below. That way you don't miss on any updates for all future videos in this series. But now we have to ask ourselves, what makes up a candlestick chart? As the candles go down. As the candles go up, this is all represented by volume coming into the market. Now, the tool on the right is what's called a depth of market. And this is the most powerful tool in the market because it tells us the depth of the market. It tells us everything that we need to know in relation to volume, in relation to price, in relation in relation to who is aggressive and who is passive. In the previous lessons of the series, you heard me talk about the term aggressor and the passive participant. Well, on this depth of market, we could see both aggressive participants and passive participants. This makes up the structure of the market. Which then the data that is portrayed on the depth of market is what causes the candlestick charts to move. Red, green, upper wick, lower wick, open, close. So the first thing that we're going to find on a depth of market out of all the major points is completed transactions. And we can relate this to volume by price. So what I did here is we have two columns, VPs and VPB. What this does is it splits volume. A volume profile on the sell side and a volume profile on the buy side. VPs, VPD. And we can see the specific price this is occurring at. So right here at 57, 51, there is 6 total volume on the buy side and 0 volume on the sell side. To the right we have a column svp, which is essentially a Session volume profile, or the total volume by price at each specified level. So 6 volume on the buy side, 0 on the sell, means there is 6 total volume at 57, 51 and 3 quarters. Now look directly under this. Down here at 57, 49 and 3 quarters, we see 61 buy contracts or buy lots on the offer, and 12 on the sell side or on the bid side. So 61 buyers, 12 sellers. This gives us a total volume of 61 plus 12 is 73. So the first most important concept of a depth of market and why this is so important is because it shows completed transactions which cannot be spoofed or which cannot be faked. They are transactions, they are the market's receipt. They hit the market at that specified price. Now, this is all aggregated, meaning as the day is moving forward, these numbers will increase as more volume builds up. There isn't a timeframe on the depth of market. There isn't a specific range. This is aggregated by all volume at that price for the full session in the intraday session or even the overnight session. Now, the next column is V. PD this is a volume profile delta. We've learned delta in episode two of this order flow series, which essentially is ask volume minus bid volume. So here we could see there's six buyers on the ask and zero on the bid. So ask minus bid six minus zero gives us a positive delta of six down here at 57, 43 and a half. There is 415 total volume on the offer or towards the buy side and 704 on the bid side. 415 -704 gives us a volume delta of 289. So now we could see that the delta which is in the last video I explained how important understanding delta at specified prices is for me. Because now we could see where majority of the volume is trading at and which side of the volume is the market on towards the sell side or towards the buy side. Now, on top of volume by buy volume by sell total volume and then the delta, what we can now see is bid volume and ask volume. So these now are just passive participants in the market. They do not show intention. These can be spoof, these can be faked. In fact, I do not put much emphasis on any resting orders or any orders that get displayed on the level 2 or the order book. This is liquidity at specified prices. Because what I could do right now is go throw a bid on the market at 57, 51. Maybe I throw 30 contracts and right now there's a bid for 27. If I throw 30 on the market now we see have 57, I can remove my 30 in a millisecond and I could look like there's a strong buyer there. But really I have no intention to buy it. So passive orders on the bid or the ask do not show intention. I do not put much emphasis on it. However, it is important to look at if an aggressive participant comes into a very large passive participant and we can validate this and confirm this. Because if a transaction gets complete where there's a large passive participant and a large aggressive participant and they come together and agree and transact, well, we'll be able to see that on the completed transaction side, whether it's a buy or sell. And then we'll also see the delta also build, depending if it's more buying or if it's more selling. And also the total volume will build. So you'll see it all compensate and they complement each other. Also on top of all this, we can see the structure of the volume. So we could see what the profile is like. Is there a lot of volume here? Is there not a lot of volume? So right here we really don't see much volume at the high versus down here we could see a lot more volume as the market was at a lower price. So we could see what they call the structure of the market by the volume profile. And also the depth of market shows speed. What I mean by speed is if the market is moving very fast and you see the depth of market speeding up quickly, it's flickering a lot, you see a lot of numbers coming in. Well, this shows that a lot of volume is coming into the market. And that's something you would want to see if the market's breaking out above a resistance or below a support level. So gauging the speed helps us trade. Because if there's not a lot of speed to the market, that usually means there's not a lot of interest. And the pace of the tape is another good term. Pace of the tape, speed of the tape. If the pace is not fast, that means not a lot of people really care about the market. And most of the time that leads to a lot of reversals versus that the tape is speeding up. That shows there's a lot of interest at those prices and. And it's a good chance of continuation. Also on the depth of market is where I buy and sell. This is how I execute. If I want to be a passive participant, I could throw a bid on the market. If I want to be aggressive, I could also Use a market order by executing off the depth of market. Why it's the most important is because, number one, it's giving us all the information that I need to see tools that I could see on a footprint chart. Time and sales level 2, all can be found on a depth of market. And the cherry on top is that I execute and buy and sell and place all my orders off of the depth of market. So this is a trade that I took was a 15, it was about $2,600 worth of risk, and it was about a 6 to 1 risk to reward ratio. Really good risk. And again, using these tools, this is why I favor order flow so much, is because it enables me to get such great entries. And this is going to be another video. A few more lessons in this order flow series about how to really enter and manage your risk properly to get really good risk to reward ratios. So you have to stay tuned for that. But using order flow and using tools like a footprint or depth of market enables me to have $2,600 worth of risk for a $15,000. About a 6 to 1 risk to reward ratio versus a candlestick chart is not going to offer for me this type of risk to reward. So here we could see a classic downtrend line. And again, this is why I always emphasize using order flow to confirm whatever you're looking at on the candlestick chart. The rule of thumb that a normal trend trader does is they look to buy the break of an obvious trend. In this example, we could see the downtrend line, which is represented by this white line. And now we're looking to be a buyer. If the market can aggressively break above this trend line. Call it targeting this high right here. Well, in the depth of market, we're really not seeing much at this moment. We're seeing the profile or the structure of the volume being very flat. There's no volume tails. There's no anomalies on one side having a lot more volume than the rest. The delta column is not showing any outliers in the data. From the previous lesson I explained on the footprint, like looking for delta outliers, I don't look for specific numbers. I look more so for outliers in the data. In this example, we could see an average. There's like 500 is the high side and the low side is like a 300 delta or 200 delta. If I saw a delta for like over a thousand here, then there would be an outlier in the data and something to carefully watch. But there's Nothing significant. At this moment we're trying to gauge what the market does if it breaks out above this trend line. We want to spot large buying activity. We want the buyers to come in before and after us. Well here in this example we can see the market break out above this trend line. And now the depth of market shows that as the market broke out above this trend line 5810. Look at the delta now there's plus 1600 positive delta at 5810. So what that indicates is that as the market was breaking out above this trend line, very large aggressive, the buyers were the aggressors here, very large aggressive buyers came in the market and the market rallied as a result of this. So now we have an outlier or an anomaly in the data that we can spot on the depth of market of a positive delta of plus 16. That means at 5810 there was 1633 more aggressive buyers than sellers at that specified price. And again we can relate this to the market then rallying after that. And this was the reason and the thesis for this $15,000 profit was getting long by spotting those buyers present in the market which yes, you could see the market break out above this trend line. And yes, you could use just the candlestick chart to buy this. And yeah, we have a green candle. But if you've watched the previous lessons in the series and especially what I'm going to explain next, you would note, you would get more validation and more conviction confirming it via the volume, via the transactions and via the order flow. So as the market breaks out, we have to now mark 5810 as a significant level because there is significant more aggressive buyers at that price. Well then directly after the market rallied there's the trend break. Here's the rally 5810 which is now represented by this line, had supported the market. This is a 1 minute chart on about 6, 7, 8 different attempts that that large buyer essentially defended price and supported the market where we really could not move lower under that buyer. So put yourself in the position of another strong buyer. If we see a lot of aggressive buyers coming into the market and we are a true buyer, we would not want to see the market move really far under where we bought the market at. And in this example 5810. So if I'm a large participant in the market, I would do my best eff to defend price here and not let the market move under FAR 5810 and for me to go start going Red and deep in a hole and start losing on this trade, it's not always going to be perfect and bounce off of it to a T. As you can see, we broke it by like three or so points. But this level then acted as support. Looking off of a candlestick chart alone, you would not be able to see 5810 representing a large buyer. All you would see if you just looked at a candlestick chart is this finding support. But the market doesn't find support there just because support is there. The market finds support there because there's a large buyer supporting price. Again, we are validating this with the order flow. And this was my reason for entering the market long when this 5810 held, going for more continuation, saying, hey, if this is a true buyer in the market, he may have an agenda to bring price up higher and I want to follow his footsteps. Now, as the market's rallying up, we can look on the depth of market here. And now, where I'm highlighting, we could see a volume tail. And if you recognize this from one of the previous lessons, I say a volume tail shows that the market is rejecting or the market does not care about prices being this high. This shows a lack of interest. This shows that participants are not willing to transact and participate at these higher prices. So if you want to go back to that earlier example, you could argue and say, hey, Carmine, there's a volume tail here. Isn't this a reversal sign when the market is breaking out and testing prices that we have never tested before? This is called price discovery or auction discovery. Essentially, the auction is discovering, is this breakout to the upside going to be successful or is this breakout to the upside going to be unsuccessful and show a lack of interest and then sell off and reverse the market much lower? So at this exact moment, we do see a volume tail. But now our job is to use the information the market's providing to us and use this to our advantage. Following now we see the market breakout and now the tail kind of dissipates. Yes, there's significantly lower volume at the high and that's normal. And yes, there's significantly lower volume here now than what we have earlier in the session. But we are still above the buyer at 5810. This is where, like putting yourself in the shoes of other traders. If you're this buyer at 5810, you're not worrying. At 5818, you're not worrying. At 5,814, you're not worrying. You're Actually very happy as the market's breaking out. So putting yourself in the position of other traders. Now, at one point, there was a volume tail. Now volume is building and the market is trying to discover these prices, or the auction is trying to figure out, is this going to be accepted or is this going to be rejected. Well, then later in the session, guess what happened. The market had broken that 5810 we had left. Now, validating the volume tail and validating that nobody cared about this move or nobody bought it, and that the auction rejected it showed a lack of interest. We then broke under that strong buyer at 5810, and that buyer then resisted price, and then the market continued much lower. This is developing context, and this is putting yourself in the position of other traders and using a depth of market to find large participants and using a depth of market to really understand the structure of the market by looking for volume tails, looking for illiquidity, looking for a lot of liquidity, and understanding how transactions are affecting price. Now, the next tool is a heat map. And this is going to show us the same exact information that a depth of market does. However, just a different visual to make this very, very simple. A lot of people get so confused when they see this heat map. It's very simple. It's not a solar system chart. It's not a bunch of different planets. It's simply showing passive participants and aggressive participants. So if you ever see a colored line, which I'm going to highlight right here, what this shows is if anything is above price, which it was above price at this moment, then we have passive sellers present in the market. Think of this as a wall, or think of this as passive participants sitting on the order book. Anything below price, call it this line all the way down here is passive buyers present in the market or passive participants who are sitting on the bid. Now, remember what I said earlier by not putting an emphasis or much of an emphasis on resting orders. Well, down here you could see the market never transacted at this bid because there was never a bubble that hit this yellow line. In fact, as the market sold off this yellow line, or that passive buyer removed his order and never showed interest in actually participating in the market. So that's what the lines show. And like, the dark blue or gray or white are basically just lighter volume and they're not as significant in size versus the more orange. The more red you get is the thicker the passive participant the and the thicker the wall. Now, when you see the bubbles, it's as straightforward as Possible bubbles just simply represent completed transactions or aggressive participants in the market. If you see a lot of green bubbles, a lot of green bubbles represent strong aggressive buyers present in the market, hitting the passive sellers or hitting the offers. If you see a lot of red bubbles, this means a lot of aggressive sellers present in the market hitting the buyers on the bid. So simply, green bubbles just mean strong aggressive buy prints and red bubbles mean strong aggressive sell prints. When we add this to the level two, it's going to show us the same information a depth of market does, just in a different visual. The depth of market shows us simply just numbers versus a depth of heat map, which is this right here. And I use Bookmap for this. There'll be links in the description below. A heat map will show us that same information just with bubbles, or what some people call a solar system. And it gives a different visual. So remember this example that I mentioned earlier where we're looking along the market above this downtrend line, we're trying to gauge how strong the buying volume is as the market's breaking out above this downtrend line. Well, we could see that the same candlestick chart, like, look at these two charts right here. This is the heat map. They are representing the data behind the candles. We could see that downtrend line on the heat map the same way that we could see the downtrend line on the candlestick chart. They are identical. This heat map is just showing what's going on behind the candles. This large drop on the heat map is the same thing as this large drop on the candlestick chart. Or these lower wicks right here are the same lower wicks that we see right here on the candlestick chart. So same information, but now we could see a difference between the order flow data behind the candlestick charts. So step number one, what you want to do is if you're looking along or short, the market is, you want to confirm strong volume in the direction that you are intending to trade. So as the market's breaking out above this downtrend line, we could see that there's a lot of green prints coming in or strong aggressive buyers hitting the offer and sellers are willing to sell to them, and sellers are willing to sell at even higher prices because buyers green bubbles are coming in as the market is breaking out to the upside. Step number two is pullbacks hold. You don't want to see a rejection here. You don't want to see the market break above this and then immediately fail and then start moving lower. Because this shows a Lack of interest. And most likely you'll see a volume tail there. The example that I showed you all earlier at 5810, this is the same exact example. So this positive delta that we see right here for + 1633 at 5810 as the market's breaking out, right, you can see that really large aggressive buyer come in. If we were to go to the heat map, this large aggressive buyer is right here where this green line is at 5810, right? We can see 5810 right here. And we've seen the market support this guy on multiple different attempts. Again, looking at a candlestick chart, you're going to see this level act as support. But understanding why this level or why the support level formed is the crucial aspect to this. And this was the thesis for taking this market long, validating strong buying effort as the market's breaking out and then pulling back. And those strong buyers are defending price, supporting price, which then provides me structure to get long, manage my risk properly and capitalize on this upside rally. Now, if there's a lot of volume at multiple levels, or even large delta at a specific level, it's an important level I must watch the reaction to if it's tested again. So in that example we saw delta at one price, there might be a level where we see at three or four different prices, significant volume. And if that's the case, that's even better because that just validates. Buyers are buying at different prices, not just one specific one. At a certain level, if the market reacts, it's a good indication that a larger participant is active with an agenda to move the market up or down. As I've mentioned earlier and in the previous videos of the series, there's no specific number, it's just an outlier in the data. Here's another trade. This is a similar one. This is a $21,000 profit. This was $5,000 worth of risk. So it was a little more risk, but still a 4 to 1 risk to reward ratio where I took the market long and capitalized on an upside rally. In this example, we could see a positive delta of 4000 right here at 5810. So comparing the heat map to the depth of market, we could see 5810, which actually I didn't even pick this up when I was making these lessons. 5810 was the same level as the, as the previous example. And this was like three weeks later. So 5810, we can see a 4000 positive delta. And that means 4747 came to the buy side and 7475 came to the sell side. Ask minus bid volume is the delta and this comes out to 4,000. We can represent this by the large green bubble that you see right here. So again, what we see on the heat map can also be seen on the depth of market. On the heat map, we see a large green bubble. On the depth of market, we just see a number there for plus 4,000, positive delta. If there's a lot of volume at multiple levels or large delta at a specific level, it's an important level. I must watch the reaction to moving forward. If it's tested later in the session, about five minutes after, we could see the market try to move lower because the delta got stronger. The last example, it was 4,000. Then five minutes later, the delta went down to 3,300, which means the market tried to move down and sellers tried to come in. Carmine, how do you know sellers tried to come in? Well, I know they came in because the delta got smaller. The only way the delta could go down is if there's more aggressive sellers coming in. So the market tried to move lower but was unsuccessful to move lower. This just indicates that the buyer is there supporting price and defending his position. Here's the large delta on the heat map. You can see the large green bubble. If I were to extend this line, we could see this level act as support multiple different times. That large buyer supported price and we could have followed his footsteps. It was once 4,000, then 3,300, then 3,200. It acted as support. And then the market rallied about 12 points directly after that. I mean, and this happens in a few a 10, 15 minute period. Imagine taking a trade for 15 minutes, calling it a day, making great profit, following your plan, and then walking away and going to enjoy the rest of your day by following a simple approach to the market. So here in this video, this is a replay of this last example. We're going to see the market break out on the depth of the market. Right now at 5810. We do not see a delta. However, it's coming in right now. You see a building. You see a building right there. The large green bubble came in and now the Delta is around 3900. Let's replay that. So you could see that again. 5810. Right now it's 2200. The buy circle is going to get larger, getting larger, larger, larger. Now it's 3900. That guy facilitated his full order. And there was strong aggressive buyers that came into the market at that moment. Now watch. The market's going to try to move down here. See that large green bubble? That's where he entered his position. Call it. The market's going to try to move down here now. Now he's getting smaller. That means the sellers are trying to come in. Now he's 3,300. You could see it acting as support perfectly. He got smaller. The market's holding this. And now we're going to get that rally up and the market breaks out and we hold that really large buyer. And this is how we could follow the footsteps of other large participants in the market. If you were to look at a candlestick chart where I've highlighted by these arrows right here is at 5810 where this buyer was on a candlestick chart, you cannot see this large buyer present. In fact, there's not even a lot of volume down here. If you want to use volume by time, volume by price is more significant because volume by price, you're going to see that really large buyer. But on a candlestick chart you're not. This is why it's superior for me to use the tape over a candlestick chart. Because when I spot things off of the tape that a normal retail trader cannot spot off of a candlestick chart, this is where the edge comes from me. And this is the most powerful strategy that I use. Similarly to what I talked about in the footprint video. If there's a lot of aggressive participants entering the market at a certain price but no follow through, it's a good indication of a possible reversal present in the market. The market has a lot of strong buying and the market is just not moving higher. Despite all this buying. It's a sign that a passive seller is active. If those buyers can become trapped if the market moves lower and we can capitalize on max paying in the market. This was a 20,000 profit, $3,000 worth of risk and about a 6.7 to 1 risk to reward ratio. I shorted the market into the strength and covered into the weakness when the market was selling off to the downside for a $20,000 profit. You're going to see me use this example again in the next lesson about stop thinking like a retail trader and start thinking like a smart money institutional trader. And you're going to see me talk about where there's a lot of pain. In this example, the market has rallied up. We could see all of the buying effort present in the market. If the Market moves against them. All these buyers who are buying this trap, the market breaks out above the resistance level, then fails. The selling pressure comes in. The buyers who bought here at these green arrows became trapped. And now that just simply fuels a further move to the downside. Replaying this data, the white line is our resistance level. Watch as the market is going to break out above this resistance level. You're going to see the buying come in. So look how it's speeding up here. You see how it's speeding up. You see all this buying pressure here. There's a lot of buying effort. If there's a lot of buying effort but no upside follow through. Especially, especially at a key level. It's a good indication where I first look to play reversals and capitalize on short term pain in the market where there's absorption or where those buyers can become trapped. And in this example, you see the market sell off because of that. Now in this example, this was a $16,000 profit, a 7 to 1 risk to reward ratio, about $2,200 worth of risk. This is a pattern. Normally a lot of traders look to short, right? They have this downtrend line, they say, hey, as soon as this trend line breaks, I'm going to get short. How many times have you entered a position on a, on a resistance breakout or a trend line breakdown for you to get in that trade? It doesn't never works out on you and you stop out for a loss and you're like, hey, I just learned about that trend line in the book I read yesterday. How come it's not working out? This is a pattern that a lot of normal traders look to short. Well, we're to look at the order flow, we're going to see this trend line break, right? We could see exactly what we see on a candlestick chart. This trend line. We could see the same thing on the heat map. However, on the depth of market, we do not see a volume tail. Where I'm drawing right now, majority of hot and majority of lows form when there's a volume tail because the market moves up until the last buyer buys and the market moves down until the last seller sells. So normally at highs or lows we see a volume tail. In this example, there was no volume tail at the high. In fact, at the high there was all of this significant volume. I don't want to say all the time, but majority of the time highs or lows do not form when there's this significant volume. It's only form when, when there's a Tail indicating a lack of interest as the market's breaking up or down. So many are thinking bearish at this exact moment breaks the trend. We see the depth of market. There's no volume tail. There's a lot of volume here at the high. We don't really see a lot of selling though as the trend line is breaking. So we could kind of validate that, hey, there's not a lot of people selling this and it might be a false breakdown and it might be a good indication or a stop hunt. And we can prevent these stop hunts by reading the volume behind the candlestick. Classic trendline break. An opportunity for traders to buy this move where a lot of other people are stopping out at. Now we get that breakout and this is the volume tail that I'm talking about. You see the major difference. You see how now there's not a lot of volume here because price is discovering. We're in the auction discovery mode. So now we want to use this information and what happens next? What is the reaction in the market? Do we reject this and sell off? This will validate lack of interest in a volume tail or do we stay near the high, consolidate, find acceptance here, build volume and then continue to rally up and this auction was accepted where we're going to see higher prices. And this is what it looks like on the candlestick chart. A classic trendline break reversal. And I was able to catch the market long when it broke down under the trend line. Using this to my analysis, here's the trend line getting long when it broke and selling into the strength as the market's rallying up for a $16,000 profit. Now the next video is going to really tie into all of this about stop hunts and to stop thinking like a retail trader and to start thinking like an institutional trader or to start thinking like a very patient smart money trader. We have to use the tools that we can be equipped with by reading the volume and understand that we have to follow the footsteps of other smart money traders and to stop thinking like a retail trader. So the next video in the series, if you're not following me, I recommend to subscribe and also follow me on my socials so you stay up to date on the next video that I'm going to post. But on this video I'm going to go over to stop thinking like a retail trader and to start thinking like a smart money successful trader. I'm going to end the video on that note. If you have any questions, comment if you learned anything from this video, drop a like and if you're new, subscribe to my channel. I'm ending it. Peace out.