Setting Triggers and Recognizing Patterns In Order Flow Data | Supplementary Material

Alright guys, what's going on? This is Ryan, AKA Canner and Clark. And in this video I want to talk about setting triggers and recognizing order flow patterns. And this video is going to be specifically in regards to ranges. We're all familiar with patterns that appear in candlesticks, that appear in market structure. But the patterns I'm talking about are a bit different. So here's just a basic image of our range. In this case, this range occurred on heavy volume. We immediately put in what it looks like a temporary low, put in a high, and then you can see that price is pretty balanced throughout. We have one rotation to the high. Come back down, test the high, again, rotation to the lows, again rotation to the high. And it's pretty much this pattern across time. And again it's very balanced. Okay, So a balance range is a constant reversion to the mean. So this is why traders will use something like a 0.5 fib. So they'll put a Fibonacci on the chart and they'll designate the 0.5 or the halfway point. All right? And that's obviously going to be right in the center. Okay? That's going to be what you would consider your mean in this case, okay. Or your average. All right. And prices tend to have rather, tend to come back to the average, all right. Especially on the lower time frames, all right. Especially when we're in a balanced environment and maybe near term direction is not nearly as certain and buyers and sellers are pretty much fighting this out and there's no real, real, rather clear direction as to what path the market is going to take. Okay? So a balance range is just a constant reversion to the mean, all right? So because of this we can gain an edge in identifying the behavior and patterns at the extremes. Okay, so by extremes we're talking about these points, right? So the lows, the highs, okay. Obviously when you run this experiment backwards it makes a lot more sense. So what you need to do is be able to identify the, that for example, here we have a splash point, we put in the high and maybe now it is rather time to start considering what sort of behaviors we're seeing at the lows and what sort of behaviors we're seeing at the immediate highs. So we could start to build some type of benchmark. All right? So by benchmark I'm going to get to that at the end. Hopefully you will understand. But what I mean is something to compare future actions to. So moving along, all right, we have the initial high, we have an initial low. So this is the first area that we're going to look to. Okay. The first high that we're going to look to on the presumption that price is not immediately going to follow through and nuke right down. All right. If we don't see that right here. All right. At least we see that right here whenever we come and test this low again. Okay. So when we come down to these lows again, you can see that price is firmly rejected. And what we do is come right back up to the high. So we could pretty much tell that it's likely game on for some type of range forming. All right, and being that this right now was in the context of a pretty euphoric phase, and again, this is actually occurring right at higher time frame support, we can imagine that the behavior that's going to ensue is going to be ranging behavior. So from the low to the high, we can observe a few things. All right, so we can observe how much time passed from this low to this high. All right, so you could be looking at something like a 5 minute chart, 15 minute chart, a 10 minute chart. But just an idea. All right, how much time it took from price, rather for price to move off the lows to the high. Okay, Initially, so paying attention to time, paying attention to velocity. Okay, how much volume took place? All right, so we know that within the middle of the range, it's likely going to taper off. So we're likely going to see a more extreme value at the low and at the high. So we're going to be building on this moving forward. So how much volume took place at the low, at the high and then in this middle area, how does this compare? Okay, is the low volume and the high volume. And I don't mean low as in low quantity of volume, but at the low and at the high, how many multiples of this range center point is that? Okay, how much rather, what ratio do we have from here to here? Okay, do we have an average of, you know, each candle is, you know, $5 million in contracts or 5 million contracts, and then at the high we had something like 20 million. All right, you have to keep this in mind because we're going to use this moving forward, the behavior of delta up from high to low. Again, this will be working from low to high as well. In this case, we're talking about initially off the low to the high. Do we see very aggressive selling getting absorbed down here? Do we see a smooth transition of delta? Do we see that initially towards the lows, buyers bid this up and then we start to see a reversal of that. So do we see delta start to unwind? So initially we have lower time frame scalpers that are aggressively entering in at market for a bounce. Do we see that towards the high that they are starting to unwind their positions? So towards the high, do we start to see a drop off in that delta? Do we start to see negative delta? Do we start to see the cumulative volume delta start to dip? Okay, so what goes on in delta from this high, rather this low to this high? Okay, so again we're gonna be looking for extreme values, we're gonna be looking for shifts in value. So one of the things that you'll likely notice on lower timeframes, especially with scalpers, is that when they're getting in aggressively towards the moves top, they will begin to unwind positions. You'll start to see sellers take control and you'll start to see a lot of aggressive sellers take control. So on the lower timeframes, you're not necessarily gonna see that immediate CVD divergence. You'll start to see aggressive selling in anticipation that this type of correction after this sell off is sell worthy. Okay, so you'll start to see that that auction process occurs and again it gets bid up. And then sellers start to step in and buyers start to step off the gas here. Okay, so what do we see in the behavior of delta from low to the high? And we're just looking at this first rotation. Okay, now mind you, this first rotation is going to be a bit of an anomaly, right, right here at the low, because you have to imagine that the dump into this low was violent in this case. Okay, so you have to take into consideration what the preceding market structure is. Okay. It might take another low before you can really have any substantial information or rather data to base any further analyzation upon. Okay, so, and then momentum. All right, so from the low to the high, right? In this case it's a low to the highest. In another case, it might be from the high to the low if we just put in a high. But from the low to the high, what are your observations in terms of momentum?

What's the velocity of this move? Is this bidding pressure that's occurring? Is this clear? Are you looking at something like the tape? How fast is it moving? Are we seeing a ton of buying activity? Are we seeing a ton of follow through? In this case it doesn't hurt to look at something like the rsi. Right? So especially if we're on the lower time frames, you'll See that when we're in a ranging environment, that the RSI extremes, okay, not just overbought or oversold, but the extremes will be useful. All right? So if we see that, if we're looking at the rsi, and in this case, say we have the RSI we have on the bottom of this chart, and we see right at this low, that we have a very oversold value, and then we more or less spend time in the middle, and then this move up here puts us very overbought, moving these forward. So if we're just going to extrapolate these moving forward, we have an idea potentially of what our benchmark is for momentum, at least in the beginning of this range. And this is going to be way more useful when you're looking at these levels in the future. Knowing exactly what this information is.

What is the momentum in this move, or what is the momentum from the low to the high? How would we describe it? Would we say that there is momentum at all? Did we start to see the momentum tapered off? Did we start to see an immediate drop off in momentum? Did we have something. If we're looking at the higher time frames, again, I don't have the time frames on this chart for this reason, so they could be interchangeable. For examples, if we're looking at the higher time frames. So here's your RSI down here. Say we're looking at the move off the low. All right? So the move off the low initially started really strong, okay? And then the high was put in on a lower high. So we have this divergence in momentum, okay? Just looking at something like the relative strength index, which is. It is actually a very useful tool. Okay? A lot of these tools get oversimplified and they. They catch a bad rap because they're indicators. But people in traditional markets use these all the time, okay? So when you're using them in proper context, with proper. With other. With other things that are useful as well, that might substantiate their case. Rather, the use of a tool that is, in this case, paying attention to momentum, given what we're looking for, is to create some type of benchmark. Noticing a divergence towards the highs can be useful, especially when we're going to be trying to pay attention to what the behavior is at the tests that might follow, okay? So paying attention to momentum, all right? It can't be understated. Okay? And then now we could potentially line up, okay, a sweet spot. Again, we could set some type of benchmarks based on this information that we have, right? Here. Okay. And of course, you know, this range can immediately break down, but what you need to do is try to establish some type of edge. Okay? And in trying to establish an edge, compiling data like this is going to be useful whether or not it's on the lower time frames or it's on the higher time frames. Okay. So now obviously we're going to be expecting some sort of repeat behavior to follow. Okay? So from this, okay, let's say that the following rotation occurs. We have this move off the low, okay. And then the move down to the low. Okay. So compared to the move up to the high, all right, what do we say about the move down to the low in terms of length? So in terms of the amount of time that we auctioned from low to high and then from high to low.

What we want to see is if there is some type of repeat behavior in this auctioning process, are these legs of similar length? And I mean, by this, when we're looking at legs, this is just one rotation from low to high. So what you can see is in this move, these rotations are pretty similar. And this is exactly what we're trying to build a case for. We're trying to use this as sort of the key moving forward in a balanced range. So this range ended up continuing on. So paying attention to this type of behavior is going to be very useful because what we're looking to do in a range is to fade the extremes. But we want to know what is potentially a mean reverting trade. Okay, what is fade worthy? Or we want to be able to step away or in this case, take a long or a short at the bottom. When we see that there is a difference in behavior, maybe there's a reason to start believing that this will auction through or this will auction higher. So as the range progresses. So now we're looking at, for example, this low. All right, so as the range progresses, is volume similar at the highs and lows now, meaning we're going to need a sample size of at least two at this point. So we're looking at this high and then this high. All right, do we have similar volume at these highs? Do we go from a period where we're trading 5 million contracts, and then at the highs, we put in 20 million before reversing, Is there some type of exhaustive movement? Okay, are these values similar? Is there a similarity in the unwind of delta? So as we move from low to high, do we see that with both of these ranges, we go from a large increase in delta off the lows to slowly a decrease in follow through and then finally towards the highs, we start to see aggressive sellers step in and those buyers step away. So is there a similar unwind, okay, on these floor trades? Okay, from floor to ceiling. All right, so do we see the similar pattern occurring in this range compared to this range in terms of delta? All right, and when I say unwind, all I mean is that the positions that say they get in aggressively off the low as price moves up, you're going to see them likely trying to take profit fast. Okay? So they're not going to get front run. It's going to be difficult in a move up, especially if it's occurring on velocity, to get filled through the use of a limit order. So if I see the price is moving up towards the other side of the range and I took a trade right here and I didn't take profit in the center, with every tick up, my reward is diminishing. Okay. My potential risk is increasing as I get further and further away from my entry. So what that means is as this window of opportunity closes, it's going to become more and more difficult if we're expecting the same behavior at the highs where we mean revert. So it will be difficult at this point for me to get out of my long position if I'm trying to use some type of passive means to exit that trade. So is there a similar behavior in delta from this rotation? Or even if we're talking about if we're just looking at rotations down, if we're looking at these rotations. So is there similar behavior in these rotations? Okay, now do we again see obvious divergences in momentum? So if we're looking at these ranges and we're just looking at them, and imagine that this is an RSI below. So here's the first range. That is not the tool I want to use. Here is the first RSI that we see. And let's see that we immediately see that this move over here is completely overbought. The move we come down to on the lows over here, same as over here, is completely oversold. Okay, very quickly. All right, now when we come up to the highs, what condition is our momentum oscillator in? Is it very overbought again? And if it is very overbought, all right. At these highs again. So say up here we are very overbought again. If we see that rotations are of similar length, the volume is pretty much similar to the previous high. All right, we start to see that delta unwind and then we see divergence in momentum.

What side of the trade do you want to be on? This is how an edge is built. And this is a very simple example. Obviously, this is a very simple example, but this is a point that we're trying to make that this is the type of pattern that we're looking for. It's not necessarily a pattern in, you know, a pattern like here, okay, where you have a, you know, flag, okay, you have a high and a low, and you're, you know, you're thinking that it's a bullish flag and it has to break upward. This is not the type of pattern we're talking about, okay. Because over here, when you're looking at a pattern, for example, here's a pattern that looks like a bull flag, right? Okay. With this exception that it spent more time at the lows and then eventually broke up. Okay? So what we're looking for is patterns between the actual data, between the underlying data at these extremes.

And the idea with volume is. And delta is that when we approach these extremes in similar fashion to previously, and this was an exhaustive area at the low and at the high, we would expect to see the same type of behavior. If those sellers start to kick in again and you don't have any more of those aggressive buyers, you see that exhaustive volume. But this is also very useful because now you have an idea of what your benchmark is, right? So let's say that we're coming into this high. Let's say that, for example, we've put in these two highs, We've put in these lows, and at this point, we're approaching the next area that is area of interest, one extreme of the range. So say we're coming into this extreme, and now we see that we're coming into it rather quickly. Not only are we coming into it quickly, but there's a much larger increase in volume. Okay? So say this is 20 million contracts up here. We're already at 40 million contracts right over here, all right? And we don't see that unwind of Delta, but we see Delta really starting to increase towards these highs, all right? And we don't see those. Those sellers stepping in, all right? And you're paying attention to things like price action and strengthen, you know, strengthen that if we don't see those divergences in momentum, or even if we do in this case, but we have such a vast difference between the previous tests, maybe this is a case where we actually want to see if we do auction through. All right? And we don't have that absorption over here or that turnaround. So at least we have an idea or a frame of reference rather. So at least we have a frame of reference that we could base our decisions on. Alright? So the most important thing is that the range is going to be progressing. Right? So operative word progress. So you're going to be looking at initially this, okay, initially in this case, this is one example. So we came off of a sell off. And this low might not be the best example because maybe the better range example would be something like this where you put in this and then you have a very clear low and clear high and maybe not so much wick. But in this case what we need to see is we need to see the behavior that follows. We need at least one more test of this area. And if we don't have one more test of this area, then we're going to be paying attention to how we're approaching this area and it's just a little bit more risk in that case. Okay. And what I mean is we're seeing an area get tested for the first time. All right? So if anything, you know, you could consider that, you know, you put in a solid high, you put in a solid low in this case. And I only say that in this case we would look for progress because this low right here is pretty ugly. I, I honestly, I took a crappy chart. This low right here is pretty ugly. Now if we put in again this low like this and then a high, a very clear low and high, then we would be looking at all this behavior. All right, at the first low, at the first high, paying attention to that data as we're coming into these areas. And we'd also probably have the added weight of assuming that the first test, all right, at a high and at a low is likely going to have some weight to it anyway. That'll be fade worthy. Okay. But again, this is the type of stuff that we're going to be paying attention to to give ourselves an added edge. Alright. So now looking at something like exocharts, the information is going to be obviously in the footprint bar statistics. Okay. So we're going to see that when you come off the lows, there's an increase in volume down here. All right, we go from very negative delta. Okay. So sellers likely getting trapped down here. All right, we have that flush increase in delta. Okay. We go from 6.7 to 7.8. All right. We start to taper off a little bit as we're moving up. Okay. So we're Starting to taper off a little bit. And what this means is maybe we're starting to see that unwind from scalpers at the low towards the midpoint. Okay, this is the low of the range. This is the mid, this is the high. We're starting to see that tapering off. Once we break through the range, we see that increase in delta again. And then again as we approach the highs, we start to see an unwind. Okay, not only start to see an unwind, we start to see the volume decrease. We start to see this tick, see these red ticks. All right, more sellers coming in. And again these moves through 38 million we see very high values, 21 million.

At the lows, 26 million. This is the kind of information we're going to be paying attention to. In the middle you see lesser values. Alright, so now we have an idea of what to look for in any moves that precede it. Alright, so, and forgive me if I say alright a lot, it's my way of parsing sentences. And this is. So I just moved along and said I might as well just say alright, okay, and just get it over with. So this is Sierra charts right here. And this gives a little bit more information than just what the footprint bar statistics on exo charts does. Okay, so this is the delta. I have the ask volume plus the bid volume. I have the ask volume, bid volume difference. I have them individually and then I have the number of trades. And this is my tick chart. So with this it becomes a little bit more obvious because towards the highs, the behavior that I see is that towards the highs and towards the lows we see a shift in terms of bid volume versus ask volume. All right, so towards the highs, what we're seeing is more of that ask volume. All right. As asks start to get heavy up here, buyers are buying into this. Again, we start to see bid volume drop off. And towards the lows, what do we see? We see the exact opposite. All right, so we see these differences on this chart a little bit better because it does have these more advanced statistics. And again, these are exactly what I decided to put on the chart. There's about 30 others that you could put on that would probably take up half of this chart. All right. But it's way too much to pay attention to, obviously. But again, this is the type of behavior that we're going to be paying attention to. Okay. When we're looking at a range, we're going to be trying to compile as much information as possible at these extremes. Okay. So when we See, repeat behavior. When we see we're coming into a level, for example, much weaker, all right, maybe we're going to start trying to put on a position a little bit earlier, all right? When we see that we're coming into a level in a very strong manner, or maybe we don't try to fade that level and we see what type of response we have at that level, maybe at that point, rather than fading the level immediately. So maybe I would have, in this case I might have limits here and at this point I might have my stop defined on previous high or previous high plus atr. And in this case, depending on what chart I'm looking at, if I'm looking at a five minute timeframe, a 15 minute timeframe, or I'm going to be using the ATR for this time frame, okay, so I might take something like two times that atr. If I'm seeing that we're coming into this kind of week, if I'm seeing that we're coming into a kind of strong, well then maybe in this case I look for something like this, where we come into it strong, all right, and then we have a clear failure. And then maybe at this case I try to get in on some type of backside entry. All right, so this area over here, we came back into this pretty strong again. But you see, with the second test we basically just got up to what was a consolidation point, right, the midpoint of this structure right here. Okay, so this is just one of the many things that you can do, right, with paying attention to things within order flow. Alright? So the information that we can gather from order flow analysis, such as volume, such as paying attention to delta, paying attention to the amount of time that it takes us to auction, from lows to highs, from highs to lows, this type of stuff is invaluable. Alright, so if you have any questions, guys, feel free to ask. As always, it's been a pleasure. This is Ryan. Exercise, proper risk management and trade effectively.