The Only Orderflow Basics Video You'll Ever Need... maybe - Complete Beginner Course EP. 2

These are order flow charts and they allow you to have a deeper layer of market information that 90% of retail traders aren't even aware of and can give you an almost unfair advantage on all other price action day traders. As I said before, is like having a normal bow and arrow or using a ballistic professional option. In both cases you have to be the one who's fucking good at throwing the arrow. But once you mastery, the chances of being completely accurate and precise are way higher with the ballistic option. Or it's like using a normal sniper rifle versus using one with a night vision optic. With the upgrade version you can see things that you simply cannot see with a normal one. This is why you should consider implementing order flow in your strategy. This is the second of a series of videos I'm making about these tools which is a complete video course that will take you from zero to step by step, learning how to read and interpret correctly what order flow is doing and implement new edges and new strategies. Especially if you're a price action trader. Because not only order flow can help you being way more objective in in understanding short term market mechanics. Because you don't have to guess where an imbalance is, you can see it with orders, you don't have to guess where a stop run is or where liquidity is because you can actually see them. So not only will you be way more objective with your market view, but this new layer of objectivity can radically mitigate the amount of interpretation and discretion that you might need in your price action strategy. So as I said, this is the second of a series of videos I'm making about this tool to. So subscribe to the channel and click the bell if you want to see the next episodes. In case I will leave you the link to the full playlist down below. In this specific video we will talk about the order book or the depth of market. So today I will try to open your mind or how price actually moves. Why does price move? Which is a mechanic that 95% of retail traders have no idea of, which is fucking crazy. So buckle up, take a pencil and paper and enjoy the video. What we will learn now is market mechanics. And I'm talking about the real market mechanics. A lot of people don't even know how prices are delivered. What's the actual mechanic behind it? Let's start by saying that markets are made of orders. You know, buy and sell orders. These orders are also called liquidity. A market is defined liquid if it's easy to find a counterparty to your trades. So liquidity is the counterparty. So any order in the market is liquidity. And most people in the price action smart money space think that liquidity are just buy stops or sell stop or stop losses above a high or below a low. Supply and demand traders instead think that liquidity is resting order in a previous area of supply or resting orders in a previous area of demand orders that were left there in that zone. All of these are true, but partial because you have to know that you have two different kinds of liquidity. Market makers and market takers, also known as passive liquidity and aggressive liquidity. To understand this even better, you can imagine the market makers as a menu, the catalog of the market. So you have a bunch of buy orders in the menu and you have a bunch of sell orders in the menu. So here's there's buy orders and here's there is sell orders. This is the menu. So as long as there's a menu there are some goods that are being, let's say sold. But if no one is coming to buy them, nothing will happen. So outside here you have the clients wants to take stuff from the menu. These are market takers or aggressive liquidity. The menu is market makers or passive liquidity. So there's one side of the market, both buyers and sellers which are presenting their order like a menu, like an auction. And then there is aggressive liquidity which are the clients who actively go and take those things in the menu. The real life version of the menu is this which is the order book, also known as clob, the central limit order book or the depth of market Dom. So these are buy orders and sell orders and more technically they are buy limits and sell limits. So these are passive buyers, these are passive sellers. They are waiting for some client to come and order something from the menu. So all around here are a bunch of clients are a bunch of market participants that are going to interact with this menu trying to buy and sell at the best prices. Now the first level we will call the best bid. This other level we'll call it the best ask. So the level at which there is the first available buy contract in the book is called the best bid. Same thing for sell contract in the ask. Now just to give you an example, this is an actual order book. This is the price and this is the ask. So as you can see, I drawn it pretty fucking accurately. So I think the video deserves a like just for that. So if these are limits order, which as we discussed in the previous video, video can be entries like a simple buy limit and sell limit. But also take profits. Because if I bought say here, I will put my take profit right above here as a minus sell order. Instead all the rest of the liquidity, which is aggressive liquidity, is people actually clicking the buy or sell button. So market orders and stop orders, so what you would consider a breakout entry or a stop loss. So same example, if I bought here one contract and here I'll put my take profit which is a sell sell limit because it's above the price, I will put my sell stop below here. But here there's buy orders, there's buy limits in the order book. So I can't put my sell stop in this part of the order book. My stop order will be set in my brokerage account will be executed at the best ask or the best bid. So let's say you buy now one contract market you will be executed exactly at this price. Why? Because if you're buying and you want to buy now, the first contract available for sale at the best, best price you can get is right here. So let's say you buy one contract from here. This from six will become five contracts. You just ate one contract that was in the order book. So this, which is the last price at which at least one order has been executed is the current price. Now we're going to take this contract and save it as a reminder in this other table here, which is what we're going to call a footprint or an order flow candle. So one contract was taken from those six has lifted the ask. We say so one contract has been executed here. Now let's say that someone else is coming and wants to sell market. A contract sell minus one market. It will be executed at the best possible bid at the best possible level where there is at least one buy contract in the menu. So one contract of those fives will be taken. So this will become four. And we will remember this was executed here. There was one order that hit the bid. In all of this we have candlesticks. So the first order was executed here. So here is the open of the candle. Last order was executed here. So now the candle first of all will turn as a short candle Here we will have a zero and a zero. A zero contract has been executed at those level. But let's make another example. Let's make an example where a guy comes and wants to buy market right now because he needs it. He can't wait any longer. 10 contracts. Where is he going to execute those 10 contracts? Well, five of them will be executed if he wants to buy them, they will be executed five of them. So five of them will be executed right here. So five contracts goes away from here, here is zero. And those five contract will be added to that contract that was executed here. So we will write six. So he filled five contracts here, but he still needs five more to fill his order. So five of them will be taken from these nine. So this will become four. And five contracts will be executed right here. Because since now there's zero contract here, the best ask will become this one. So these 10 order has been executed. And now the candle from here went in one order in one millisecond here and became a long candle and left us a little wick over here. So the current price is this one. The current price is the last price at which at least one order has been executed. Now let's say that at the same time someone wants to come and sell 10 more contracts. So if someone wants to sell market 10 contracts, they will be executed at the best bid. The best bid is here. But only four contracts can be executed here which will go right here adding to this one contract. So they will become five contracts. And five more of those contract will be executed at the new best bid, which is this one. 10 contract will be here. 5 more contract will be executed right here. The candle will turn and will leave us a wick above here. So now as you can see, the distance between the best bid and the best ask is a bit wider. This is the raw spread or the bid ask spread. So where there is no liquidity, there is no market. So we are starting to understand some very important things that where there is no liquidity, there is no market and there is no price action. But we also understand that who moves the market isn't passive liquidity, but all those aggressive guys that took an actual action and didn't simply wait for their buy order or sell order to get filled. Maybe. But who couldn't wait and accepted a slightly higher price as long as they could buy or sell? So aggressive liquidity is people accepting worse prices. As long as they can buy or sell, they are the one who are actually moving the markets. So who moves the market, who moves the singular candle are aggressive liquidity. So this also means that that the speed at which price goes down or up both depends on on how many aggressors there are, but also on how many passive sellers there are. Because you can understand that if there is a 100 or 1000 contract order right here, if around the same volume of aggressive sellers try to hit this price and try to sell Here it's very hard for them to break that level. So if you will, the first type of actual support and resistance are sell limits and buy limits. These are the actual supply zones and demand zones. The best demand zone in this area area will be these 1,000 contracts right here. Because they will cause price to have a struggle here or eventually give up and not attack that level anymore. Now let's simulate other order that has been executed or were executed at these prices. The footprint is really cool because it tells us, it gives us a very detailed information about aggressive buyers on this side and aggressive sellers on this side. And please watch out, these are not just buyers. If this part has more contracts, it doesn't mean that there were more buyers. There's no such thing as more buyers. Every buyers need a liquidity, needs a counterparty. So every contract that was executed here was an aggressive buyer buying from a seller. So there's no such thing as the market is long. Market is not long. Market is bullish. Price action is bullish. But the market is always both sided. So what footprints an order flow candle gives us is a detailed explanation of who was more aggressive. But these are still all volume. That's why a very appreciated version of order flow is volume profile which very simply adds the contracts, makes an addition between sold at the bid and bought at the ask. So here there will be 0 plus 5. So let's say 5. Let's say this equals 5, 7 plus 6 13. So around here 5 plus 4 equals 9. 5 plus 0 equals 5 again. So this is our volume profile. It shows us the total transaction on every price level without any clear distinction between who was more aggressive, which by some can be just considered as noise. One thing you will often see is that there will be a level which has more contracts than other. More contracts were exchanged on this level than all other levels. This level is defined as the point of control poc, which is the point of the candle where most contracts were traded. Now as I told you, this is the sum of bid plus ask. If instead of sum we make a difference between ask and bid, we will get the so called Delta profile. So 5 minus 0 equals plus 5, 7 minus 6. 6 minus 7 equals minus 1, 4 minus 5 equals minus 1, 0 minus 5 equals minus 5. So the delta profile is simply showing us in each of the individual levels who was more aggressive at the end of the day. Now this is an actual order book and as you can see, it's way faster than the one I draw to you. And all these contracts that you see here are not going to stay there forever. They can be put there, they can be withdrawn. So this is not necessarily the best way or the most effective way to look at order book. Instead, we can use heat maps, which basically gives us a map of the order book that shows us exactly where the highest liquidity areas are in the market. In the next videos, we're going to see how market interacts with those zone with these zones, how they change through time and what to do with them. All right. If you understand something new from this video or you understand better how the order book and the depth of market works, leave a like and subscribe to the channel. And if you have any other question, leave it in the comments and I'll see you in the next episode. Ciao. Subscribe.