Market Profile & Order Flow

The post below was made by Shai at Vtrender 2.

I'm reproducing it here for the content :



We always wanted to make an attempt to put out Market Profile charts through the Order Flow window,to give our trading a much needed edge.

As we put profile charts and Orderflow indicators side-by-side the marriage of two potent concepts, invigorates our trading spheres like nothing else.

In profile we have our oft repeated value areas, high volume nodes and single prints which tell us where the auction is succeeding and where it is not.

In Vwap we have that dividing line which defines the control between buyers and sellers.

But in Order Flow we get to a point where we can see that exchange happening or the actual auction theory playing out in practice.

These are not two different methodologies, but are one concept and a finer way of looking at the buying and selling activity day to day.It's always been my belief that if you are trading, the best indicator would be the trading screen.For too long, we have been entrapped by savvy marketeers who have sold us one price based indicator after another. Some call it a quest for the "holy grail"- by itself a proposition which has defied the trading community ever since trading began. The trading screen on the other hand, cannot lie and in itself documents the entire buying-selling process.

We have just refined that process to include only the aggressive buyers and sellers who act at market prices and who can give us a direction to the auction process.

Again, the time frame matters. Are you looking for the buyer who wants control for 40 of the average 60 points traded in the Nifty everyday or are you looking for that quick 10-15 points before the other party returns.

As in all indicators, I'm not expecting Order Flow to call it right a 100 % of the time, but if it can catch 90 % of the turns right, it will make a difference to us and our trading accounts.

So how do we sort that 10 % out from the balance 90 %.The simple way would be to use it with the concepts from the Market profile chart.Above value, pay more importance to the blue line and below value pay more attention to the red. I would also position size differently for each of these situations, with an auction above value above VWAP and blue Order Flow attracting a bigger bet than the rest.

The Order Flow indicators are not here to discard any of our previous concepts, but only to reaffirm what we already know.

We still are and will be a discretionary method of trading.

The OrderFlow, value areas, Vwap, pivots are all there to support your decision making.

That means the best judge of that decision to enter a trade or not will still be you".