Using Price Action + Orderflow To Stay Onside

Price action does a great job at painting the picture, but orderflow can relay the truth behind it. By combining the two, you can, more reliably, find the answers to questions such as these:

• Who’s getting rewarded? Who isn’t?

• Are the buyers done buying? Are the sellers done selling?

• Who’s moving the market and how good of a job are they doing?

• Is there a large passive player holding price, or is there simply no interest in moving the market?

• Is there inventory stuck and at risk of exiting?

• If so, how much? How violently can this thing liquidate or squeeze?

Stay onside, but more importantly, don’t get caught offside. Let’s explore some day types.

Example 1 — Balance / Rotational

Some traders love it, some traders hate it — a market in balance, rather than in motion. These day types can be quite difficult if one were to solely rely on price action concepts. Your entry will be later, which means your runway for profit targets is shortened and the trade opportunity is ultimately capped. Volume profiling can certainly provide a very significant boost in edge here. Let’s look at some inputs.

• The market is indecisive. Although it hasn’t made a directional decision, it is important to note that it is still making decisions. This can be seen through the fact that there are no willing sellers at the lows, and no willing buyers at the highs.

• The EMAs are constantly being traded into and through. They are moving back and forth in the middle of the day’s range. This is when I know that they are completely useless, and I will pay them no mind.

• The volume profile is a D-shape. This means balance. The market is currently happy to transact and rotate back and forth in the current range, where supply and demand are in equilibrium, and the market is in agreement. ****In this moment, it is relaying the information that prices under VAL (value area low) are too cheap to sell, and prices above VAH (value area high) are too expensive to buy.

• Simply combining those points above does a lot to really frame this market and set up potential trade scenarios. It simplifies it down to this: do not seek breakouts/market extension — rather, buy the prices that the market is unwilling to sell through, or sell the prices that the market is unwilling to buy through.

• Until things change, why assume that they will at any given moment? Our job is to listen to the market and utilize the information that is being relaying to us in real time — not to try to convince the market that we’re smarter than it.

Example 2 — Slow Grind / Melt Up

Images like these are very easy to understand in hindsight once the full picture is already developed and the dust has settled. What is it that makes it so difficult to navigate this kind of action and day type in real time, then? What inputs and components can we look towards to not only stay onside with the market, but more importantly, not get caught offside? It’s can actually be quite simple. Let’s look at a few key distinctions here.

• The market sweeps a new low and immediately gives back the entire downside leg — upside prices within the prior range are quickly reclaimed.

• After this occurs, all downside attempts stop seeing continuation — they are now simply pullbacks in a newly established upside trend.

• Once these prices are reclaimed, the sell-side never sees continuation again. They go unrewarded for the rest of the session. Structure is maintained in favor of the upside with zero breaks to the downside.

• The EMA’s start to slope upwards and stay sloped, with price constantly failing to auction underneath them.

• As the market breaks out of the main distribution above the POC, it begins to build new, higher nodes along the way. Not once does the buy-side ever lose a node to the downside. Until this changes, there is virtually zero chance at making money on the sell-side. As a matter of fact, majority of the short inventory is stuck down in the main distribution. As long as volume continues to build higher, it would be foolish to speculate that the move is potentially done. You’re much better off just buying every pullback into every LVN (yes, seriously) until volume structure breaks.

Example 3 — Liquidation / Sell-Off

Let’s take a look at this downside trend day. Uptrend days usually have grindy, slow action while offering very shallow pullbacks, the pullbacks on downtrend days down can be quite extreme. Properly navigating these day types can be very tricky. Generally, the best bet is to be looking for reoffer opportunities. However, these can be quite difficult to properly execute. Most traders tend to struggle with these day types, as they’re constantly finding themselves trying to time a bottom, rather than look for a reoffer. This is likely due to the fact that rebids/pullbacks usually look very sharp and strong — up until they get sold into once again. Although the characteristics of a downtrend day are quite different than an uptrend day, the same rules apply.

• As price begins to fall, the market continuously fails to find a bid that’s willing to transact higher. We can see this through price action — sequencing lower lows and lower highs.

• No continuation for the buy-side. They never actually breach any key upside swing to shift market structure. Every bid constantly ends up unrewarded and underwater.

• The EMA’s begin to slope downwards, finding a reloading offer every time price comes back up to test. These are the day types where the EMAs really shine, provided you are patient and disciplined enough to properly interact around them, and not otherwise.

• Volume structure paints a clear picture — interest only moving lower. Supply has entered the market and the market is having trouble trying to find a sustainable bid. Ultimately, they never do and it closes at the very low node.

Reality Check / Staying Objective

It is especially important not to take the market for a liar. The market is an auction and the way you see it playing out in real time is the reality and should be accepted as such. Your opinion bears no weight — the market has its own and will transact accordingly. If you don’t like or agree with the market’s opinion, you can always come back another day — it’s not going anywhere. Don’t be that idiot that has to tell their friend or spouse that, as the market went one way for an entire day, you kept initiating trades against it.