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Understanding Order Flow on Price Chart:
"Trading is not about markets; it's about thinking"
Majority of novice retail traders do technical analysis and use price and time chart to execute their trades. Each trader have their own interpretation of price movements they see on price chart and use different tools or indicators such as moving averages, fibonacci, trend line, gann, support/resistance, supply/demand etc. to execute their trades.
There is one very important aspect of technical analysis which retail traders lack, why and how price move ? A candlestick, bar or line we see on price chart represent orders that are already filled and market will move up or down in direction of unfilled orders, where more stack of orders are piled up. That is why we see market movements in waves a lot viz. an impulsive move then a corrective move. Price often retrace back or take a breather because in order to move in the impulsive direction it needs more orders, as such it retrace at a level where there are unfilled orders left initially plus new buy/sell orders coming in at that price level.
Ever wonder how many times we enter a trade after noticing a substantial move expecting price to go further in our direction, but instead it retraces back and hit our stop loss and eventually continue in the original direction and we hope that if only we would have our stop loss a little above or below that level. The reason it happens often because there are not enough orders at that level for market to move further in the initial direction and as such it retraces back to a level where smart money viz. major market participants such as hedge funds, institutional traders, banks and experienced retail traders are waiting to buy/sell at discounted price (wholesale price) and make profit.
A retail trader need to understand that it's the big boys that moves price and our job is to identify where they are likely to take their position and trade accordingly. We may not be always right, but if we are swimming with the tides we will survive longer than if we are swimming against the tide. One of the way to identify where the big boys were active in past is by way of looking at Supply/Demand and Support/Resistance level.
"Trading is not about markets; it's about thinking"
Majority of novice retail traders do technical analysis and use price and time chart to execute their trades. Each trader have their own interpretation of price movements they see on price chart and use different tools or indicators such as moving averages, fibonacci, trend line, gann, support/resistance, supply/demand etc. to execute their trades.
There is one very important aspect of technical analysis which retail traders lack, why and how price move ? A candlestick, bar or line we see on price chart represent orders that are already filled and market will move up or down in direction of unfilled orders, where more stack of orders are piled up. That is why we see market movements in waves a lot viz. an impulsive move then a corrective move. Price often retrace back or take a breather because in order to move in the impulsive direction it needs more orders, as such it retrace at a level where there are unfilled orders left initially plus new buy/sell orders coming in at that price level.
Ever wonder how many times we enter a trade after noticing a substantial move expecting price to go further in our direction, but instead it retraces back and hit our stop loss and eventually continue in the original direction and we hope that if only we would have our stop loss a little above or below that level. The reason it happens often because there are not enough orders at that level for market to move further in the initial direction and as such it retraces back to a level where smart money viz. major market participants such as hedge funds, institutional traders, banks and experienced retail traders are waiting to buy/sell at discounted price (wholesale price) and make profit.
A retail trader need to understand that it's the big boys that moves price and our job is to identify where they are likely to take their position and trade accordingly. We may not be always right, but if we are swimming with the tides we will survive longer than if we are swimming against the tide. One of the way to identify where the big boys were active in past is by way of looking at Supply/Demand and Support/Resistance level.
