Orderflows – The Imbalance Course
People (not traders) like to theorize that everything that happens in the market is random, that there is no direction trade going on. I say let them keep on believing that for they are the ones who provide the money that successful traders earn. The very next trade hitting the market may be random, but a big buying order being executed in the market is not a random event, it was caused by something to prompt the trader to react a certain way. What I care about is seeing that big order and determining if it is important and will cause other traders to also come to the market and for the market to move.
When dealing with imbalances, there are there are individual imbalances which can mean nothing or mean everything. There are also stacked and multiple imbalances which can matter or not. A stacked imbalance can be a clear sign of an institution putting on a new position and be very important or it can occur when an institution is getting out of a position and mean very little.
Once a trader understands what an imbalance means, if anything, reading what the market is doing becomes a lot easier.
There are no Holy Grails in the trading world. If anyone tries to tell you that, run away – fast. The way you become successful is learning how to understand what the market is telling you and to trade using market generated information.
Order flow imbalances are the only way to see what the institutions are doing right now in the market so that you can trade off that information.