The most pertinent part of the COT is the legacy section, consisting primarily of commercial and non-commercial traders. The result is that they receive the best price for the quantity they initially wished. Their position would get filled, but only partially (the 20 lots). Sellers at higher prices would need to be present and willing to sell the other 30 lots. The problem is that buying at these increased levels reduces the profit potential drastically.

Third, some brokers provide a tool known as order flow distribution. It is typically a chart that shows inflows and outflows into a stock. The most important part of the distribution is that it shows you the constituents of the order flow.

Journal of Financial Intermediation

Webull Financial LLC is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). An explanatory brochure is available upon request or at Our clearing firm, Apex Clearing Corp., has purchased an additional insurance policy.. It’s common to see candles with long wicks (e.g., pin bars) at zones, expressing the power of the rejection. Yet, other traders use patterns like engulfing candles, three white soldiers/black crows, etc. This information would have alerted the trader of a potential bullish scenario. We see the price on CHF/JPY returned to the zone and reversed nicely into an uptrend.

The market is in constant flux, processing orders from one side to the other. For instance, let’s assume 100 lots of buy orders and 50 lots of sell orders sat at a specific level. The 50 lots of the buy orders would get filled at that price (from the 50 lots of sell orders). Afterwards, the order book would look to fulfil the remainder at the next available price. In this article, we have looked at what an order book is and the key components that make it including the level 2 and time and sales. We have also explained how to use the tool well in the financial market.

Posted versus effective spreads: Good prices or bad quotes?

They will keep the positions open as the market returns to a level with clusters of stop-loss orders. We made an earlier example about institutions needing to place their trades in small bits. It isn’t necessary for the average person because our lot sizes are small. Therefore, there will always be liquidity when we buy and sell. Yet, it’s different for traders executing lot sizes worth hundreds of thousands or millions of dollars.

• Say a large financial institution wanted to buy 50 lots at $1, but only 20 were being sold.
• Order Flow trading is a method of predicting price movements by observing the flow of positions in a particular market.
• An explanatory brochure is available upon request or at Our clearing firm, Apex Clearing Corp., has purchased an additional insurance policy..
• All information and data on the website is for reference only and no historical data shall be considered as the basis for judging future trends.
• The order book next to the chart below is from the OKX exchange on XRP/USDT.

Of course, it is impossible to see these in real time unless you’re using an advanced order book. The point is that stop losses are used at predictive levels. As mentioned earlier, the ‘big boys’ execute part of their massive order, which momentarily drives the price to a noticeable point.

All else equal?: A multidimensional analysis of retail, market order execution quality

In addition, some exchanges or brokers charge you for the order book or level 2 market data. While the order book is an impressive tool, it’s only available in exchange-traded markets. These include instruments like stocks, futures, and cryptocurrencies.

• The market is in constant flux, processing orders from one side to the other.
• They will keep the positions open as the market returns to a level with clusters of stop-loss orders.
• Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss in a down market.

Therefore, you need to be quick in interpreting the information. Here, we can apply the volume profile in our Order Flow Trading across multiple time frames. For this example, we have used the POC line as a reference. The point is that supply and demand are used extensively in Order Flow trading.

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All information and data on the website is for reference only and no historical data shall be considered as the basis for judging future trends. The ‘Order Flow Distribution’ chart allows traders to know the flow of big, medium or small orders. Still, diving into level 2 trading strategies, combined with other elements, can offer you an edge to outsmart the market. But unfortunately, much of the literature around the concept is complex, even for the most experienced. So, here, we will break down Order Flow Trading in the simplest way possible.

HVNs represent zones with the highest activity and are generally the longest histograms. However, neither provides information about how many people buy and sell at a particular time. The order book showed in this chart is from Binance, which is the biggest cryptocurrency exchange in the world. One of the most popular order book in the stock market is known as the NOII or the Net Order Imbalance Indicator. It is offered to many brokers in the US by Nasdaq TotalView.

Advisory accounts and services are provided by Webull Advisors LLC (also known as “Webull Advisors”). Webull Advisors is an Investment Advisor registered with and regulated by the SEC under the Investment Advisors Act of 1940. Trades in your Webull Advisors account are executed by Webull Financial LLC, a member of the Securities Investor Protection Corporation (SIPC). That means your assets are protected up to $500,000 in value, including $250,000 in any cash awaiting reinvestment.