Order Flow Trading Setup
There are a lot of trades that the system generates that are excellent trades, but several trades a week fall into the outstanding column. The hardest thing in the world is the wait for the perfect order flow trading setup. As a trader I know this feeling. How bad do you feel if you miss a trade with a great setup because you got up to go to the bathroom or was away at a doctor appointment? This was the case for me yesterday. I was away at an appointment and could only shake my head when I saw the setup.
Trade of the Month
Lets take a look at what I missed and the order flow trading setup. I use two charts primarily for trading. The first is a 3 range volumetric chart and the second is a 5 range volumetric chart. Here is a look at the trade from yesterday on the 5 range chart. This is a trade from 1506 hours EST on Friday 6/29/18.
This trade is setup like this. The market made a strong move exactly to the strong trend resistance zone. At the strong trend resistance zone there had been two previous areas of strong market orders to sell which created the ZoneTraderPro extension zones. Extension zones by themselves are not a reason to trade. But they are areas you can expect to see resistance and combined with an order flow trading setup you now have a reason to trade.
The next thing that you can see on the bar is double the volume of the previous two bars. This meant that the sellers had come in to the market to provide resistance. You can see also see a previous up bar with even higher volume. This is what made this a strong bullish trend and possibly why the resulting short trade was so successful when these traders got stopped out.
Then the magic starts to happen with ZoneTraderPro order flow pattern matching indicator. The point of control is at the top of thee bar and both large market orders and passive sellers with limit orders stop the price from trading higher. The is the POC Extension and Absorption signals. Because of all those buyers at multiple price levels at the top of the bar we have a Trapped Buyers sell signal. Additionally there is also a ZTP Order Flow sell signal. The only signal missing is a stopping ratio. But the signals present were a good enough reason to trade. One other missing thing to this setup was the 3 range chart did not have a ZTP Order Flow signal because of the way price traded.
Second Order Flow Trading Setup
The second and more conventional order flow trading setup was the buy signal that took us to the short trade. The buy setup was similar in that we had an extension buy zone and at that price we had the point of control and absorption giving us a POC Absorption trade. Then we had a very strong signal on a 5 range chart, the ZTP Order Flow buy signal.
On the 3 range chart the trade looked like this. This is the chart that provides the trigger to a trade. When the bar is complete on the 3 range chart, and a POC or other pattern is being signaled on the 5 range, that is what signals the trade entry. Of course you can wait for the two extra ticks to trade on the 5 range chart, but this will affect the risk reward calculation. This is something that an individual trader will need to test and make into a trading strategy.
You might notice that there are two ZTP Order Flow sell signals after you entered the trade. Should you be worried? You should definitely be alert for a reversal and consider tightening the stop just as a general rule, but more so here. But there are reasons not to pull the trade. The POC Absorption and ZTP Order Flow signals are themselves very powerful and we generally see a reversal when we have them on the 5 range chart.
Reasons to stay with the trade
But here is the reason that is even more important and it involves understanding the ZoneTraderPro theory of pricing patterns. The market traded through the trend trade by 5 ticks which signals a reversal trading buy pattern. Normally there would be a pullback to an intermediate support zone and a ZoneTraderPro reversal trade is signaled. Knowing this, you know where your stop should be and giving you the confidence the market is trading higher. When you see the increased volume on the up bar from the 5 range chart that is an additional information that tells you the trade is going higher and is a continuation signal. The shorts were the losers and that took the price to a strong trend zone when they got stopped out.
Only with the ZoneTraderPro pricing patterns indicator do you know this information. It is must have information.