Trade Video – Using Order Flow to Manage Trades on Thin Markets

Published on: September 09, 2014

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Today,  Jason at Oil Trading Group sent me the video below. It shows a breakout trade being entered based on price action and then managed using order flow.

The trade is initially entered with a 12 tick stop. Shortly after the long trade is entered, there is massive (for CL) absorption on the Bid side with 482 contracts traded at 92.25. Once that has played out the stop is then moved to just below this level. That’s a good example of using order flow action in trade management.

As the price moves up, we get absorption on the offer side, a potential show stopper for the long trade. At this point, the trade could have been exited. On the ES, it’s well known I tend to ignore icebergs that would be “trend stoppers” and focus on those that would be “pullback stoppers”. I think in this case, you could argue that this is not a trend up yet.

So we at 6:43 in the video, we can see we’ve had 482 hit the bid at 92.25. We’ve had 399 hit the offer at 92.28. The volume profile from 92.25->92.28 is significantly higher than the rest. So at this point, I’d actually want to see 92.28 hold.

At 6:47 e can see there’s now over 100 bid at 92.30. So for me, I’d be interested in what happened there. Not so much in terms of cutting a trade I’m already in. More in terms of giving me another piece of the story. If they trade there and it’s real and it holds, it’s good for the upside and gives us another potential place for a stop once we clear the area.

We can see that 70 contracts traded into that very quickly – as if they didn’t have time to get out of the way. Then we sold down to 92.26 in an instant. So at this point we are still above 92.25 – but we just hit through that bulge in the profile 92.25-92.28 in an instant. That took Jason through his stop.

The video ends there. The marker did head down to push through the days low after that.

If you weren’t stopped out at this point – you would still have the 482 below you at 92.25. If you were still holding after the hit it down like that, I think the only logical thing to do would be to wait for an immediate snap back after that push down. It is quite common to have the market snap back after a push down like that but if it doesn’t happen immediately, then I think you’d holding the trade is then based more on hope than any rational form of market analysis. Once you push through that 482 at 92.25, you are in stop run territory.

The video is here: