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Sep 22, 2020 18 tweets 6 min read Read on X
[1/X] Attempt to explain Orderflow basics. It will be a long thread but will try to make the content worth the read.

Below is a Depth of Market (DOM). The
Blue ones = Bid Limit orders
Red ones = Ask Limit orders

So what happens to these orders in the trade cycle

#Basics Image
[2/X] Such limit orders are invariable absorbed by the Market Orders.

It is the Market Orders that drive the markets up and down.

Lesson # 1: Every auction starts with a Bid and an Ask
Lesson # 2: Market orders move the price
[3/X] So how do we track these market orders. We track them on the Footprint aka Cluster charts

GREEN = Buy Market Orders
RED = SELL Market Orders

Market Orders indicate Aggresiveness Image
[4/X] So what you see on the Foorpint aka Cluster chart is Market Orders and what you see on DOM are the Limit Orders i.e., orders waiting to be executed.

Lesson # 3: A Market Order buys/sells a Limit Order

PS: Exceptions to every rule exist
[5/X] When the buyers are aggressive, they will take out all the Limit Orders on the Ask side.

Similarly when sellers are aggressive, they will take out all the Limit Orders on the Bid side

This can clearly be seen on the Footprint Chart
To activate the Footprint, choose the chart type = Cluster from the Chart dropdown on the top bar Image
The volume is now split between the Buy trades and the Sell trades

Total Volume = Buy Trades + Sell Trades Image
[8/X] Now lets understand the concept of Delta

Delta = Buy Volume - Sell Volume

in a footprint chart Image
[9/X]

Delta = Positive => Aggressiveness on the Buy side

Delta = Negative => Aggressiveness on the Sell side

Generally you would expect Price to move 🆙 when Delta is positive and Price to move 🔽 when Delta is negative

True....but there is a catch...called Divergence
[10/X] So what is Divergence?

Any two parameters that should be in sync (Price and Delta in this case) towards supporting a particular move (Up or Down) but are in reality not (in sync) form a Divergence

Divergence is best shown by the Orderflow Indicator called Delta Bars Image
[11/X] Taking a small detour to explain Delta Bars.

Delta Bars are a candle stick chart on Delta. We measure the delta at the open of the candle (always 0) and close of the candle along with Delta Max and Delta Min

What is this Delta Max and Delta Min?
[12/X] Delta Max is the maximum diff between Buy and Sell Volume at any point in time during the Candle formation.

Delta Min is the minimum diff between Buy and Sell

Now plot a candlestick using Delta Max and Delta Min as High and Low of the Delta Candle and you have Delta Bar
[13/X] To activate Delta Bars, choose from the Indicators menu under Orderflow category

These bars also come in the Cumulative format called Cumulative Delta Bars Image
[14/X] So the green and red bands are zones of divergence - meaning price and delta are out of sync Image
[15/X] So how does this Divergence take place?

Say, Delta = Positive but Price does not move 🆙

So more aggressive Buy market orders than Sell market orders and yet price does not move up

Why?
[16/X] This is so because some institution (FII/DII/Whale) is simply absorbing all the <arket buy orders with Limit orders, which is happening without you coming to know of it..
[17/X] When the institution deems all the market buy orders are absorbed, they start selling with Market orders..

This last bit can be seen with the help of delta divergence
[18/X] We have now scratched the surface of Orderflow....barely

Opening this thread to anyone who wants to build on this content to help everyone

#Knowledge #Sharing #Orderflow #basics Image

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More from @gocharting

Nov 10, 2022
1/n

Let's start with the definition of COT High/Low and how it is used in Daytrading with Orderflow

COT is the abbreviation for Commitment Of Traders. There are two COTs:
COT High
COT Low

🧵 #daytading #gocharting #orderflow
2/n

COT High is cumulative bid/ask Delta starting from the moment when the price makes new high or repeats previous one.

COT Low is cumulative bid/ask Delta starting from the moment when the price makes new low or repeats previous one.
COT helps to see buy/sell balance after new price level has been reached. In other words, it helps us identify TRAPPED buyers and sellers in the market
Read 6 tweets
Oct 1, 2020
[1/X] Attempt to explain Imbalance Chart to a 10 year old
You want into an air conditioner (AC) in the peak summers.. the shopkeeper tells you that the price of the AC is 35 k, which you think is expensive.. this price of 35k which the shopkeeper quoted is Ask Price
[2/X] Since you feel the ask/offer price by the shopkeeper is high, you tell him that you can pay 30 k for the AC.. this price quoted by you is the Bid Price

Now one of you (shopkeeper or you) has to accommodate for the sale of the AC. This is an Auction
[3/X] Since it is peak summer and the demand is high, the shopkeeper isn't budging..so you go ahead and buy the ac at his offer/ask price.. this is called Lifting the Offer
Read 14 tweets
Sep 29, 2020
[1/X] Introducing Imbalance Charts in GoCharting

Imbalance is a special variation of the Footprint chart that highlights aggressive buying and selling (some market participants manifested aggressive behavior)
[2/X] Imbalance compares bids and asks diagonally and shows a significant excess of one over the other. That is, a bid is compared with an ask, which is one level higher, and an ask is compared with a bid, which is one level lower.
[3/X] The bar in the picture above shows how aggressive sellers entered the market and pushed the price at each price level. Such an aggression, as a rule, results in price reduction.

The yellow highligted cells reflect such aggressive behaviour on the buy and sell sides
Read 4 tweets
Sep 25, 2020
[1/X]

Basics of Auction and Profile Distribution - terms like Market Profile and Volume Profile simplified

What is Profile Distribution?

Distribution is the process of trading activity that takes place in the market auction. Some also know it by a consolidation or range.
[2/X]

A Distribution tends to define the fairest area/ price where the current auction has been taking place.
However, during some trading sessions, after the market forms a distribution around a certain fair price/ value, something changes.....
[3/X]

It could be anything - some big money stepping in deeming the price to be auctioning below value, news, event ,etc.. we don't know that and it doesn't matter.. what we are interested in is what happens after....
Read 7 tweets
Sep 25, 2020
We have now released an important Orderflow Indicator called the Bar Statistics

A Bar Statistics provides a tabular view of the important Orderflow metrics at a candle level in a time series format while each of the footprint provides a cohort view of the similiar metrics Image
To activate this particular indicator, please choose Bar Statistics from Inidcators menu on the top bar under Orderflow section

#Orderflow #Footprint #Cluster #NSE Image
The Bar Statistics indicator in GoCharting is fully loaded with 21 Orderflow metrics to choose from (no kidding!!!)

Will try our best to explain each one of them. We may go crazy in the future and add more to this list Image
Read 4 tweets
Sep 24, 2020
The next version of the Orderflow Module is now released on Beta

More Indicators

More Options

More Customizations

More Analytics....

Follow this thread along..... on the updates
First Important Change - Now you can manually set the size of the cluster boxes using the Tick Multiplier Parameter under Settings Tab.

What it means?

Now Cluster Boxsize = TickSize X Multiplier

If Nifty Tick = 0.5 INR and Multilplier = 3

Boxsize = 0.5 X 3 = 1.5 INR Image
[3/X] The default view is on AUTO tick multiplier mode. This means that an algorithm will decide the cluster box size using a tick multplier computed on the basis of your screen dimensions to make the underlying figures visible and readable

See the difference between below ImageImage
Read 7 tweets

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