Order Flow Trading

Order flow is a type of trading strategy. Other strategies include technical, or fundamental analysis.

With technical analysis we use price, volume, and momentum etc.

With order flow analysis, we look at the Order Book, or Footprint charts to understand the 'flow' of trades being placed by traders.

Order flow trading is a type of short term trading strategy as it is used to enter the market accurately based on recent executed buy and sell orders.

There are 2 main order types; (see Market Microstructure for more on this)

- Limit orders: Price points where traders have ordered to buy or sell a stock, these orders will not get executed unless the price of the market hits their limit order price point. Also referred to as passive orders. "Buy when price falls to the price I want to buy at."

- Market orders: A market order is an order to buy or sell a stock at the market's current best available price. A market order typically ensures an execution, but it doesn't guarantee a specified price. "Buy now."

The majority of smart money and sophisticated traders enter their trades using limit orders. If a stop-loss is set, however, and subsequently triggered, it is usually triggered as a market order. That is, I'm in a long, but if price falls, I want to immediately exit my position. This is done via a market sell order.