Trading: An Inside Look. Module 14: Order Flow Analysis
1. Terminology.
2. Order Flow. Definition.
3. Order Flow Identification.
4. High Resistance Liquidity Run (HRLR).
5. Low Resistance Liquidity Run (LRLR).
6. How to work with Order Flow? STB/BTS.
7. Conclusions.
1. Terminology
• Institutional Order Flow (OF) — literally translated as institutional order flow. The tool is used to determine the flow of manipulations by large participants and (or) algorithms to deliver the price to certain price areas using orders that are sequentially activated.
• High Resistance Liquidity Run (HRLR) — “high resistance movement”. The main form of Order Flow movement, which consists in alternately removing liquidity and updating structural points in the direction of point B.
• Low Resistance Liquidity Run (LRLR) — “low resistance movement”. The second most important form of Order Flow movement, which consists in the sequential rebalancing of inefficiencies (FVG) and updating structural points in the direction of point B.
• Sell to Buy (STB) — the price removes liquidity from the sell side (SSL), which leads to an update (Shift) of the nearest swing (maximum). The entire range from Shift to the minimum of manipulation is the STB zone.
• Buy to Sell (BTS) — the price removes liquidity from the buy side (BSL), which leads to an update (Shift) of the nearest swing (minimum). The entire range from Shift to the maximum of manipulation is the BTS zone.
2. Order Flow. Definition
Institutional Order Flow (OF) — literally translated as institutional order flow. The tool is used to determine the flow of manipulations by large participants and (or) algorithms to deliver the price to certain price areas using orders that are sequentially activated.
The main difference between Order Flow and the classic structure is that the task of Order Flow is to deliver the price from point A to point B, mainly from the older timeframe, by sequentially manipulating liquidity, inefficiencies or blocks.
It is important to remember that liquidity is the primary source of all movements in the market, it is thanks to liquidity that the price structure is formed, and not vice versa.
Chart analysis by constructing a classic structure will not always look the way we consider it in the diagrams.
Very often you will observe false breaks of the structure (fake bos), which can confuse you and lead to incorrect identification of the structural movement. Order Flow helps to solve this problem.
The following tools are used to identify and build the Order Flow stream:
1.Liquidity (Internal/External, BSL/SSL) is the main tool for identifying and determining the flow of orders, thanks to which we can clearly understand where and where a large market participant delivers the price. From the logic of liquidity, the Order Flow of the High Resistance Liquidity Run (HRLR) form is built.
2. Inefficiency (FVG) — the flow of orders can be built not only through working with liquidity, but also according to the logic of sequential movement with overlapping inefficiency zones, such a movement will be called Low Resistance Liquidity Run (LRLR).
3. Blocks (OB / RB) — one of the forms of order flow can be a sequential movement with block tests, that is, a new one will be formed on the test of each previous block. Such a flow of orders is usually called “block”.
4. Market Structure Shift — will act as an identifier for changing the direction of Order Flow or its further continuation. It is the formation of a “shift” that will tell us about the end of the current order flow and the transition to a new one.
Before we look at all types of Order Flow, we need to understand where and how to correctly consider the movement of Order Flow? How to understand where the beginning of the order flow is and where its end will be?
As we know, the task of Order Flow is to deliver the price to certain price areas. This means that Order Flow does not appear just like that.
Any order flow should have a beginning and a logical end (target), which are often looked for on an older timeframe (perspective). The Order Flow itself will be formed on a younger timeframe (perspective), however, there are cases when goals and flow are considered on the same timeframe.
Key questions we should ask before finding and working on Order Flow:
1. What liquidity did the price remove and what will it strive for in the future?2. In which POI is the price located, and to which POI will it strive?
Two key rules will help us answer these questions:
1. The price always tends to liquidity.
• If the price removes liquidity from the buy side (BSL), it will most likely seek to remove liquidity from the sell side (SSL).
• Accordingly, after the price removes liquidity on the sell side (SSL), it will seek to remove liquidity on the buy side (BSL).
2. The price moves from one POI to another POI (FTA).
• We have already learned this rule in the Top Down Analysis lecture, where we considered how the price moves from zone to zone.
According to these rules, we can systematize our chart analysis through the prism of delivery logic from “point A” to “point B”. These points will be the starting and potential ending points of the order flow on the younger timeframe.
Example 1. Delivery from External BSL to Internal SSL / External SSL
• Timeframe: H4
• Point A: External BSL
• Point B: Internal SSL / External SSL
In this example, we observe how, when removing the External BSL, the price forms a reversal, which means that we can use this as point A at the beginning of the order flow, the goal of which will be the Internal SSL and External SSL (points B), according to the logic of “from liquidity to liquidity”. The price movement from point A to point B will be considered as Order Flow, with which we will work.
Example 2. Delivery from FVG to Internal BSL’s.
• Timeframe: Weekly
• Point A: POI (FVG)
• Point B: Internal BSL / Point B2: Internal BSL
In this example, we are looking at the Solana chart, where the price tested the zone of interest in the form of FVG + OB at the price level of 80, which we would define as point A. The goal in this case would be the nearest Internal BSL zone (point B) or the next Internal BSL zone as the second target (point B2) at the price level of 200.
It is important to understand that point B may not be the only one and depends on the goals that are being considered.
Of course, the nearest zone will be the most likely to fix the position, because we cannot know for sure at which of the goals the order flow will end, however, you have the right to consider several goals. For example, if the price calmly overcomes the first target and does not show a reaction in the form of a reversal (change in flow) of orders.
Example 3. Delivery from FVG + OB to Internal SSL / External SSL.
• Timeframe: Daily
• Point A: POI (FVG + OB)
• Point B: External SSL 1/ Point B2: External SSL 2
In this example, we are looking at the ETHUSDT chart.
4. High Resistance Liquidity Run (HRLR)
High Resistance Liquidity Run (HRLR) — “high resistance movement”. The main form of Order Flow movement, which consists in alternately removing liquidity and updating structural points in the direction of point B.
In the schematic example, we observe how the price reaches the older zone of interest (or liquidity), which we identify as point A. Based on this, we build the target of the price movement in the form of point B.
To confirm the start of the upward OF to target B, we need to consider the Market Structure Shift, which will be used in the formation of most reversals and the emergence of new flows.
After the formation of the Shift, you can observe how the price continues to move in an upward direction, while removing liquidity from the sell side (SSL) and updating the highs, thereby forming an upward Order Flow of the HRLR type.
Example of the formation of an upward OF of the HRLR form.
First of all, we identify the key delivery points, in this case, the older timeframe (Daily) is considered.
• Timeframe: Daily
• Point A: OB + Internal SSL
• Point B: External BSL
After breaking the structure upwards, we observe a return to the POI in the form of OB, and the price removes the Internal SSL. According to the logic of the upward structure and the delivery rules that were described above, we assume that the main goal (point B) will be the External BSL.
Now our task is to move to a younger timeframe and consider the formation of OF.
Order Flow movement of the HRLR form:
To confirm the start of the upward flow (OF) at point A, we need to wait for the formation of a reversal in the form of a Shift on a younger timeframe, which we observe in the example. Then the price forms an upward flow of orders (OF), alternately removing liquidity from the lows and updating the highs.
Thus, the price is delivered to point B, where we see the end of the upward OF by reversing in the form of a Shift in the downward direction. It is necessary to consider entry models at each removal of liquidity from the lows towards the order flow, that is, to work according to OF.
Note. The HRLR form of order flow is the main one in the work and is used as a full-fledged system by many successful traders around the world. We advise you to pay special attention to the study of this price delivery system, as it includes all the necessary points for forming a successful transaction.
5. Low Resistance Liquidity Run (LRLR)
Low Resistance Liquidity Run (LRLR) — “low resistance movement”. The second most important form of Order Flow movement, which consists in the sequential rebalancing of inefficiencies (FVG) and updating structural points in the direction of point B.
In the schematic example, we observe how the price reaches the older zone of interest (or liquidity), which we identify as point A. Based on this, we build a goal in the form of point B.
To confirm the start of the upward OF to target B, we also need to consider the Market Structure Shift. After the formation of the Shift, you can observe how the price continues to move in an upward direction, while after each update of the maximum it returns to rebalance the inefficiency, which leads to the update of the next maximum, thereby forming an upward Order Flow of the LRLR type.
Example of the formation of an upward OF of the LRLR form.
• Timeframe: Daily
• Point A: Internal SSL
• Point B: External BSL
In a sideways movement, we observe the logic of removing the Internal SSL, we define it as point A. The goal (point B) in this case is the External BSL. Now our task is to move to a younger timeframe and consider the formation of OF.
Order Flow movement of the LRLR form:
To confirm the start of the upward flow (OF) at point A, we need to wait for the formation of a reversal in the form of a Shift on a younger timeframe, which we observe in the example. Then the price forms an upward flow of orders (OF), where after updating the highs it returns to rebalance the inefficiency (FVG).
Thus, the price is delivered to point B, where we then see the end of the upward OF by reversing in the form of a Shift in the downward direction. It is necessary to consider entry models at each rebalancing of inefficiency, towards the order flow, that is, to work according to OF.
Note. You may notice that the example shows the HRLR form in the middle of the uptrend, this situation is quite normal, OF can be combined (HRLR + LRLR), that is, in one movement you can consider both the work of the HRLR form (removal towards the flow) and the LRLR forms (rebalancing of inefficiencies towards the flow).
• Timeframe: Daily
• Point A: Internal SSL + OB
• Point B: External BSL
In an upward structural movement, we observe a correction with the removal of the Internal SSL and the OB test, we identify this as point A, point B will be the maximum levels — External BSL.
Order Flow movement of the combined form:
Switching to the H1 timeframe, we observe an upward movement of OF to target B (External BSL), where the price works with both liquidity and inefficiencies (FVG).
6. How to work with Order Flow? STB/BTS
Sell to Buy (STB) / Buy to Sell (BTS) are trading models for entering a position, which are expressed by the last downward or upward movement, removing liquidity and becoming the cause of the Market Structure Shift.
• Sell to Buy (STB) — the price removes liquidity from the sell side (SSL), which leads to an update (Shift) of the nearest swing (maximum). The entire range from Shift to the minimum of manipulation is the STB zone.
• Buy to Sell (BTS) — the price removes liquidity from the buy side (BSL), which leads to an update (Shift) of the nearest swing (minimum). The entire range from Shift to the maximum of manipulation is the BTS zone.
In essence, this model is no different from the standard QM model, the only difference is that we take the entire zone of the last downward (STB) or upward (BTS) before the break in the form of a Shift as the entry point.
Graphical example of Sell to Buy (STB):
Graphical example of Buy to Sell (BTS):
You can enter a position on a test from the entire zone or from level 0.5 to increase the Risk/Reward (RR) ratio. Stop loss is set beyond the minimum or maximum of the STB/BTS movement.
This entry model can be considered in any context: when removing liquidity, when testing POI, or during the Order Flow movement.
Example of opening a position through the STB model in the context of the Order Flow movement.
As an order flow, let’s take an example that we have already considered:
• Timeframe: Daily
• Point A: OB + Internal SSL
• Point B: External BSL
Order Flow movement of the HRLR form:
We know that during the Order Flow movement (in this case, of the HRLR type), our task is to consider entering a position when removing lows, that is, Internal SSL. Since we are considering the order flow in the context of the H1 timeframe, we need to consider the entry model on the M15-M5 timeframes.
Entering a position in the context of the H1 OF movement through the STB model:
Thus, we identified the key points A/B on the daily timeframe (D), where on the hourly timeframe (H1) we considered the movement of the Order Flow of the HRLR type from point A to point B, and at each removal of the Internal SSL in the order flow, we considered the STB entry model on the 5-minute timeframe (M5).
7. Conclusions
Liquidity is the primary source of all market movements. It is thanks to liquidity that the price structure is formed, and not vice versa.
The task of Order Flow is to deliver the price to certain price areas, Order Flow does not appear just like that. Any order flow should have a beginning (point A) and a logical end (point B) on an older timeframe (perspective).
There are 2 types of Order Flow movement: HRLR, LRLR.
• HRLR — OF movement through the logic of manipulating liquidity towards point B.
• LRLR — OF movement through the logic of rebalancing inefficiencies towards point B.
• Combined OF — OF movement in which both forms of HRLR/LRLR are present.
This theory can be used on any timeframe and market, however, we recommend adhering to the links of older and younger timeframes, which are described in the lecture “Top Down Analysis”.