Order flow: why a price moves, and who moves it

Order flow is the stream of buy and sell orders reaching a market, and the trades they produce. A price chart shows where those trades ended up; order flow shows the trades themselves: how large they were, when they came, and which side was in a hurry.

That is one layer below the chart, and it is the layer that explains why a wick exists, and why a level holds or gives way. It only exists where volume is genuinely traded and reported. Futures have one exchange and one tape per contract; spot forex has no central book, so the volume a forex chart displays is your own broker's, or a plain tick count.

What order flow reads: the book, the tape, the footprint and delta

• The order book, labelled depth of market or DOM on most platforms: the limit orders waiting at each price above and below the last trade. It shows intentions, and a displayed order can be cancelled before it fills.
• The tape, the time and sales window: every trade that actually filled, one by one, with its time, its size and the side that came to take.
• The footprint: a candle opened up, showing for each price inside it how much traded on buy aggression and how much on sell aggression.
• Delta: aggressive buying minus aggressive selling over a period. Its running total across the session is the cumulative delta, the CVD.
• The volume profile: volume stacked by price over a session or a week, which shows where the market accepted to trade and where it only passed through.

An order flow example: same volume, same delta, two different candles

Take two five-minute candles on the same futures contract, each with 10,000 contracts traded. Under a price chart they show the same volume bar. Opened up, both start with the same numbers: 7,000 contracts bought at the offer, 3,000 sold at the bid, a delta of +4,000.

The first candle closed four points higher: buyers were in a hurry and price gave way in front of them. The second closed where it opened: every one of those buyers was filled by a seller who did not move. On a candlestick chart that second one is a candle that went nowhere on ordinary volume, and nothing says that 4,000 contracts of net buying were absorbed inside it.

The three lessons below go further, one step at a time. The first, onorder flow trading, sets the vocabulary: the order that waits, the order that takes, and the tools above. Auction market theory explains where a market accepts to trade and where it only passes through. The third, understanding order flow, takes the book apart: absorption, voids and slippage.