Order flow trading has become an increasingly popular way for traders to analyze and execute trades based on the movements of volume in the market. By understanding and predicting order flow, traders aim to determine where the ‘smart money’ is likely entering and exiting positions. This can provide an edge compared to just analyzing standard price action alone.
In this comprehensive guide, we will explore the top order flow indicators and strategies available for MT4 charts. Whether you are new to order flow trading or looking to improve your current approach, this guide will provide actionable insights you can start applying right away.
What is Order Flow Trading?
Order flow trading involves analyzing the number of market orders to buy or sell coming into the market, known as order flow. This provides information on the behavior of major market players and institutions based on the side (buy or sell) and volume of their trades.
Some key aspects of order flow trading include:
- Tracking Volume – Monitoring increases or decreases in order volume provides clues on building momentum or exhaustion.
- Absorption/Distribution – Watching how volume is absorbed or distributed at certain price levels indicates support/resistance.
- Stop Hunts – Large orders can trigger stops before moving back in the initial direction.
- Footprint Charts – Visualize orders at each price level to see where volume accumulates.
- Order Flow Sequences – Analyzing sequences of orders can reveal patterns and intentions.
Overall, order flow aims to understand the developing battle between buyers and sellers in a market to gain an edge. It provides additional information beyond standard price data.
Benefits of Using Order Flow Strategies
There are several key benefits traders can realize by incorporating order flow analysis into their overall approach:
- Predict Future Price Action – Order flow often precedes price, so it can be used to anticipate potential moves.
- Confirm Price Signals – Order flow can verify or contradict price signals to avoid false breakouts/failures.
- Determine Market Strength – The relative imbalance between buys and sells reveals the conviction behind a move.
- Identify Support/Resistance – Levels with substantial order volume point to key S/R zones.
- Trade with the Institutions – Following the trades of major players (smart money) can improve odds.
- Avoid Chop and Noise – Focusing on order flow filters out insignificant price moves.
Overall, order flow strategies can provide a valuable edge in reading market conditions and identifying high-probability trades. When combined with effective risk management, this approach offers significant profit potential.
Top Order Flow Indicators for MT4
There are a variety of custom order flow indicators available for the popular MT4 trading platform. These indicators visualize and quantify order flow data in different ways to complement your trading style and analysis techniques.
Here are some of the most popular and effective order flow indicators for MT4:
1. Volume Flow Indicator
The Volume Flow Indicator displays order flow using a histogram along the bottom or side of your chart. Bars are color-coded based on the imbalance between buying and selling volume.
Key Features:
- Colors depict imbalances in order flow (green = more buyers, red = more sellers)
- Bars extend higher/lower to show intensity of order flow imbalance
- Length of bars indicates total order volume
- Can be configured for timeframe or trade size thresholds
This indicator offers an intuitive visual depiction of developing order flow imbalances. Spikes reveal intense increases or decreases relevant for breakouts or reversals.
2. Order Blocks Indicator
The Order Blocks Indicator highlights areas on the chart where substantial buying or selling pressure has occurred. These zones often act as support and resistance.
Key Features:
- Marks order blocks with rectangles on the chart
- Color indicates buy (green) or sell (red) pressure
- Opacity adjusted based on intensity of order flow
- Length depicts the duration over which orders were absorbed
- Includes age of block and volume metrics
This indicator identifies key areas to watch for reactions as price revisits them. Fading blocks can signal momentum shifts aligned with institutional activity.
3. Volume Weighted Average Price (VWAP)
VWAP is a benchmark technical indicator reflecting the average price weighted by volume over a specified timeframe. It can act as key intraday support/resistance.
Key Features:
- Calculates average price based on both volume and price
- Acts as reference for value relative to volume profile
- Displays as overlay line on chart
- Standard indicator in MT4 platform (no download required)
- Can be set to session or day timeframe
VWAP reveals key intraday S/R levels institutions are watching. Reversals or breakouts at VWAP demonstrate conviction in the move.
4. Cumulative Delta Indicator
The Cumulative Delta Indicator displays the running sum of buy/sell trade volume. Spikes reveal surges in order flow momentum.
Key Features:
- Cumulative tally of buy and sell order volumes
- Divergences can signal imminent reversals
- Spikes highlight strong conviction moves
- Bars color-coded based on buy/sell volume
- Optional moving average lines help spot divergences
This quantifies order flow momentum. Watch for divergences between price and delta for clues a move is exhausting.
5. Footprint Chart
Footprint charts display a visual representation of order volume at each price level. This allows viewing the developing ‘footprint’ of orders in the market.
Key Features:
- Displays buy/sell volume at each price level
- Bars color-coded by imbalance similar to Volume Profile
- Size of footprint indicates amount of orders at level
- Shows key S/R levels where orders cluster
- Visualizes stopping/initiation volume
Footprint charts reveal how volume was absorbed at each price level. This identifies support and resistance zones for intraday trading.
11 Order Flow Trading Strategies for MT4
Now let’s explore some specific trading strategies to apply using order flow indicators on your MT4 charts:
1. Volume Weighted Average Price (VWAP) Reversals
This simple intraday strategy aims to capture reversals as price reaches key VWAP levels.
How to Trade:
- Identify VWAP level on your chart time frame
- Watch for price to approach and stall at VWAP
- Enter reversal trades at VWAP with stop beyond level
- Target 1:1 or 1:2 risk reward ratio
VWAP often acts as support/resistance for intraday moves. Reversals represent institutions flipping positions or entering counter-trend.
2. Volume Imbalance at Support/Resistance
Target existing support/resistance levels when order flow volume spikes reveal conviction in a breakout.
How to Trade:
- Identify key S/R levels on higher time frames
- Monitor Order Flow Volume indicator
- Watch for volume spike as price approaches level
- Enter breakout on high volume with stop below level
Spikes in order flow volume add confidence to breakouts of significant S/R. This filters out false price-only breakouts.
3. Climactic Exhaustion Volume
Fading moves after extreme order flow spikes signal climactic exhaustion reversals.
How to Trade:
- Identify extreme volume spike with Order Flow indicator
- Note price stalling and rejecting that volume level
- Enter reversal after spike rejection
- Target partial profits at origin of spike and final target beyond
These dramatic volume spikes are unsustainable. Reversals off extreme spikes offer low risk entries with defined exit targets.
4. Order Block Fades
Look to enter mean-reversion trades as price returns to previous order block highs/lows.
How to Trade:
- Allow Order Block indicator to identify key zones
- Note Profit Level highlight on return to block
- Enter fade trade at or near order block
- Target partial profits at block halfway point
- Manage remainder to beyond block extreme
Order blocks demonstrate areas of substantial order flow. Revisits allow fading momentum in the direction of the block.
5. Delta Divergences
Watch for divergences between price action and Cumulative Delta to capture imminent reversals.
How to Trade:
- Add moving averages to Cumulative Delta indicator
- Identify divergence: price highs/lows making higher highs/lows vs. delta
- Enter reversal trade in direction of delta divergence
- Target partial profits at extreme delta point, final target beyond divergence point
Delta divergences confirm price action is losing conviction relative to order flow. These reversal signals have high accuracy.
6. Fingerprint Chart Patterns
Analyze fingerprint charts for specific high-probability chart patterns forming around order flow.
Patterns to Trade:
- Stop Runs – Spikes beyond order flow support/resistance
- Springs/Traps – Rejecting extremes of order flow levels
- Pinned Bars – Closing on order flow level after ranging at level
- Zone Fades – Bounces from order flow zones without close beyond level
Trading fingerprint chart patterns combines order flow and price action for precision entries.
7. Surplus/Deficit Imbalances
Trade the release of imbalance between buying and selling pressure.
How to Trade:
- Identify surge of buying or selling pressure
- Note substantial imbalance between buyers and sellers
- Watch for price reversing direction as imbalance releases
- Enter retrace/fades back to original order flow direction
Trade directionally as order flow imbalances unfold, then capture reversals as imbalance releases.
8. Order Flow Sequence Patterns
Analyze repeating order flow behavior patterns for clues on institutional activity.
Key Sequences:
- Stop Run – Push one direction through support/resistance to run stops, then flip direction
- Inventory Adjustment – Absorb orders in one direction, then reverse position
- Profit Take – Take partial profits at certain percentage from order entry zones
Identifying repeating order flow sequences provides insight on developing trades, providing advanced warning.
9. Order Flow Alignment
Enter momentum trades only after order flow aligns with breakouts on multiple timeframe analysis.
How to Trade:
- Identify potential breakout on short term chart
- Check higher timeframe order flow for confirmation
- Enter aligned breakout on lower timeframe
- Manage trade based on higher timeframe order flow zones
Ensuring alignment between short-term price action and longer-term order flow verifies high-probability moves with strength.
10. VWAP Crossovers
Enter breakouts as price crosses over key volume weighted average price levels.
How to Trade:
- Note price stalling and consolidating around VWAP
- Wait for confirmed close beyond VWAP
- Enter breakout on retest of VWAP as new support/resistance
- Set stop loss below previous swing point
VWAP crossovers demonstrate conviction. Enter these high probability moves early using order flow for additional confirmation.
11. Deviations from Value Area
Trade reversions to the mean as price moves outside value area defined by order flow.
How to Trade:
- Mark value area using Volume Profile or Point of Control
- Allow price to extend away from value area
- Enter reversion trade back towards value area
- Target partial profits near edges of value area, final target at Point of Control
Order flow value areas reveal ‘fair value’. Trade the reversion as price deviates too far from fairness.
Key Tips for Trading Order Flow Strategies
Here are some additional tips to improve your order flow trading:
- Use multiple timeframe analysis to gauge institutional participation
- Combine order flow with price action context for higher probability setups
- Focus on quality over quantity – avoid over-trading
- Be flexible across strategies – don’t force trades when conditions don’t align
- Manage risk meticulously – size positions based on chart reading ability
- Remain patient and objective – don’t let emotions influence decisions
- Review trading journal to identify strengths and areas for improvement
With the right trading mindset and indicators, order flow strategies can provide a valuable edge. But proper execution and risk management are still crucial.
Common Questions About Order Flow Trading
Here are some answers to common questions about trading order flow:
What timeframe is best for order flow trading?
Order flow strategies can be applied on any timeframe. Look for confluence between higher timeframes for institutional order flow and lower timeframes to execute. The 1 minute, 5 minute and 15 minute charts are popular trading timeframes.
Where can you get order flow data for MT4?
Many third party vendors offer custom MT4 order flow indicators for purchase or subscription, like TradeFlow and OrderFlowAnalytics. Brokers sometimes include proprietary order flow tools as well. Data quality varies.
Is volume the same as order flow?
Volume refers to the quantity of shares or contracts traded. Order flow looks at the buy/sell direction of volume to analyze market activity, revealing more information. Volume is one component of order flow data.
Is order flow trading profitable?
When incorporated with robust risk and money management, order flow trading can be highly profitable due to the predictive edge gained. But like any trading approach, profits are dependent on the trader’s skill in executing strategies.
Can order flow trading be automated or algorithmic?
Yes, order flow data can be incorporated into automated trading algorithms and expert advisors for MT4. But human discretion is still required in strategy building, optimization and risk management when automating trades.
Conclusion
Learning to trade order flow provides a valuable window into the developing battle between buyers and sellers across intraday timeframes. Order flow indicators and strategies for MT4 charts, when applied effectively, can yield a definitive edge not available through price action alone.
We encourage you to experiment with the order flow indicators and strategies covered to determine which resonate best with your trading plan and style. View the additional resources below to continue expanding your education on order flow trading.
Additional Resources:
- Order Flow Trading Course by TradePro Academy
- The Mind of a Trader book by Alpesh Patel
- Trading Order Flow website by Laurent Bernut
- Order Flow Trading for Fun and Profit ebook by Linh Mau
Key Setup Conditions for Order Flow Strategies
While the strategies covered provide a framework for trading order flow, ideal setup conditions also need to be defined for each strategy to maximize accuracy. Here are some examples:
Order Block Fades:
- Order block formed within last 1-3 sessions
- Miniumum 500k contracts order block volume
- Price return to block after rally of +20-50 pips (est. stop distance)
Delta Divergences:
- Mininum delta reading of +15k or -15k
- Price move extends 25-50 pips from delta extreme
Fingerprint Break/Fail Patterns:
- Failure occurs right at key order flow level, not beyond
- Minimum 2-3 touches at order flow level during formation
- Above average spread/range contractions on entry bar
Clearly identifying precise setup specifications creates a rules-based system for trading high-probability conditions with order flow.
Optimizing Order Flow Strategies
Optimization is key to maximizing the profitability of trading strategies. Some areas traders can focus on include:
- Quantifying ideal setup conditions
- Determining optimal entry and exit points
- Identifying ideal trade directionality and timeframes
- Evaluating performance across market sessions and pairs
- Assessing ideal chart intervals for trading vehicle
- Profiling winning vs. losing trades
Robust optimization requires in-depth backtesting, analytics, and refinements. But the results can significantly boost strategy performance.
Managing Risk with Order Flow Setups
While order flow offers predictive power, risk management remains vital to trading success. Some guidelines for managing risk include:
- Determine maximum acceptable risk percentage per trade
- Scale trade size based on stop distance and risk tolerance
- Limit total trades based on account size and diversity goals
- Trail stops to lock in profits as trade progresses
- Move stops to breakeven at earliest opportunity
- Avoid excessive position size even on strongest signals
Effectively incorporating risk rules allows traders to avoid account blow ups if a high probability trade still fails. This ensures longevity in trading order flow strategies.
Let me know if you would like me to expand on any part of the article further. There is definitely more that could be covered on optimizing and implementing order flow trading strategies successfully. The goal was to provide an informative overview, but I’m happy to provide more details if helpful. Just let me know!
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