Order Flow Trading In Action

Let’s take a look at a trade we took recently, which demonstrates just how powerful our Order Flow methods are, not only in terms of generating trade ideas but also in timing entries to the market.

We noted that the USDJPY was approaching 110, a key psychological for the pair and also facing some strong technical resistance just above this level, with the 2008 double top level at 110.70 and long term fib retracements emerging just above there. As we approached 100, we began to look for signs that the pair was likely to reverse.

Having traded in a sustained bull move up from August, in late September we finally saw price begin to form some sideways action, forming a number of small bars as it drew closer to 110. At the same time this was happening, the USD was approaching a long term descending trendline and with long positioning notably stretched.

With the USDJPY finally pausing and consolidating as it touched 110, and the USD bull run running out of steam, we starting looking for short entries.

Cue Order Flow Indicators.

With the consolidation at highs in place we looked to enter on a breakdown through the consolidation lows in conjunction with the Order Flow Indicators, using the Daily timeframe to initiate the signal and the H1 timeframe to establish an entry.

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On Balance Volume began to move off highs as the consolidation persisted, while further to this the Order Book Regression Indicator crossed down through its midline, giving a short signal which was then confirmed by the downward cross of the Psychology Indicator as we broke through the base of the consolidation.

With our Daily signal in place we dropped down to the H1 timeframe to find an entry point.

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We noted price breaking through the consolidation support line but didn’t get any candle closes for entry. As price continued to pierce the support line with On Balance Volume moving down nicely we knew that an entry was imminent.

H1 Order Book Regression crossed to the downside as we moved along the support line lows and as we crossed through the support line once again, H1 Psychology Indicator crossed down through its midline confirming the short entry. However, as we had pierced the support line lows several time without closing through them, I wanted to see a candle close below the lows those candles made, to confirm entry.

Shortly after Psychology crossed down we saw a bearish candle close through the recent lows and entered short at 107.70. Our initial stop was placed above the Daily 110 level highs (as this was a Daily signal we wanted to give it a little room, incase we saw some chop back into the range) however, we could just as easily have placed a more aggressive stop above recent highs, marked on the H1 chart.

The target for this trade was a retest of the 105.40s breakout level. This was the first logical structural area to target with this trade and the reason we exited at the level instead of continuing to hold the position, is that with such uncertainty currently in terms of fundamentals and markets so sensitive to data releases, we felt it more prudent to bank at this level instead of sitting through any retracements or possible reversals.

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The Daily Order Flow Indicators are still firmly to the downside in line On Balance Volume and so it is likely we see more downside with this trade, with trailing stops above recent lower timeframe highs potentially keeping you in this trade on a continuation lower.

As you can see, the Order Flow Indicators are a fantastic tool for generating trading signals, and when you begin to combine multi-timeframe signals you can really get a great entry to the market.

To begin learning exactly how we use the Order Flow Indicators in our trading, check out Chapter 17 of our Forex Trading Course for full instructions, including trading videos and detailed trading plans.

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