Order Flow Trading With Trendlines

One of the most rewarding trading methods a trader can apply, is to trade with the trend. The old market adage “the trend is your friend” isn’t an old market adage for no reason. ┬áSome of the most successful traders in market history have been trend followers.

The problem with trading counter trend is that your profit targets are very limited aside from the incredibly rare times you might catch a market turning point from trading a reversal, and get your self positioned at the start of a new trend.

Lets take a look at how you can combine the powerful Order Flow Indicators we use, with trend trading, in order to establish a winning system.

To begin with, we must establish our trend. We do simply by taking a recent significant high or low and look for price to sustain a directional move, at which point we join the pullbacks counter to this direction to identify our trendlines.

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So we can see in the above image that price makes a low in line with OBV at lows and Order Flow Indicators both to the downside. Price consolidates briefly before a bullish candle breaks higher at which Psychology & Order Book Regression Indicators cross higher signalling a bullish market move, in line with OBV which begins to move higher.
Having established our low, price then moves higher before pulling back (giving us our second low) and then continuing higher. Voila! we now have a high likelihood of a trend forming.

So with a strong possible trend highlighted on the Daily timeframe we then drop down to the lower timeframe to look for entries.

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We can see highlighted in the red boxes, the points at which price tests the bullish trendline and then continues higher in line with bullish crossovers on the Psychology & Order Book Regression Indicators.

These confluent areas of trendline retests and Order Flow signals are where we can position ourselves in line with the trend. As you can see , where Order Flow indicators cross inline with the direction of the trend, as price has retested the trend line, these are very powerful signals indeed!

You will notice that there are some points at which price comes very close to retesting the trendline only to reverse and continue higher without actually touching the line.

This is where combining the order flow indicators becomes so powerful. In all trends there are many near touches which go on to be very profitable moves and so, as is required by traditional trendline trading, waiting for an absolute touch of the trendline can be very frustrating in these instances.

However, using the Order Flow Indicators allows to capture these near misses and benefit from the subsequent profit.

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In the first red box in the above image we can see price comes very close to retesting the trendline but then reverses higher without actualy touching it. There are two possible entry points here:

  • The pink box highlights an aggressive trade where a bullish bar forms as Psychology crosses upward. This trade is aggressive as only Psychology crosses at this point, not Order Book Regression.
  • The yellow box highlights a bullish bar which forms as both Psychology & Order Book Regression Indicators have crossed to the upside, giving full confirmation of the continued bullish trend.
  • Finally, the second yellow box highlighted further on in the trend demonstrates a classic Order Flow & trend entry whereby the price retests the trendline in line with both Order Book Regression & Psychology having crossed to the upside, giving a clear, powerful buy signal.

In this article we have explored just how effective the Order Flow Indicators are when combined with classical trendline trading, but also how Order Flow Indicators can help you to capture extra trades within the trend. For a more detailed Trading Plan based on this, read all about our brand new Forex Trading Course below…

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Get your hands on all the trading plans, indicators and strategies required to gain a comprehensive understanding of the Order Flow trading techniques successfully used by the traders here at Littlefish FX. Find out more here.