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Class 4 Notes

Order Flow analysis for the NIFTY and BankNIFTY

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VIJAY BHILWADE
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35 views

Class 4 Notes

Order Flow analysis for the NIFTY and BankNIFTY

Uploaded by

VIJAY BHILWADE
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Class 4 Notes

Order Flow

1. Order Flow: This refers to the movement of buy and sell orders in the market.
Imagine it as a visual representation of all the buying and selling activities happening.
2. Visualization: You can see the total number of buy and sell orders, which shows the
quantity of stocks or assets being traded.
3. Executed Orders: The focus is on orders that have been completed, meaning the
trades that have actually occurred, not just those that were requested.

In simple words, order flow analysis helps traders see the actual buying and selling
transactions in the market, allowing them to understand market activity better.
Bid: The price at which buyers are willing to buy a stock or asset. This is represented by the
green numbers.
Ask: The price at which sellers are willing to sell a stock or asset. This is shown by the red
numbers.
Bid X Ask: This term is used to describe the difference between the highest bid and the
lowest ask. It's the range within which buyers and sellers are negotiating.

Types of Orders in Market

1. Aggressive Orders:
○ These are orders that are executed immediately at the current market price.
○ An Aggressive Seller is someone who wants to sell quickly and is willing to
accept the highest bid price available. They sell to a Passive Buyer who has
placed a limit order to buy at that price.
○ An Aggressive Buyer is someone who wants to buy quickly and is willing to
pay the lowest ask price available. They buy from a Passive Seller who has
placed a limit order to sell at that price.
2. Passive Orders:
○ These are limit orders placed at specific prices, not executed immediately but
waiting for a counterparty.
○ A Passive Buyer is someone who places a bid and waits for someone to sell
to them at their preferred price.
○ A Passive Seller places an ask and waits for someone to buy from them at
their preferred price.
1. Order Flow Analysis: This involves looking at the volume and types of orders (buy
and sell) happening in the market. It helps traders see the immediate actions of
buyers and sellers.
2. Market Trend: The general direction in which the market or a particular asset is
moving over time (upwards, downwards, or sideways). It's important because the
trend reflects the overall sentiment and momentum in the market.
3. Reference Points: These could be key levels, such as support and resistance,
historical price levels, or significant chart patterns. They act as potential turning
points or areas of interest where traders expect a reaction in the market.

Why Not Read Order Flow Alone?


● Context Matters: Order flow shows only the current market actions without context.
For example, heavy buying activity (aggressive buying) could be interpreted as
bullish, but if the market is in a strong downtrend, this buying might just be a
temporary pullback rather than a trend reversal.
● Reference Points Help: Analyzing order flow at significant reference points helps
identify the importance of the current activity. For example, if large sell orders appear
at a major resistance level, it could indicate strong selling pressure and a potential
reversal.
● Avoiding Misinterpretation: Without considering the trend and reference points,
traders might misinterpret the order flow. For instance, a surge in buy orders might
seem bullish, but if it happens in a downtrend near a resistance level, it could be a
signal of an upcoming reversal.

How to Use Order flow

● Order flow alone can't be implemented: It suggests that order flow, which refers to
the actual buy and sell orders in the market, should not be used in isolation. It needs
to be used in conjunction with other tools or information to be effective.

● Used with context: This implies that understanding the market context (such as
current trends, news, or economic indicators) is crucial when analyzing order flow
data.

● Confirmation tool at S/R locations: Order flow is best used as a confirmation tool,
especially at Support and Resistance (S/R) locations. Support and Resistance are
key price levels on a chart where the price tends to reverse direction.
At Resistance (Price Ceiling)

● Exhaustion of Buyers: Look for signs that buyers are getting tired and can't push
the price higher. This might indicate that the price will stop rising and could start
falling.

● Fresh and Strong Buyers for Breakout: Look for new and powerful buying activity
that can break through the resistance level, pushing the price higher.

At Support (Price Floor)

● Exhaustion of Sellers: Look for signs that sellers are getting tired and can't push
the price lower. This might indicate that the price will stop falling and could start
rising.

● Fresh and Strong Sellers for Breakdown: Look for new and powerful selling
activity that can break through the support level, pushing the price lower.

In summary, at resistance, check if buyers are weakening (indicating a potential price drop)
or if new strong buyers are emerging (indicating a potential breakout). At support, check if
sellers are weakening (indicating a potential price rise) or if new strong sellers are emerging
(indicating a potential breakdown).

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