Adding to Your Winners using Order Flow Analysis

Screen Shot 2014-06-17 at 11.12.19

Video Transcription:

Hello traders! Welcome to the Price Action Course and the fifth module, ‘Order Flow.’ On this lesson we’re going to teach you how to add to your winning trades using order flow analysis. Now, we are going to go through everything that we have learned so far but we are going to focus on the depthness of the corrective moves and the momentum, meaning that we are also going to be measuring the slope of the projected swings. Order flow analysis will not only be useful when looking at take-profit on a trade. It’ll be extremely useful for when you’re looking to build a position or add to your winners. There are many ways that you can add to a winning trade and using order flow analysis is one of them. It is not used by many traders, but it is one of the most effective. It’s not used by many traders because many traders are just very short-term traders and when you trade on the short-term, even on the medium-term, it’s very hard to add because your take-profit levels for your targets are very close to your entries and there’s not deep enough correction for you to be able to add to it or add to that weakness. Of course, we are going to go through that on the light charts.

Closing your trades

The difficult part of adding to a winner is knowing when and how. Not knowing when to add to a winner can turn a winning trade into a loser very fast. Let’s take an example. Let’s say that we are long on the GBP/USD and we are on a 100 pip winner right now and we decide to add to the precision without even analyzing the market structure or just a flow of the orders and we decide to blindly add at plus 100 pips. What can happen is that at 100 pips, we can start to feel a little bit of weakness in the market and a corrective move can start to happen, meaning that we just added on top of the corrective move and that the second position at plus 100 pips is going to be a losing one and it’s going to be erasing completely the gains that we just made. Remember that making money in the financial markets is hard enough that you don’t need to burden yourself with bad addings.

So here we are going to focus on the depthness of the corrective strings and restraints of the overall structure, meaning that we are going to look at the momentum of the projective wave or the slope of them. We are also going to use this knowledge to know whether we are at the end of a structure or not because we are never going to add to a winning trade once we have a sense that the flow of the order on the opposite side is taking over, meaning that if the corrective moves are getting deeper and deeper and the momentum or the slope of the actual strings is decreasing, we are not going to add because it means that the market is experiencing a lot of pressure on the opposite side and it might roll over any time soon. So, we have to be careful with what we’re going to do and I’m also going to teach you the exact moment where we are going to add.

Screen Shot 2015-02-24 at 15.47.57

We’re going to be going to the same Euro-GBP four-hour chart, only this time we are going to point out where the adding could have started. All right, here we are, here is the same Euro-GBP four-hour chart and, as you can see, we have the entry point right here at the break out of the slope, which was the low of the previous range that we were at. Okay? You can see that we were at a very strong range and when we broke with it we went short and even though we corrected to the upside, we started to move to the downside. Now, what we are going to do is, we’re going to measure the slope of the actual swing. And here we have made a little bit of a mistake because the actual swing high is this one right here.

Now, from the swing high to the swing low of the projective wave, this is the slope. Meaning that we do have a very strong momentum to the downside. Even though we started on a very slow matter, when we broke with this previous low, bears took control of the market and we were straight down. Then we had a corrective move of about 116 pips and you can see that after that we had a very strong move to the downside. Now, this is what we know already. Okay? We also need the slope from this high to this low. Even though this high was inside the range, we still need to use it because it’s the start of the move to the downside and we didn’t take that trade. We could have taken that trade at the top of the range but we were looking just at the break of trade. Okay? And if you were a little more aggressive than us, you might have taken the trade at the top of the range right here. But just so you know, we have the slope of the first swing and the angle of this slope is increasing and increasing so the momentum is building to the downside. We have a corrective move of 129 pips after the first swing and then we have a corrective move of 116 pips, meaning that the corrective moves are shallower and that this is most likely just a continuation of the down move, meaning that this is a very good opportunity to add to a winning trade.

Now, there are two schools of thought on how to add to a winning trade and because we are only using order flow to add to a winner, we are going to use the most conservative way of adding. We are going to add once the slope breaks. And the reason is that, we and every trader out there will never know for sure when the is the top of this corrective move. Okay? Let’s imagine that you chose to add at the top of this little swing right here. You can’t know for sure that this is the top of the corrective swing and you cannot know for sure that this is the continuation of the move to the down side. When we are talking about price action trading, we are looking for confirmation. And if you did pick this as the top, you can see that you would have been taken out on a loss on a re-test of these highs right here. So what we need is just use a simple horizontal line, add the lows and once these lows are broken, you can see that we can add. And why are we using the lows to add? Because we are taking advantage of the projections. Okay? And this is what we want. We want to make 196 pips, we want to make 148 pips, we want to make 70 pips, et cetera. And these pips are secured because once we break with the lows and we can see that the angle of the move is going higher almost at a vertical position, you can know for sure that this is the continuation. Okay?

Once again, here is another example. Let’s say that you use these rejection candles as confirmation that this was the top of this corrective move and you took a shot here, you would have been taken out on a losing trade because price went higher and higher. Right here, we have lucked-in from the actual entry to the second at 400 pips plus the 196 pips from this low to this low which is the projection that we already used to assess that we are still in a very strong down market. This would mean that we are actually almost 600 pips in the money. Right now our stock should go above this low because if we go above this low, the market has rolled over and bulls have taken control of it. But if you see the slope also of the corrective move, this is a very slow move to the upside in which I think that you can know for sure that this is not only profit taken but there are also some buyers that are coming in the market. I’m pretty sure you can know for sure just by looking at the candles of traders who are adding to the short positions here or traders that were not in the short trade from this rate but were trying to get in but then bulls just came in and took them out and took their stocks. We are seeing a down structure and you can know that the flow of the market is still very bear-ish because of the momentum to the downside versus the momentum to the upside. This is a very slow grind to these levels that once the bulls give away, the power is going to go on another slope to the downside.

So, we can expect actually a move from these highs to these lows for another 300 pips or so. But if we’re talking about projections, we should expect 131 pips. You still have some opportunities to add to this trade, but I would be very careful of adding after this grind up because even though it looks like the bulls don’t have enough strength to roll over the market to the upside, this is still a very long corrective move to the upside. And if we fail to break with these lows, or if break with these lows on a very slow manner, meaning that we have a slope on the projective way that looks something like. This will mean that this might be the end of the bear-ish move and that we might want to close our trades. But, as you can see here, after the corrective move, we don’t know for sure where the high of the corrective move is going to be so we’re going to add once we break with the low and we’re going to ride the projection to the next low.

And this is another trick that you need to understand. Once we hit a low of around the same amount of pips as the previous corrective move, you should be taking half of your position out because you don’t know how much this is going to last. So if this projective wave was 148 pips, at 150 pips you should take half of your position out and wait for the corrective move and a breakout of this low to add again. And because this was a 196 pip projection, you should look for the same projection if everything points out that we are going to have a very strong breakout, meaning that if we have a very steep slope like this one and if we respect these levels right here.

So everything that we have learned so far is going to help you not only to get better understanding of what’s going on with the market where the big boys are, but is going to help you to understand why price is moving so slowly to the downside, what’s going on, where the strength is coming from and of course what to do when you grasp hold of this information.


More About

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

View Posts - Visit Website

Comments are closed.