Tuesday, June 2, 2015

Trading Order Flow in a Market Profile Context

Technology has changed the way to get information about market direction and the way to execute trades more efficiently and quickly.

This ebook is an overview of my trading methodology. An experienced trader can use my framework as a template and add their own experience and knowledge to create trading pictures and a trading plan. The whole framework and methodology is here and in my blog.

This book has been a long time in the writing. Not because it is long and detailed but because of the time and effort I needed to create the methodology and material so that I can teach it to non expert traders. The original EL methodology worked well enough. However, as the technology improved, detailed raw data about order flow became available and the software that could organize that data into trader usable information evolved. The basis of my trades are the same as they have been for years. What has changed is that indicators are no longer triggers but become part of the context. It is the order flow which I can read tick by tick, contract by contract, that triggers my trades. The result of this evolution provides a clearer view of what "they" are doing.

Discretionary trading is part science and part art. Using order flow in context provides me with the feel of being part of the market just as I was when I was a Local on the floor. This feeling comes when you are in tune with what is happening by understanding what the order flow means in the context.

Trading is about support and resistance and what happens at that support or resistance. The what happens is order flow. Each support and resistance is a decision point. A support or resistance area can be hidden or it can be visible. I find these support and resistance areas using both Market Profile and indicators. The indicators show where the mean is, so I can trade towards it. Indicators show where over bought and over sold is located. But everything is just a place to make a decision based on order flow.

There are really only two types of trades: trading in the direction of the trend or fading the direction of the trend: inside out and outside in. We can see the "where" to trade from the context and the "when" to trade from the order flow.

Pete Steidlmayer told me that as traders, we are primarily information processors. Now we have better information to process and that allows us to read the order flow in context, so we can see what "they" - the market - are doing.

My chart configuration is:
  1. MP Chart with MPs split into its distributions, and,
  2. Bar chart with order flow bars - volume imbalance with indicators that add to the context.
The chart below is an example. The MP chart is the RTH of the NQ using 30 minute TPOs. I have split out the distributions. The bar chart is a 4 tick range bar chart with the volume imbalance showing the inside the bar volumes. I have chosen the percentage difference I want for the volume imbalance. Green is buying and red is selling imbalances. Below that is the Cumulative Volume Delta for the day plus a moving average of the CVD. The moving average helps me see whether there is accumulation or distribution. I have additional volume tools I use that are outside the scope of this book but that I teach in my training and mentoring. Slicing and dicing volume and volume delta is the key to see what "they" are doing so that I can have a free ride in their direction. Top left are my algo buttons that have been programmed with the conditions I want to trigger a trade. These buttons are once only: I arm them when the context is right and they only trigger themselves when the order flow conditions that are programmed into them, are met. After being triggered, the buttons are no longer armed or active until I click on them again after seeing that the context is right. The conditions in the algo behind these buttons can be anything I want. This is NOT automated trading. The algo is just to make it faster for a trade to be executed when my trading plan requirements are met and to make sure I don't miss a good trade by being slow or inattentive.

 My modus operandi is to look at context and when the context is correct, arm the buttons.  Then when the order flow conditions are right, the order is instantly triggered by the algo. No latency. I can start looking at the trade from the MP chart and wait for the bar chart context to complete, or I can find a context on the bar chart that is good and then check the MP chart. Then I arm the button and the algo takes care of the entry.

After entry, I use both context and order flow to manage the trade. I have additional money management rules such as doubling down and drop dead stops that is wrapped around this.

As you can see from the tabs above, the book is divided into three sections:
  • Market Profile
  • Order Flow and Context
  • Making the Trade
Trading Order Flow requires a different focus. I am looking at what "they" are doing. I am also looking at what "they" are likely to do next on the basis of where "they" are in the context. Markets do not move in straight lines. There is continual profit taking and loss taking. It is the analysis of the visible order flow that makes a trade profitable.This book is best understood if you read it in the order of the tabs.

I am reawakening my ElectronicLocal YouTube channel soon and will be posting some live real money trades so you can see the methodology in action. I'm sorting out some technical issues with the recording software. I'll post and tweet when something gets uploaded.

Any comments and questions should be posted here on this page. 

Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.


  1. jenrique42

    entiendo q publicara por aqui su libro por partes

  2. Hello Boss,

    Learned from the past.
    Appreciative of the present givings.
    Look forward to future post.



  3. congratulations on completing your excellent book. Would you share the settings you're now using for the CCI.


  4. Hi Tom. Thanks for posting this e-book. Any plans to release some live trades on your youtube channel? I know I and many others would be extremely interested. rgds, Joe

  5. Hi Tom, This is mehnaz jaggi. I am relatively new to you site. I have been trading /ES for few years now and havent found much success. I have a strategy but looks like its more of a psychology side. I also wanted to add Order Flow to my trading. Would you mind helping me. Thanks.

    1. Hi mehnaz, in 2021 there is no adding "Order Flow to my trading". To be successful consistently it is all order flow. I don't know exactly what you are asking so email me with the details of what you are looking for and tell me something about yourself. electroniclocal@gmail.com