Order flow transition is easily identifiable using the TradersHelpDesk Directional Volume indicator for TradeStation, NinjaTrader and Multicharts because it shows you the precise moment that the order flow transitions from sellers to buyers or buyers to sellers. While most volume indicators are non-directional or use moving averages, Gail developed the Directional Volume indicator after studying the Cumulative Delta volume patterns and market profit, which at the time, were the only way to recognize order flow transition. However, the issue was that Cumulative Delta and Market Profiling indicators were complex and not readily available in all the platforms. She wanted to capture the same pattern using a directional volume indicator.
Order Flow Transition on Dow at Open
The chart below shows the 45 minute Dow Jones for this morning. Notice the blue arrow on the volume indicator. This was the precise moment that the order flow transition occurred. As price made the low, you can visually see that as the low was made, sellers transitioned into buyers. In other words, buyers came in at the low and overtook the sellers. Now by itself, it doesn’t mean a lot. However, if this pattern occurs as price is making a new low or new high or at an area of support or resistance, then it is one of the most powerful volume patterns you can use. All you need to do is look up to price to ensure that the price bar confirms the transition. In this example, the price bar confirms the move. This indicated that at the open, the Dow Jones was going to go up. Because the ADX shows a magenta peak (pink dot on the chart), we know that price should at lease push up a minimum of 100 points to the ATR stop (plus sign on the chart).
With all the high frequency trading that we have in today’s markets, being able to identify these volume patterns on individual bars using raw volume data instead of fancy moving averages is critical to trading success.
Of course, the new ADX strategy also confirms the move as it triggered an entry two bars prior to the order flow transition on Dow prior to the market opening.
We have more training and courses at Fulcrum Trader website for those that want to learn the technique. Multicharts also now offers the cumulative delta chart on its platform.