Orderflow Dynamics

Part one - Reading the DOM

Greetings to all traders reading this. A first of many educational posts to come on this platform and today I will be diving into the basics of order flow dynamics. For me there are only two real components ; DOM and Volume profile. In this very short article I will be exploring the DOM, it’s basics and potentially some strategy into how to use it without excessive dilution . If you would like more articles like this make sure to share this on all social medias. 

What is the DOM

The DOM is one of the metrics used to measure the supply and demand of a certain instrument. You may also know this as the orderbook as it shows pending orders that certain institutions may have placed. Each DOM is not the same and the liquidity of each instrument varies greatly but this is not a concern for most index futures and commodities. Unlike stocks there is a centralised exchange which means that there is no off market orders and therefore what you see is what you get in terms of orders and positioning.

Settings

On a normal day my DOM will look like this -

DOM with built in profile and LTQ

Any other columns on the DOM are useless in my opinion unless you are looking for pulling/stacking in which case you would have the snapshot columns up. A common theme I would like to deal with before going into the meat of this discussion is ‘resting orders’ and ‘liquidity’ which can be seen in the above picture as the numbers in dark blue and dark red. I’ve seen numerous discussions on twitter in regards to this and have to say that these are almost meaningless to intraday traders like myself and it’s inherently beneficial to completely ignore the resting orders column when executing.

Useful Columns

LTQ - Last Traded Quantity, refers to the circled column in the following picture. It’s quite self explanatory and indicates the last traded quantity (lots) at that time

Current Trades - These are the two middle columns in the picture above and are arguably the most important columns when executing trades - essentially acting as a cumulative tape without the need for separate tapes providing the quantity of lots traded at each level and on which side they were traded

Volume Profile - This is also pretty self explanatory, the orange on the right of the picture is the standard volume profile which is the total volume traded at a specific level during a specified session

Key Point - There is also a ‘built in footprint’ as I like to call it, which is in a sense the historical tape . ‘Bid/Ask Footprint displays the number of contracts traded on the bid price and the number of contracts traded on the asking price’ . However I don’t tend to use this on most days but it’s a key feature that can be used for other traders.

Use

I will show you $GC at the top yesterday near my resistance level that I had given on twitter after which we dropped 40 points. After I show you the picture you should reconcile your thoughts and note down your initial thinking’s and compare with what I was thinking.

$GC on the 30th of November during Powell Remarks.

Assuming that most of you thought to short in hindsight - maybe because of the distribution being built? In reality the LTQ (18 in white) had been reloading at the level for a few seconds. What is reloading? This is when the bid/ask constantly refreshes with new orders around a certain price level, in this case the offer had fired a few lots but nothing too heavy. You can also see in the furthest right column that we had risen on a very thin profile and that a break below would lead to a sufficiently fast drop. Also note that the reasonably large buyside orders in the low 1810s , the aim of this trade would be to ‘fill out’ the profile and to get the relatively large orders offside. How I got the 1808 area for resistance will be expanded upon when I decide to do a volume profile version of this. In this sense there was not one single factor on it’s own that convinced me to take this trade , it was a large collection of many factors that I have highlighted above.

Reloading

As I highlighted above reloading on the bid/ask is one of the factors that I look for when taking trades. This is harder to trade in my opinion on Commodities and Equities but is significantly easier to trade on the bonds. You will often see UB trend in a particular direction and entering a trade with the trend is relatively simple when you see the bid/ask reloading on the way up or down. However, I don’t recommended just trading this naked, often it’s much better to have a variety of factors favouring you before entering a trade and reloading on it’s own will not solve your issues but it’s one easily identifiable factor that can help your trades. The only way to accurately implement this is by paper trading , identifying the reloading and noting the profit expectancy of your trades and keeping this information going forward.

Summary

Reloading is just one factor in a field where there are many. To learn more of these please check out the resources below and make sure to experiment with the market in your time and practice.

Resources

One of the best resources on this are the AXIA and FUTEX price ladder courses.

I cannot share them due to them being paid but someone in my comments section may have a link for them (Wink). Make sure to look out for that and watch the videos which will expand on reloading as well as some other patterns such as absorption which is quite simple but still useful for beginners to understand.

The best resource is your own time and following other successful Order flow traders, not for their trades but so that you can replay why they said certain things at the time they did, this will allow you improve your personal strategy by taking bits and pieces from them and understanding their thinking.

Platforms

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