Picture the price of crude oil as it rockets from $46 to $50.50.
You trade crude every day, but you spotted the move too late. You go back to the charts to see if there was a signal you missed.
Could you have done something different?
To fully grasp the power of OFA charts, let’s dive deeper, and define order flow. Imagine its 2003, and the floor of the NYSE is electric with the energy of 5,000 people.
The specialist knows she is a player and asks “What’s behind it?” She smiles and the specialist knows she has size.
If they work hard to fill the order flow, they both make a nice commission and expect future business.
Order flow represents the collective buy and sell orders from institutional players and provides the power that moves stocks, futures, commodities and options.
Video One Notes:
00:56 The core differences between OFA charts and classic charts
3:01 Interpreting the OFA Candles
5:07 Giving Order Flow Structure. Identifying Important Volume
6:12 Isolating an area where the majority of volume traded, defining “volume clusters.”
6:30 The Point of Control. A single price identified with the highest concentration of volume traded.
7:17 How the OFA algorithms identify volume clusters and points of control in any given period. Finding and trading the heaviest chunk of volume
8:00 How we add depth to candlestick charts beyond the traditional open, high and low. Identifying where the greatest number of money changed hands, and how to spot who “won.”
8:38 Why volume indicators on traditional charts are misleading. Why a “big green candlestick plus big volume” may not give you the correct information for a trade.
9:29 Why isolating the highest concentration of volume inside of each candlestick makes the candlestick come to life and actually– make more sense.
9:40 Analyzing a trend breakout scenario and volume clusters. DB provides an in-depth review of how to interpret clusters through the eyes of an OFA chart.
OFA algorithms search, classify and define these transactions and produce the weapons-grade analytics you see on the screen. So far in video #1, we called these “volume clusters,” and “points of control.”
When the OFA algorithms identify these significant reference points, you possess the most complete picture of institutional commitments available. If you decide to exit a trade, it’s because institutions committed real money and a significant change occurred.
Tracking volume in a concentrated area, eliminates decisions based on “It traded just above the high…”
Because most of today’s order flow trades electronically, now, more than ever, you need an edge beyond open, high low and close.
Traditional candlestick charts only give you four points of data and one singular view of the total volume. This is like owning a shoe store and saying “We were open between 9-5 and today we earned $1,000.”
What if 75% of our sales came from one type of shoe, at a particular price? This is critical information to grow our business.
OFA algorithms show you the price and volume at each price level within each candlestick. This produces a deeper insight that gives you the true interpretation of the order flow.
This is profound because it means the high or low of a candlestick, may not be the important reference points for that candle!
Picture the last trade you were “stopped-out” when price traded through the low of the previous candlestick.
Thirty minutes later you watch the trade rebound and advance to new levels without you. This is the bedrock of why most traders struggle.
If this sounds familiar, you are trading on price and not order flow.
Video Two Notes:
00:00 Interpreting the Point of Control and volume, PRIOR to a Breakout
2:33 Using OFA Charts to dissect and interpret the activity within a single candlestick. (Moving beyond OHLC)
3:05 How to identify when buyers increase demand but fail to create a new price level. This segment shows you why traditional candles with a volume indicator, provide misleading charts.
Seeing where the volume traded within a candle, specifically on this example of a breakout—shows you the price sellers made a stand with volume. With large commitments. That price, is the area that matters when anticipating a breakout.
4:07 Everything changes. How OFA charts identify the first time buyers accelerate through the range.
4:31 How to identify where selling pressure finally loses the battle. The breakout discussion centers around the levels of volume clusters, not simply the high of the breakout level, and this critical distinction must be noted.
5:20 Tracking the launch of a new bullish trend. How OFA charts identify the new “base” supported by buyers. It’s NOT the level used by classic chart reading using open, high, low and close. Continued clarity on the power of volume clusters.
The breakout is important, but understand why we can expect follow through is the key take-away.
6:03 How to locate the areas of volume where buyers and sellers traded to a stand-still. This “gray” candle helps you measure the “reaction” from the volume.
This segment discusses the importance of price and volume “moving away from” gray candles and how it translates into subsequent new trends in order flow. DB shows on the charts how the supply/demand battle can’t trade away from the area and explains again why he calls this a neutral auction.
The key trading point here is these neutral auction areas, as determined by the OFA algorithm, quite often lead into a major transition in the market.
The illustration displayed in the video perfectly transitions from range to new trend in order flow.
Video Three Notes:
00:13 Opening up the candle to see what traded. Within each period, we can now see the volume that traded at any given price.
We can see this broken down by what we call a “selling effort and a buying effort.” Our goal is to classify the volume based on how it came into the market.
2:57 A method to the madness… How we classify the volume. Blue equals “normal” volume traded. Red or green indicates volume of significance.
Understanding a “toxic event” in the market and how to spot it on the OFA charts.
Spotting a moment in the auction when the buyers were willing to cross the spread, and pay higher prices, there weren’t any sellers willing to step into the action.
** Identifying the area where a decline in prices stops perfectly, at a previous price where the buyers basically eliminated the seller. The interesting thing about this price action, is that it happened MID-CANDLE!! You would never see this in a traditional candle chart.
4:00 Identifying these patterns in order flow are next to impossible with traditional charts. Those traders are flying blind.
The significance of “seeing” the data beyond open. High, low and close and how that transforms into trading with conviction. Obviously the divide between conviction and profitable remains, but the discussion makes clear that building a better, logical, order flow argument for or against a trade leads to conviction.
Overcoming analysis by paralysis with the updated version of the OFA platform. Getting the smartest programmers to extract the right information from the market but putting it into terms that are easy to adopt and make confident trading decisions.
5:20 An example of how a market retraces back to the level of where significant volume traded. This represents a profound discussion because this location is NOT a traditional reference point of classical charts. It is a price where massive order flow traded.
Visually seeing the reason on the OFA charts where the selling effort transitions into a buying effort. Unlike traditional technical analysis that focuses on the four core reference points within a time frame, the OFA charts in this discussion clearly show the market finding buyers again at the previous area where the most buyers made a commitment.
The significance of this point cannot be overstated. Price found support at the level where the most bullish transaction occurred. This is NOT the same as the previous high as a reference point because this level could be inside the candle!
The boundaries are limitless when you begin associating “volume levels” instead of chart points. Loosely translated: trading at a price without knowledge of how much actually traded at that price is trading on incomplete information.
7:07 The Million Jackets Sold Metaphor. The reason why we have no idea if a price “matters” when we place our stop loss. “Starting to feel like I don’t have the correct information to make smart decisions without these OFA charts.”
8:30 Correctly identifying the point where the trade no longer makes sense. The folly of placing stops below the low of the previous candle. When you start to see the real volume that mattered, (the volume clusters) you see there is no reason to hold a trade to the lows when your security has already trade through the volume clusters?! The battle was already lost but you’re holding longer because of outdated trading information.
Visualize the significance of that number over hundreds, if not thousands of trade per year. It can make the difference between struggling and profitable. It can make the difference between six or seven figures.
The same holds true for winning trades. How much additional income is possible with profit targets based on order flow instead of a subjective “Fibonacci” number, pivot points or moving average violation?
The OFA algorithms allow you to focus on realistic multiple of what you are putting at risk because you are basing the decisions on real dollars committed at actual price levels, instead of what could be an insignificant high or low of a previous candle.
Video Four Notes:
00:20 Significant reference points: Where was the biggest commitment made versus what was the high and low? Answering the new question: What price within that candle matters?!”
1:01 The major awakening to why the previous high or low is most likely not a price level that matters. The impact of this concept is earth shattering to a trade using traditional charts. The concept of placing a buy-stop or sell-stop at a high or low that barely traded any shares is ludicrous and this segment shows you why.
Why 99% of the indicators included in standard charting platforms are inadequate. These off-the-shelf indicators are based off the close price…without regard to the institutional commitments in real money made a various price levels within that time frame.
2:39 The biggest learning moment to a new OFA trader. Why a singular moment in time (such as a closing price) doesn’t matter. Which is why we classify “events” not moments.
DB outlines three independent events to identify and interpret. In this segment we demonstrate a deeper analysis of events by determining the importance of levels by volume, versus a high or a close. The discussion centers on a volume area breakout, versus a standard breakout of a previous high.
3:20 The importance of this concept needs to be drilled home. The OFA charts display the area which the most volume traded as the important breakout level. Imagine the difference breaking through a 10 foot wall versus a one foot wall.
If and when you eventually get through the thicker wall, you have a significant event. If you break through a “wall,” a price area, where sellers made a significant commitment, traditionally known as resistance, you have a shift in short-term order flow.
The OFA charts answers the question: “Which breakouts have the best chance of follow through?” Now you know. And now you know how to use the OFA charts to spot it.
DB shows you how to identify the transition into something different; from a range to a swing.
6:01 Bar-by-bar analysis of the market auction using OFA charts. Using an OFA histogram showing WHERE the volume traded and which levels are significant. This segment explains the “point of control,” and how to interpret the volume using your OFA charts.
DB explains how to choose a small window of price action, and volume so you can determine where the order flow traded. The discussion offers a clear illustration of how the buyers “drive through” the previous selling order flow.
OFA software tutorial– DB drills down from the long-term view, to a narrower multi candle period, and finally a tick-by-tick view. A complete recap of order flow, and the transformational difference, viewed through the OFA platform.