- LKS Orderflow –

Terminology/Acronyms Commonly Used in Orderflow

BA Balance area
VAL / H Value area low / high
ONL / H Overnight low / high
POC Point of control
VPOC Volume point of control
T+1 Previous day
T+2 The day before previous day.
TPO Time Price Opportunity
DOM Depth of Market
NA New auction

10 Laws of Market Dynamics

1) If price accepts into a balance area, likely to revert to other side of balance.
2) Price inside of a balance area is expected to reject edges of balance until proven
otherwise.
3) Price action is ‘choppier’ inside balance areas
4) If price accepts outside a balance, likely to become imbalanced.
5) What doesn’t happen can be the most important information.
6) Often times the ‘destination’ of an imbalance is a prior older balance area, and
often times its POC
7) If price reacts strongly from a POC, that can disrupt law #1
8) Price often ‘retests’ edges of balance areas to ‘firm up’ the area
9) Time limits the opportunities – often times after a destination is achieved in a
session, there’s less time (less opportunities).
10) If time/volume builds at the edge of balance or range, price is likely to push
through.

Focus on price action, tape, context, development of profile

Before taking any sort of trade, these are the questions you should ask yourself:
- what is my intent of the trade, scalp, long term, etc?
- what are conditions like?
- what is my reasoning and/or confirmation to enter?
- what size will I play with?
- what kind of setup is it?
- where is it in relation to value?
- where is it relative to ES in strength?
- what is my risk/reward?
- what is my exit plan?
- how will I get my size if I want size?
- what time of day is it?
- what day is it?

Simplicity of supply and demand

- why is something falling?
o because supply outweighs demand
- why is price going higher?
o because demand outweighs supply
▪ new buyers can turn into sellers too
▪ if price moves to mechanical references on TPO, it is short term money
because long term money doesn’t care about reference points
In orderflow, we trade value not price
- price is an advertising mechanism to get YOU to do something
o time regulates opportunities
o volume measures success or failure of opportunities

reference points
overnight high, overnight low
t+1 and t+2 value area bounds
point of control
halfback
overnight inventory short or long, calculated relative to where price has spent time relative to
yesterday's close

- where price is in relation to these areas as well as the context and development is the
answer to whether price is 'bullish' or 'bearish'
- when price moves to a specific reference point and trades balanced, that is important
information for these reasons
(1) reference point moves are indicative of short-term traders in the market
(2) if unable to bid over reference points, lack of confidence is in the market
(3) typically, when this happens, taking the lower end of value or high end of value is the trading
range for the session w/ stops above or below value references dependent on position

understand value, changes, etc

understand the game and why moves occur
this is an auction, don't over complicate it

it runs on supply and demand as well as psychology

Value Area & POC Formation
Value Area & Point of Control is one of the information a trader has to focus on while trying
to understand the underlying auction nature. In a strong up trending market, value area keeps
building higher and in a strong down trending market value area keeps building lower
indicating acceptance of the price level.
Whereas not every trend is strong. Some of the trends is slow by nature where price keeps
going up with value area overlapping to higher and price going down with grinding slow and
auctioning higher with value area overlapping to lower.
And some trends even go sideways where value area is mostly overlapping or bound to trade
in a band flip-flopping by forming mixed higher and lower value area zones.
Both value area & POC needs to measured relative to the ongoing trend but not to look into
isolation alone.
Monitoring Todays developing Value area & POC helps the traders to limit their trading
expectations and to attempt trading with reasonable & Meaningful targets.

Why is overnight inventory important?

- because those playing overnight look to cover or take profits into the open. This is the
reason why price typically moves upward at the open if it is red overnight and vice versa
- for example, today's overnight inventory was full of supply or short hence forced buying
at the open to cover their positions
- for rallies to exist, you must see new business and old business coincide i.e after the
forced buying is there new buying to continue the rally
- if there is NO new business after the forced covering, then there will be NO rally\

Balance and Imbalance

https://cdn.discordapp.com/attachments/798004425573531718/869789277536546827/unknown.
png
https://media.discordapp.net/attachments/798004425573531718/869789657129426954/unknown
.png?width=631&height=683
Tape reading
red doesn't necessarily mean buy nor does green mean buy in the system, it means red = ordered
filled at the bid, green = ordered filled at the ask
red on the tape = order filled at the bid and completed transaction which is then shown on the
tape, and you watch where price goes to confirm
if those red prints were coming through showing sellers trying to short sell price lower but price
were to remain stagnant, those sellers are being absorbed at that point in time by resting limit
orders on the depth of market (dom)
all those prints are telling you is where price got filled with respect to what is being offered on
the bid or ask in the market
the best way to see this for yourself is to go to a quiet stock w/ no volume that is cheap and slam
the ask and watch how your orders get filled
when tape reading, the focus is on reference points such as value high, poc, etc and look for what
transacts at those levels
the idea is to develop the context behind the entirety of the move
also, to look for changes in behavior of tape, but i digress.

SPY
- the idea is if price runs higher over previous value high and let’s say overnight inventory
is 99% net short, there’s a 65% chance of inventory correction
- market opens, price moves up at the open over yesterday VAH but fails to hold, and price
begins to slice back under yesterday VAH with no bids seen on tape and price action,
then we can assume in that situation price was indeed driven by forced buying from
shorts covering (taking profit paying themselves and that there was no real demand.)
price retraces to find a buyer.
Notes to self ---------------------------
Future additions:
Trapped longs/trapped shorts
Signs of accumulation

Vwaptrader1’s Sierra Chart Chartbook

https://cdn.discordapp.com/attachments/807741753976291348/869766633160319066/APRIL11
MAINESNQRTY_1.Cht
James Dalton Markets in Profile
http://www.r-5.org/files/books/trading/charts/market-profile/James_Dalton-Markets_in_Profile-
EN.pdf
Trading in the Zone
https://cdn.discordapp.com/attachments/807741753976291348/860182441498509332/Trading_i
n_the_zone.pdf
Reminiscences of a Stock Operator
https://cdn.discordapp.com/attachments/807741753976291348/869218305351745606/Edwin_Le
Fevre_Reminiscences_of_a_Stock_Operator.pdf
Trading the Value Area
https://towardsdatascience.com/trading-the-value-area-a2351e4ccc8b?gi=7324dba4f2fa

The Art of Profit Taking

https://www.brightdevelopers.com/the-art-of-profit-taking/

Chicago Board of Trading

Here are some recommended books to read!

Options Trading For Beginners

https://amzn.to/3zZslwp

Trading in the Zone

https://amzn.to/3tgnfZN

Trade the Trader

https://amzn.to/3zNxJCq

Day Trading for a Living

https://amzn.to/3n4rfMe

ORDER FLOW: Trading Setups

https://amzn.to/3yFeCcs

The Wyckoff Methodology in Depth

https://amzn.to/2WSwEdU

Positional Option Trading: An Advanced Guide

https://amzn.to/3kNNwek

Volatility Trading
https://amzn.to/3tdKcgp