The Skinny on Conclusionary Order Flow


Key Concept - What is important to bring into our analysis is the concept that order flow provides evidence of a potential turn prior to the actual turn in Price.

Much of Sceeto, and our bot deployment methodologies are based on our research findings in this area of Conclusionary Order Flow.

In the example of a market that rotates from a downtrend to an uptrend, before price can begin moving upward propelled by buying demand, the selling pressure that moved the market down has to conclude.

The conclusion of this selling can be a gargantuan pyrotechnic display of blood on the tracks, commonly referred to as 'Climax', or the end of selling can be wimpy, where a the more sated term of 'Exhaustion’ can be used.

Either way, there is a ‘tell’ on the tape.

This ‘tell’ is a key component of our alerting system, and ability to have a 'head's up' that an Supply/Demand imbalance based opportunity, or an opportunity where Bull/Bears may be trapped is on the near-term event.

We call this ending behavior, ‘Conclusionary’ not only encompasses both 'Climax' and ‘Exhaustion’, but also because the conclusion of either supply or demand, is a process, not just a singular event.

When any of the following order flow events occur after a trend has matured, and is reaching a known level, they are considered potential conclusionary events.

Our software will plot these events on your charts and will also provide audio alerts so that you can be apprised of potential opportunities without staring at your monitors.

Furthermore, I have found that having the audio alerts set for multiple instruments provides me a wider array of opportunities.

For instance, if I am hypnotized by the tick action in ES (which occurs more frequently than I like), I can be apprised of an opportunity in CL, of GC, or YM by an audio alert.

Hence, these audio alerts minimize some of the opportunity cost of staring at just one market, while another market rips.

Conclusionary Order Flow Has 3 States:

State 01 - Potential Conclusionary Order Flow - This occurs when any of the following order flow events in a mature trend, at or near, support or resistance:

  • Engulfing Sweep on Hammer Bar
  • 2 SD Tick Ratio
  • Book Pressure Spike
  • Zero Book Pressure aka Splatter
  • Sweep Spike

For instance, if Support is at 100 and Conclusionary Order Flow presents itself on the way down from 101 to 100, the order flow events are considered Potential Conclusionary Order Flow.

These events stay potential, until price action confirms the 'trap' component of Conclusionary Order Flow. 
 
State 02 - Confirmed Conclusionary Order Flow - This occurs after price moves to a certain point that traps those caught in the Conclusionary Order Flow.

To continue with the example above, if price now moves above 101, the trap will have been sprung and the order flow is now considered Confirmed Conclusionary Order Flow.
 

State 03 - Failed Conclusionary Order Flow - This occurs to Confirmed Conclusionary Order Flow when price reverts and releases the trapped traders.


To continue with the example above, if price now moves below 100, the trap will released and the order flow is now considered Confirmed Failed Order Flow.   

Failed Order Flow situations are to be embraced as they create their own traps which your Sceetos can take advantage of.


When analysis of these 'Conclusionary' order flow patterns is integrated with classic technical analysis the results are astounding.  

For instance, when a market is oversold, would it be interesting for you to know, in real-time, that when a market is deemed oversold, whether information can be gleaned from the markets concomitant order flow that 1 or more of the Conclusionary Selling's subcategories (Decrementing rate of change of order flow, surges in HFT selling, or 'Late' supply) has entered the market?

Over the years, we have observed some neat patterns in order flow.

Some of these patterns have enough staying power that they have been incorporated into some of the basic workhorses that we regularly use in our own prop trading.

Conclusionary Buying or Selling - Order Flow Behavioral Traits That Arise at the End of Price Move

Conclusionary (Subcategories)

  • Decrementing Rate of Change of Order Flow

  • Discrete Surges in Either Buying or Selling

  • Late Demand or Supply

  • Panicked Trading

 

As a review, classic technical analysis uses volume spikes to indicate end-of-trend behavior.

This behavior is frequently referred to as using the word ‘Climax,’ as in ‘Climax Buying’ or ‘Exhaustion’ as in ‘Exhaustion Selling’.

Pondering this, I am left to wonder - Where is the Climax Exhaustion?

As you may have read in the introduction to this book, my introduction into order flow analysis began by studying volume spikes and their effectiveness for identifying ends of trends.

It is has been my experience, and likely yours too, that trends do not simply stop and reverse in a nice, clean V-shaped pattern on a given price bar that is accompanied by a spike in volume.

Rather, if you look under the hood of price and peer into order flow, you will see that the end of trends entail a series of events, which are essentially battles between Supply & Demand - not just one cataclysmic bonfire.

Hence, a trend end….process laid out in order flow, which documents how trends to ‘conclude’.

Hence, we have shifted from using terms such as ‘Climax’ and ‘Exhaustion’ as they infer a state of being, to Conclusionary, which indicates a process.

Q: Can we use order flow to visualize the conclusion of selling (supply) and the new dominance of buying (demand)?

A: Yes, this is a critical component of incorporating order flow into one's trading. We do this by identifying the conclusion of selling in a downtrend and the conclusion of buying in an uptrend.



Different Bar Sizes Provide Different Insights Into Trade Sizing:

The smaller the bar size, the smaller the trade opportunity.

The larger the bar size, the larger the trade opportunity.

1. Use the audio alerts

2. Once you are comfortable with this approach expand to additional markets