Good understanding of order flow – ask and bid prices – is vital for market timing. It is found that many beginners although strong on technical analysis and trading strategies lose their money because of poor order entry timings. These tips below can help a novice trader to better read the order flow.
- Comparing the volume of best 5 bids against best 5 offers. Roughly add the numbers and compare, keep the ratio in mind.
- Do the same for next change. If the bids number increased against offers then market can be bullish; if opposite, market can be bearish.
- Examine the difference between offer volume for last trade (often top of the offer column) and you can estimate the number of orders executed last time.
- Examine whether the volume of last bid price is increasing or decreasing. If increasing, market can be bearish as more sellers are placing orders and if decreasing market can be bullish as more traders are willing to buy.
- Examine whether the volume of last offer price is increasing or decreasing. If increasing bullish, and if decreasing bearish.
- If you notice considerable budging of offer volume for a certain price level in a bullish market, the price level can be the resistance level, if you notice same with bid volume in a bearish market that can be support level.
Remember, in actual market there are many other factors which determines the direction of market and are very difficult to predict; like impact of news, institutional trading, day trading, scalping etc. And in actual trading, things can change very fast and traders may only have seconds to respond.
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