Today’s Trading Lesson…
The most common question I receive is about order flow versus momentum…
“How do you know when one starts and one ends?”
The chart of CMA below offers a great lesson by showing the stock alternating between momentum and order flow. The simplest explanation I can provide is that order flow happens over time, momentum is recent price action.
So what does this mean for your next trade. Well first spotting order flow versus momentum influences your trade expectation. The more obvious the order flow, the more real money committed by the institutions. This means they are in for the long trade. They are “keeping a bid” under the stock.
This means you can expect pull-backs and breakout to hold. And you can expect follow through. You can hold the trades longer, or even add to them.
Momentum is different. Institutions have not yet made the bigger commitment. == .. And neither should you. Less time means less money in the stock. As your stock moves between momentum and order flow, you adjust your trades, based on that stage.
When Does Momentum Become Order Flow?
Great question. Typically the transformation occurs after the first momentum pause. If your stock makes another move in the direction of the initial momentum. Institutions are making new commitments.
The chart below shows a great example of a stock that is clearly in a long-term uptrend, clearly recent momentum, but not order flow. The extended trading range negated the order flow. So this is a momentum trade looking for a Saturation Point.
If you want to learn more about Order Flow, Momentum, Saturation Points and combining them into a plan to make the Perfect Trade, watch this new training video == >>
A Lesson in Order Flow
In 16 years of trading, I’ve never seen anything more powerful, or simple, than order flow. Spotting and trading with the big money-the institutions, makes trading easier.
The more distinctions you make, the more trading opportunities you will see. The biggest trading challenge I see in our coaching calls center around one topic.
Most stock traders understand entries, profit targets and the stop-loss. But the problem stumping these smart traders, always come back to probability.
Answering the question “What are the odds of this trade making money?”
Better ideas make better traders. When you understand order flow, you see better ideas. These examples illustrate my point:
$NFLX traded in a box for months, then exploded on earnings. This trade show us momentum. Two days of momentum. That’s it, only two days. Prior to the news the stock was stuck.
$KORS offered a similar situation. Looks exciting, but again, short-term momentum. Scant evidence buyers are building a position. Very little commitment.
Yes, it’s a trade idea, but would you accept risk with confidence?
$MA a different story here.Buyers hold a grip since July. No doubt in your mind who controls this stock.Sure some weeks paused, but you can visualize money committed to this stock.
This $MA chart shows you clarity. Seek to trade this clarity. The $KORS chart only showed a couple of day’s worth of momentum. A couple of days gives you a reasonable idea.
You want to trade incredible ideas. Not reasonable ideas.
Order flow gives you great ideas. Order flow shows you what the institutions are doing, and the profit potential for the trading idea.
Order Flow Shows You How to Follow the Institutions.
Tape Reading shows you how to track order flow. Join me for 4 weeks and discover this 93 year old secret called order flow.