[1/X] Attempt to explain Orderflow basics. It will be a long thread but will try to make the content worth the read.
Below is a Depth of Market (DOM). The
Blue ones = Bid Limit orders
Red ones = Ask Limit orders
So what happens to these orders in the trade cycle
#Basics
[2/X] Such limit orders are invariable absorbed by the Market Orders.
It is the Market Orders that drive the markets up and down.
Lesson # 1: Every auction starts with a Bid and an Ask
Lesson # 2: Market orders move the price
[3/X] So how do we track these market orders. We track them on the Footprint aka Cluster charts
GREEN = Buy Market Orders
RED = SELL Market Orders
Market Orders indicate Aggresiveness
[4/X] So what you see on the Foorpint aka Cluster chart is Market Orders and what you see on DOM are the Limit Orders i.e., orders waiting to be executed.
Lesson # 3: A Market Order buys/sells a Limit Order
PS: Exceptions to every rule exist
[5/X] When the buyers are aggressive, they will take out all the Limit Orders on the Ask side.
Similarly when sellers are aggressive, they will take out all the Limit Orders on the Bid side
This can clearly be seen on the Footprint Chart