Importance of Order Flow in Forex Scalping

order flow

Order flow is not a familiar term to forex traders, yet its very important to understand the dynamics of it. There are two types of order flow when it comes to shorter timeframe charts used in forex scalping. Short term order-flow and long term order-flow. The method I often use to distinguish which order-flow has the momentum, is that by reading bar by bar price action at high-confluence price levels. Price moving in a certain direction purely depends on which order-flow has the strength and momentum, because almost always the two types of order-flow work against each other. Momentum and strength could favour either directions and identifying that direction accurately is key to forex scalping strategies.

In a given context an impulse move within the last highest high and lowest low defines the long term order flow. Here the context means the recent history that I base my trading decisions. Now, any pull back from that long-term order flow defines the direction for the short term order flow. Ideal situation for scalping is when the price shows weakness towards the direction of the short term order flow and gathers momentum and strength towards the  direction of the long-term order flow. In other words looking for scalping opportunities at the end of pullbacks.

Why is Order flow so important?

Now, why is it so important to trade along with strength and momentum of price? In forex scalping we deal with a minimum amount of pips as SL and TP and we expect to get our targets hit within a short period of time. So if we get the direction wrong and trade against momentum, I can only say that its suicidal. If you closely examine any scalping strategy, it does one way or the other takes momentum into account. Since strength and momentum is often in the direction of the long-term order-flow, when there is a shift in strength and momentum towards the short-term direction, we can positively expect a price reversal. All of these elements can be accurately identified with bar by bar price action analysis.

While its important to follow the rules defined in the strategy, its equally important to have a good feel of the momentum and strength variations of short-term and long-term order-flow.

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