How Can Order Flow AnalysisEnhance Cryptocurrency Trading?

Want to become a professional cryptocurrency trader?

Well, it will help tofirstget how order flow trading works.

An order flow is a series of transactions initiated by buyers or sellers, which moves prices up and down.So order flow analysis helps you determine how other buyers and sellers trade.

Because numbers move too fast, you may need a tool that lets you see what transactions took place at a specific time. The technique is called crypto charting.

In cryptocurrency trading, these transactions are essential for several reasons.

We'll start by learning how to read order flow.

What Order Flow Means in Crypto Charting

Order flow shows you the depth of the market(DOM). This is the depth of supply (asks) and demand (bids). DOM has three columns as follows.

Check this out. 


Figure 1: Depth of the Market Chart

The right column is the ask side, where sellers place their limit orders.  A limit order is an agreement set to buy/sell an asset at a specified price or better.  In other words, the seller wants to fill a bid at a certain price— they aim to sell at a high price.

The middle column shows the price ranges.

The left column represents the bid side where buyers place the limit orders. Here, the buyers want their bids filled at a certain price — they aim to buy low.

The current price (in blue) is the last price a buyer bought from a  seller. It means that a buyer placed an order saying, “fill my position at the best price, now.” And someone filled it at 2168.00. This is the ask that breaks the stand-off between the buyers and sellers seeking better prices in the market.

Now let’s explore the importance of order flow analysis in cryptocurrency trading.

How Order Flow Analysis enhances Cryptocurrency Trading

Order flow analysis helps a trader understand the crypto market clearly. Some of the information a buyer or seller gets from such a platform include the following.

The intentions of Large Participants in the Market

It is vital to recognize that it is people that move the prices up and down. So studying their actions can help you anticipate prices. You canview limit orders at each price level.

Also, you can see where demand and supply are concentrated. Where demand is concentrated, the prices cannot move downwards temporarily. This is called the support level.

On the other hand, a concentration in supply bars prices from an uptrend for a short time. This is known as the resistance level.


Figure 2: support and resistance levels in crypto trading

Timing Profitable Trading

Once you understand support and resistance points, you can make an entry or exit decision. This is because the price with either bounce back or violate the price level and advance in its direction until they reach another barrier.

Last Word

Understanding order flow analysis helps you make profitable cryptocurrency trading decisions. For instance, you can make an entry or exit just before prices become unfavorable.

Start by identifying a platform that helps you visualize the crypto market better. Thenyou can start to use crypto chartingas a smarter trader.


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