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Order Flow | How to Trade with the Smart Money

order flow

Order flow isn’t a term you will hear on CNBC or read in the Wall St Journal…

== >> It’s an underground secret, exposed only to those in contact with big money. When tens of millions of shares are involved, order flow is not going to be announced on TV.

That is unless they want you to buy shares they need to sell, or, they want to accumulate (buy) a few million shares and need you to sell to get the shares.

How do they do that? It’s simple. It’s done with a specific type of price action…

What attracts the attention of retail investors? Higher prices. More specifically, fast-moving higher prices. Said through the lens of technical analysis, higher prices with wide fluctuations after a significant move higher.

The “fluctuations” part is what makes the retail buyer think he has a second chance at a better price.

So we are clear, a “sloppy/whippy” topping pattern (after a mark up/up trend), is when institutions are marketing stock for sale. They are telling you they need to get out, and they are attracting you like moths to a street light with price action.

Institutions Marketing Stocks for Sale: Order Flow in Action

1) The beginning of the mark up is orderly. Not attracting attention yet.

2) Just prior to the first attempt to market stock for sale is completed in a $4 trading range. Price falls quickly during the few days of “A” but there is too much stock for sale. We need higher prices and more “second chances” to get a hot stock at a better price. Think of spot “A” as  the movie preview. It gets your interest in things to come.

3) Area is the marketing machine at it’s best. New high prices that violently decline and give you another chance to buy. The wider the swings, the more attempts at a new high, the more lemmings drawn to the buy button before the coming decline.


Is that legal? Yes. It’s just institutions marketing what they need you to see and believe. Big money can’t buy or exit large positions without your help.


Professional traders can see it by tape reading the stock market. You too can learn this strategy, but you need some patience and a tracking journal. How to spot institutional order flow is today’s lesson.

Order Flow and Institutional Buying

The visual road map I just gave you is designed to attract attention to sell stock. What if you needed to buy millions of shares? How would you do it?

When big money wants stock, it believes the future value is higher than today’s stock price. In this instance, the goal is to buy as many shares as possible without drawing attention. The price action you are looking for here is a tighter trading range, after a decline, with an increase in volume.

You can usually spot this better on a daily chart than a weekly chart because there are spurts of buying days with an increase in volume that are followed by inactivity. This pattern throws the public off the scent. The big money isn’t ready for you to get involved yet. You can see this occurring on the current chart of WMT Walmart.

The 4 red lines show either an increase in volume with a rally (against the down trend) or an increase in volume (with no further decline). These are bullish signs showing a buyer is quietly accumulating shares.

Why are they trying to do it quietly? Well, would you advertise your demand? Of course not. You would push prices higher in yourself.

Keep an eye on WMT to watch the price action play out.

Order Flow: What is it?

What exactly are Institutions?” In trading terms, I’m talking about major financial institutions. Hedge funds, mutual funds, pension funds, the big players who need to earn returns to keep their jobs.

These players account for an estimated 67% of the volume in the stock market on any given day. You think you can benefit by tracking their action? OF COURSE!

Their actions leave a tracks, it’s now your trading mission to track the foot prints so you can hop on their back to make the big money.

The term order flow comes from market makers and specialists receiving large orders to work. The better price they got for the order, the more order flow they got. The more order flow, the more they made in commissions.

Imagine calling your broker on the floor of the NYSE and placing an order to buy 100K shares of WMT (knowing you have a total of 10 millions shares to buy). Your broker would go to the WMT post and give some of the order to the specialist to test the waters. They want to see if the order moved the stock.

The broker and the specialist work the order flow to get the best price. The better job they do in the natural ebbs and flow of the day, the more order flow they will get.

Order Flow: Where did it go?

If you are even a casual observer of CNBC you will see the floor of the NYSE (New York Stock Exchange) is mostly empty. Much of the work done by a  NYSE specialist or NASDAQ market maker is now done by computers. The million share blocks of order flow are now carried out by algorithms in much smaller transactions over the day.

This is why spotting the price action and volume, the patterns I described above is critical. You can still apply this hidden edge, but you need to track it day-by-day over time