Educationliquidity-structure
Order Flow: Reading the Tape
You are reading Lesson 2 of the liquidity-structure course.
1. Market vs. Limit Orders
- Passive Liquidity: Limit orders resting in the DOM. They provide liquidity.
- Aggressive Liquidity: Market orders hitting the DOM. They consume liquidity.
Price moves ONLY when aggressive orders consume all passive orders at a level.
2. Delta Divergence (The Reversal Signal)
Delta is (Market Buys - Market Sells).
- The Setup: Price makes a New High.
- The Signal: Delta makes a Lower High (or is negative).
- Interpretation: Price went up, but there were FEWER aggressive buyers. The move was likely caused by "stopping out" shorts, not new buying. This is a high-probability Short signal.
3. Absorption (Iceberg Orders)
You see huge red bubbles on the Footprint (heavy selling) at support, but price does NOT move down.
- What is happening? A large institution has a passive "Buy Limit" reloading instantly (an Iceberg). They are absorbing all the selling pressure.
- The Trade: Long the moment the selling stops. The sellers are trapped.
4. Unfinished Business (Auctions)
A market auction usually ends with 0 volume at the extreme high/low.
- The Anomaly: If a candle high has significant volume on both the Bid and Ask, it is "Unfinished Business."
- Prediction: The market will likely return to that level to test if there is more liquidity. It acts as a magnet.
Conclusion: Trading Reality
Order Flow is not a magic crystal ball, but it removes the fog. You stop asking "Will support hold?" and start looking at the tape to see "Is anyone actually buying at support?"
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