Long term / Short term order flow.

Someone on a forum asked a question regarding long term / short term order flow.

I'm going to paste over my reply here for education purposes:



You have your main order flow that you trade which I refer to as the long term order flow, but also there is short term order flow to go along with your long term order flow.

Typically you'd follow your long term order flow but you can also look to the short term order flow to give you clues about price action. I will warn you that trying to do this sometimes leads to becoming much more confused. It's easy to lose sight of the order flow you are following and get 'lost in the swings.' So if you find that it confuses you trying to do that then I'd just go back to monitoring the main order flow that you trade.

First image: You see on your main order flow price made a NSH. I've numbered the swings on the short term order flow in red 1-5. Explanation below.

(1) Price then pulled back and tried to continue upwards.
(2) Price got rejected and trades back down.
(3) Price trades below the swing low at (1). This is when you knew you were in a complex correction.
At this time, the expectation is still for a NSH as price has not closed beneath the lower yellow line.
(4) Price rallies up and takes out the swing high at (2) but fails to create a NSH. We are still in a complex correction and the expectation is still a NSH (close above the upper yellow line) although the expectation is now suspect as price is not exhibiting very strong behavior.
(5) Price trades back down before reversing back upwards and eventually making the NSH that was expected.

So how can the short term be utilized in order to give clues on the long term? You treat the short term just like you would the long term and hold it to the same rules and expectations as you normally would.

Second image: I've replaced the red 1-5 with our regular order flow terminology. I am defining the long term order flow with capitals (NSH, LH) and defining the short term order flow with lower case (lh, hl, nsh)

Assuming you entered on the weak nsl at 21:30, you would be looking for price to make a nsh on the short term which would be a close above the prior lh (cyan line). Price achieves this.

Third image:

Now what do the rules say? After an order flow change you could expect to see a retracement. If I'm in this trade and price has just created the nsl on the short term then I am wanting to either see it continue upwards to fulfill the NSH on the long term or per the rules, I want to see a retracement that holds above the cyan line at the nsl that we made at 21:30. Also I'm looking for structure around the area in order for price to respect if it comes back down, which we have with the blue demand zone.

If price comes down and trades back below the supply zone and cyan line then you know that your expectation for the NSH on the long term has weakened and your trade is probably not going to work out.

However what happens is that you get your retracement, price respects your demand zone and then continues on to make your NSH on the long term.

Now using your screenshot, when you move on to the next retracement you would most definitely use support level 1 as your boundary for your main order flow. However you could use support level 2 for clues. So there is still some importance to be had with support level 2 but support level 1 is the main level you want to watch for an order flow change.

I hope this makes sense. It can be confusing and there have been plenty of times and continue to be times where I get lost in swings but I find that if I catch myself starting to get lost then I just avoid it altogether because trying to play our patterns here should not take a lot of deciphering. Our plays should be fairly cut and dry and I'm realizing that you should be able to just glance at the price action and within seconds determine if it looks like a favorable setup. IMO if you have to sit there and analyze the shit out of everything with the setup then you should not take it.

Again, if you start getting confused trying to use the very short term order flow then just avoid it and focus on the main flow.

I may have left some details out by accident so if I remember I'll go ahead and edit this post. I am pretty sure I gave an explanation on this in a prior post of mine so I'm going to search for that one and I'll link it here if helps explain a little better.

Edit - Mistake in my screens, the cyan 'LH' should read 'HL.'

Essentially you'd like to be mindful of any swing point as price could and most likely will react in some way to each one.

But in my experiences the strongest swing points are the ones which lead to new highs. In your example, Level 1 is the start of the move which lead to the new high (breaking the yellow line to create the NSH). Technically you could say Level 2 is the leg that lead to the NSH, but my experience leads me to believe that there are stronger reactions at the origination of the whole move.

Look what happens if you draw some demand zones. If you felt Level 2 was stronger and decided to play off of it you may have had a bad trade. Price came down and respected Level 1 demand zone. I drew them like this just to illustrate a point. If trying to trade this you may even draw demand zone 1 up a little bit to touch the wicks of Level 2 to lend further validity to the zone.

Also, I'm not sure if you meant that you would be looking to them to take a trade off of. In this example, you have an order flow change with close below the red line. So if price comes back down to these levels I wouldn't be looking to long off of them unless you are aware that this is an aggressive trade and you manage aggressively. You could use harmonic correction (purple) as a guide but just know that odds are stacked against you at this point if you are long.

Using this example, if you are short and are coming upon a demand zone in question then you'd want to go ahead and tighten up any stops or at least pay real close attention to the reaction that price has because it's simply impossible to know beforehand the reaction that price will have (unless you're using an OFA chart which gives you an idea of the supply / demand in the bar). It could explode or it could cut right through it.