However there are some ways that we can increase the success of Order Flow Trader by filtering out some of the weaker signals. Here are a few tips & tricks to bare in mind when trading using Order Flow Trader.
1. Trade the Signal Bar Break
You will probably have heard this quite a lot if you’re familiar with my posts & videos as this is a favourite method of mine. Simply put, instead of just executing the trade once the signal bar has closed I look to see some continuation in price before entering.How do we identify continuation?
If we see an OFT buy signal on a candle, I then want to see price break the high of the signal candle before executing my long trade and vice-versa for sell signals. This simple adjustment to how you use OFT can filter out a lot of weaker signals.
Look at the example below, we can see two great winning trades and one losing trade. Using the “bar break” method however, we avoid the losing trade.
2. Second candle close
If we think of executing on the signal candle close as being aggressive and entering on the signal candle break as being more conservative, then this approach is more conservative still. The idea here is not only to look for continuation in price but also confirmation.How do we identify confirmation?
If we see an OFT buy signal on a candle I then want to see the second candle close above the high of the signal candle to execute my long trade and vice-versa for sell signals. So not only does price need to break the high of the candle, it also needs to close above it.
Look at the example below. We can see that by waiting for the second candle to close above the high of the signal candle (for buy signals) and below the low of the signal candle (for sell signals) we were able to avoid three weak signals and catch a nice winner.
3. Think About The Signal Candle
Some traders don’t have the time to spend in front of the charts to implement some of the other methods we’ve looked at, so here is a really quick method for identifying the signal as strong or weak.One of the best ways to filter out weaker signals is simply to stop and think about the price action on your chart at the time of the signal. Now there are all sorts of different candlesticks we could examine here but I want to share with you just one, that through alot of time spent researching, trading and teaching the use of the indicator I feel is most important.
If we see an OFT buy signal on a bearish pin bar, avoid the signal. If we see an OFT sell signal on a bullish pin bar, avoid the signal.
Now this is my own personal preference for using OFT. There are occasions when we see an OFT buy signal and a bearish pin bar and price trades higher in line with the signal. This is fine, I accept that I can’t always be right, but what I always try to do is refine my methods and refine my trading to improve my success, so this is a method I choose to use.
Look at the example below. We can see that we get an OFT sell signal and a bullish pin bar, and price trades higher.
As I said, this isn’t always the case but I have found more often than not, this is a reliable way of filtering signals.
So hopefully this article has got you thinking a bit more strategically about how to trade the OFT signals. There are of course a vast amount of different period setting you can use to change signal frequency and to some extent strength, but hopefully these methods will help you no matter which time-frame or signal period setting you use.
Editors’ Picks
EUR/USD stays below 1.0800 after upbeat US data
EUR/USD stays under bearish pressure and trades slightly below 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold clings to strong daily gains above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays above 4.2% after upbeat US data and makes it difficult for XAU/USD to preserve its bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.
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