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Traders and investors in Forex need to manage different tools, charts, and strategies to investigate the likely changes in the market before they happen
Many strategies vary depending on the approach that the investors want to take, like price action trading, where traders make their analysis based on the market value and predict the next movement for that stock or in foreign exchange, the currency. Other traders, however, place the transaction according to order flow trading strategies.
What is Order Flow in Forex trading?
Order flow, also known as transaction flown, is a strategy used by some traders where they determine the way the price will move (or "flow") depending on the reasons why people will place, buy or sell orders at specific times.
In forex trading, the order flow is defined by speculation on how traders will react in the coming months. It follows the inter-bank market, while some brokers also own an order flow book. Half of the daily prices, according to the inter-bank markets, are made up, so traders should be cautious before placing orders based on the order flow trading.
How to use the order flow in Forex?
As many of the different tools and charts to help analyse the forex markets, traders should treat the information carefully. It can be useful if you use it and compare it with the tendency on the market and the movement of the prices, but you should use it as your only method to predict the way the market will behave.
Sell-side dealers work more often using this method because they understand how to use it to their benefit and can differentiate when it will generate movement, and when it won't.
To create volume indicators for Order Flow, you will need to use counter dealing platforms that can help gauge the volume of the flow. Electronic Broking Services is one of the best platforms for those that are currency dealers. Retail dealers can use other different approaches, with similar results, which can be handy in the future.
Once you can calculate the volume, you will be able to calculate the order flow depending on the futures contracts it creates. However, if the volume stops before reaching the approximation that the trader calculated, it can be lost. You can also compare the volume with the open market values; a trade is new if the volume of the order is larger than the open interest.
Finally, you can recognise an order flow tendency when there is unusual activity on the way the orders have moved, generating a rise in the volume of 200%.
Conclusion
Forex Order Flow is a strategy to predict the future ups and downs on the market related to foreign exchange. For this action, traders evaluate the volume of the buy and sell orders and how they move on the market. It depends more on the sentiment of traders, that make those decisions on the tendency that people will take in certain moments, instead of evaluating the movement of prices in the market.
