Understanding Order Flow

Order flow has become extremely popular in recent years. More and more traders are using it to understand the market better and make smarter trading decisions.

But let’s be honest: most traders don’t know where to start. If you’re in the same spot, don’t worry. We’ve got you covered.

We’re going to break down order flow in the simplest way possible so you can get a solid understanding of what it is and why it matters.

What is Order Flow

So the first question is: What is order flow?

Order flow is simply the flow of buy and sell orders in the market. Every trade happens because a buyer and a seller agree on a price, but what really moves the market is who is more aggressive — buyers willing to pay higher prices or sellers willing to accept lower ones.

Instead of just looking at past price movements on a chart, order flow helps you see what’s actually happening right now — who’s buying, who’s selling, and how aggressive they are. It reveals where big orders are coming in, where traders are placing their buy and sell orders, and whether the price is likely to keep moving or reverse.

Market Participants

To understand order flow at a deep level, you need to understand the market participants that create the buy and sell orders driving price movement.

Not all traders interact with the market in the same way.

Some traders are active and move the price, while others are passive and provide liquidity. These two groups create the push and pull of supply and demand that determines how price moves.

Passive Participants

Passive traders enter the market using limit orders. They wait for the price to come to them instead of chasing it.

A passive participant might say:

I’ll only buy or sell if the price reaches my level.

Passive buyers buy on the bid, waiting for the price to come to their level before buying.

Passive sellers sell on the ask, waiting for the price to rise to their level before selling.

Because passive traders are not aggressively taking trades, their orders do not move the price. Instead, they provide liquidity, acting as barriers that the price must break through.

In simple words, they are liquidity providers.

Large passive orders can act as support or resistance since they absorb aggressive buying or selling. If the price reaches a level with a high number of passive buy orders, it might stop falling. If the price moves up into a large cluster of passive sell orders, it may struggle to break higher.

Active Participants

Active traders use market orders because they want to get in or out of a trade immediately, no matter the price.

An active participant might say:

I want it NOW — I’ll take whatever price is available!

Aggressive buyers buy at the ask, pushing the price higher as they accept the current best available sell price.

Aggressive sellers sell at the bid, pushing the price lower as they accept the current best available buy price.

Active traders push the price up or down because their orders get filled at the best available price rather than waiting for a specific level.

Here’s how it works:

• If more buyers aggressively place market orders, lifting the ask, the price moves up.
• If more sellers aggressively hit market orders, accepting lower bids, the price moves down.

In simple words, they are liquidity takers.

Active participants are the ones responsible for big price moves, breakouts, and trends. If aggressive buyers keep lifting the offers, the price will keep rising. If aggressive sellers keep hitting the bids, the price will keep falling.

This might sound a bit confusing, but don’t worry — we’re going to explain it later in the guide with examples.

The Relationship Between Volume and Price

Volume is the fuel behind price movement — but it’s not as simple as high volume = big move.

The way volume interacts with price tells you who’s really in control.

Here’s how different volume scenarios play out:

High Volume + Strong Price Movement = Momentum

When the price moves up or down with high volume, it shows strong conviction from aggressive traders.

• If the price is rising in high volume, aggressive buyers are in control, and the trend is likely to continue.
• If the price is falling on high volume, aggressive sellers are dominant, and the price is likely to keep dropping.

High volume with strong price movement = momentum is real.

High Volume + No Price Movement = Absorption

Sometimes, the price barely moves even when the volume is high. This happens when limited orders are absorbing aggressive orders.

• If aggressive buyers keep lifting the ask, but the price doesn’t move up, it means big sellers are absorbing the buying pressure.
• If aggressive sellers keep hitting the bi,d but the price doesn’t drop, big buyers are soaking up the selling pressure.

High volume with no price movement = a battle between buyers and sellers. If one side gives up, the price will move aggressively.

Low Volume + Price Movement = Weak Move or Fake Breakout

If the price moves with very little volume, it often means:

• There aren’t many buyers or sellers supporting the move.
• The move might be a liquidity grab (a trap to trick traders into entering bad positions).
• The price action is unstable and likely to reverse.

Low-volume breakouts are often fakeouts — wait for confirmation before trading them.

How is Order Flow Trading Different from Price Action Trading?

Price action and order flow both help traders understand the market, but they do it in completely different ways.

Price action traders look at past price movements on a chart to find patterns, support, and resistance levels, as well as trends.

Order flow traders look at real-time buying and selling to see who’s actually in control — buyers or sellers, right now.

One focuses on what has already happened, while the other focuses on what’s happening right this second.

Past vs. Present: The Big Difference

Price action is like reading a history book — you study past price movements and try to predict what might happen next.

Order flow is like watching a live sports game — you see the action unfold in real-time and make decisions based on what’s actually happening.

Price action traders see that price bounced off support in the past and assume it might do the same again.

Order flow traders check to see if buyers are actually stepping in at that support level right now — if not, the price could break lower instead of bouncing.

One is guessing based on past behavior.

The other is confirmed by watching live market activity.

Order Flow Shows the Real Battle Between Buyers and Sellers.

Price action shows where the price moved — but it doesn’t tell you why.

Order flow shows who is pushing the price up or down by tracking actual buy and sell orders.

For example, let’s say the price is rising toward a resistance level. A price action trader might assume sellers will step in and push the price back down. But an order flow trader can actually see if sellers are showing up or if aggressive buyers are smashing through resistance.

If big buyers are still hitting the ask with market orders, the price will likely keep going higher. If large limit sell orders (passive sellers) are absorbing all the buying, the price might struggle to break through.

Instead of hoping a level will hold, order flow traders see if it’s actually holding in real time.

Price Action Uses Charts — Order Flow Uses Live Market Data

Price action traders rely on candlestick patterns, support and resistance, and trendlines to make decisions. They wait for the price to move before acting.

Order flow traders use tools that show what’s happening right now, such as:

• Time & Sales (The Tape) – Shows every trade as it happens.
• Depth of Market (DOM) – Displays the buy and sell orders waiting to be filled.
• Footprint Charts – Highlights areas where traders are placing large buy and sell orders.

Instead of staring at candles and guessing, order flow traders are watching the actual transactions that drive price movement.

Order Flow Helps You Avoid Traps and Fake Breakouts

Have you ever entered a breakout trade only to watch the price immediately reverse and stop you?

That’s because not every breakout is real — sometimes, the price moves up just to trap buyers before reversing.

Price action traders get caught in these traps because they’re only looking at past movements.

Order flow traders can see if real buyers are stepping in or if it’s just weak volume.

If the price breaks out, but there’s no strong buying pressure, it’s probably a fake move. If aggressive buyers are lifting the ask, and sellers are nowhere to be found, it’s a breakout with real momentum.

Instead of guessing, order flow traders confirm moves before they jump in.

So, Which One Is Better?

It’s not about picking one over the other — it’s about using both together.

• Price action trading is simple and great for spotting key levels and trends.
• Order flow trading is precise and helps you see who’s really in control, buyers or sellers, at any given moment.

Many traders mix both — they use price action to find important price levels and order flow to see if those levels will hold or break.

Your job as a trader isn’t to rely only on order flow. It’s to blend both approaches to get a clearer picture of the market. Order flow tells you what’s happening right now, but without price action, you won’t know where to look. On the flip side, price action gives you a roadmap, but without order flow, you’re still guessing whether the price will actually move.

When you combine them, you stop relying on hope and start making smarter, more confident trades.