Liquidity trading, supply/demand and order flow for futures trading insights

May 30th, 2024

Most traders use order flow and liquidity trading to help them make informed decisions—and for good reason. These indicators paint a complete picture of what’s already occurred in the market and where it may soon be headed.

In the recent NinjaTrader Ecosystem webinar, “How to Trade Liquidity and Supply/Demand,” BuySide Global’s Prab Premkumar outlined how to interpret supply and demand, liquidity, and order flow to help find your trading edge. First, it begins with understanding basic market structure.

Understanding market structure

Before beginning trading, you need to understand the market structure. Most traders don’t have a basic understanding of market structure, including how it moves and how prices fluctuate. While using indicators, trade setups, and other tools can help give you an edge when trading, a foundational understanding of how the market is structured is also crucial.

Markets never move in a straight line. They shift between different structures:

  • Accumulation
  • Demand zone
  • Supply zone
  • Distribution
  • Reaccumulation

What is a supply zone?

A supply zone is price range with a lot of selling interest. The supply zone is created by sell side order flow, and when the price reaches this price range, sellers start selling aggressively, which pushes the price down.

What is a demand zone?

A demand zone is a price range with a lot of buying interest. The demand zone is created by a buy side order flow, and when the price reaches this price range, buyers start buying aggressively, which pushes the price up.

Premkumar goes in depth on liquidity trading, as well as:

  • Understanding supply/demand
  • Importance of expected vs. real liquidity
  • One simple secret to trade supply/demand effectively
  • Risk-based trade entry

View the full presentation or watch a sample clip here:

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