I am in the process of making the transition from being an indicator based trader to an order flow trader. Over the past few weeks, I have been using Gomi's Volume Ladder to confirm the trades that I am making using a mechanical system on the CL. The ladder was pretty incomprehensible at first, but now, it makes a lot of sense to me and I am understanding why the price is moving to wherever it goes, though not necessarily fast enough to make good trading decisions with and I find myself just sticking to my mechanical system, which works, but feeling like there is so much more going on behind and within the bars and that I am like a handicapped trader because I don't fully understand order flow yet. It always looks great the next day, in hindsight, over a cup of coffee.
I have been through the L2ST (Kam Dadwar) Intensive Course and room and have also spent some time on Fulcrum Traders method. From both of these sources, I built a good foundation for order flow trading, but for some reason, I still feel like there is a missing piece of the puzzle and something that these guys are missing.
L2ST (Kam Dhadwar) does a really good job of explaining a top down approach and strategy to understanding market dynamics and how, when, and where to trade. But when it comes to the order flow part of his system (which he presents as confirmatory), I think he does not give it the time it deserves. He does a good job of explaining the concept of trapped (or cut-off) buyers and sellers at the extreme nodes (ie. at the highs and/or lows of a completed bar), and has some suggestions as to how you can use this information in real time...but then moves on to other areas of trading. And don't get me wrong, I think Kam is a straight shooter and a great trader and I am not putting him down in any sense. He has alot to say and so much to teach. But he is also a very busy marketer and vendor and has to keep all of this going at the same time, so I think that there is some dilution that takes place in the whole process. In any event, I am glad that I took his course and I learned a lot from it.
FulcrumTrader is also an honorable dude and seems to be a very profitable trader. He takes a very different approach to order flow trading and has come up with this whole concept of trading cumulative delta, where he basically disregards the individual ebb and flow of the orders and just looks at the aggregate result. He teaches traders to look at the CumDelt and compare it to the price, and divergences between price and CumDelt, and to use this information to judge whether the buyers or sellers have more "conviction" so that you can identify areas where buyers or sellers have accumulated inventory (ie. are holding contracts) and will be likely to defend or add on to positions. This seems to work for him, and for some other traders in his room.
After studying both of these methods, it occurred to me that something was missing that was preventing me from wrapping my brain around the whole concept of order flow trading.
The order flow "ladder" (Gom or Market Delta) shows you how trade is being facilitated across the price spectrum of whatever instrument you are trading. As Fulcrum Trader teaches, the CumDelt will show you the net result of the order flow (based upon accumulated market orders) and which side has more conviction. But what neither one really shows is how EFFICIENTLY the orders are moving the market price in the order flow direction on a bar-by-bar level. FulcrumTrader tries to do something like this from a global perspective by measuring price v. CumDelt divergences, but I don't really buy into his idea of accumulated order flow because it does not account for price movement efficiency. To me, this is key and the missing piece of the puzzle.
For example...if you watch price run off in any direction and the ladder (or CumDelt) shows your buyers or sellers aggressively lifting offers (buyers) or hitting bids (sellers), this is going to give you an idea of which side has more conviction at that moment, …