Order Flow Analysis

The Order Flow Analysis indicator provides a comprehensive composite score for buying and selling pressure by analyzing candle structure, volume behavior, and absorption signals. It aims to infer market intent by evaluating how candles form and where they close relative to volume, offering an estimation of order flow dynamics without requiring direct bid/ask data.

Usage

The Usage section outlines how to interpret the various visual components of the tool to identify market sentiment and potential reversals.

• Pressure Oscillator: Gauge the dominance of buyers or sellers using the histogram and EMA line. Readings above 0 indicate net buying pressure, while readings below 0 indicate net selling pressure. Values exceeding +/- 50 represent strong momentum.
• Divergence Detection: Look for discrepancies between price action and the pressure oscillator. A bullish divergence occurs when price makes a lower low while the oscillator makes a higher low, suggesting selling exhaustion.
• Absorption Zones: These shaded background areas highlight candles with high volume but minimal price movement. Bullish absorption suggests accumulation, while bearish absorption suggests distribution.
• Wick Rejection: Use the wick analysis to identify price rejection at key levels. Long upper wicks indicate selling pressure, while long lower wicks suggest buying support.
• Status Table: A real-time dashboard provides a summary of the current pressure score, trend bias, volume delta, and absorption state for quick reference.

Details

The script utilizes a heuristic approach to estimate order flow from standard OHLCV data.

• Wick-to-Body Analysis: Calculates the ratio of wicks to the candle body to identify rejections.
• Close Position: Normalizes the closing price within the candle's range to determine the intra-bar sentiment.
• Volume Delta Estimation: Distributes total volume based on candle characteristics, weighting volume toward the close to approximate aggressive participation.
• Composite Scoring: Blends wick pressure, normalized volume delta, and absorption bias into a single smoothed oscillator to reduce noise and highlight significant shifts in market participation.

Settings

Calculation

• Pressure MA Length: Determines the period for the smoothed moving average of the pressure score.
• Volume Weight Factor: Adjusts the influence of volume delta on the final pressure calculation.
• Wick Analysis Weight: Controls how much weight is given to wick rejections in the composite score.
• Absorption Lookback: Sets the window for tracking and summing absorption signals.

Display

• Show Pressure Histogram: Toggles the visibility of the main pressure oscillator bars.
• Show Pressure MA: Toggles the visibility of the signal moving average.
• Show Divergence Signals: Enables or disables the triangle shapes marking price/oscillator divergences.
• Show Absorption Zones: Toggles the background shading for detected absorption areas.

Colors

• Bullish Pressure: Customizes the color for positive pressure readings.
• Bearish Pressure: Customizes the color for negative pressure readings.
• Neutral: Sets the color for values near the zero line.

FAQ

How do I interpret the Absorption Zones? Absorption zones appear when there is high volume with little price progress. This often indicates "hidden" orders where one side is absorbing the aggressive market orders of the other, often leading to a reversal or a strong base.

What does it mean when the indicator shows a divergence? A divergence suggests that the underlying pressure is not supporting the current price movement. For example, if price reaches a new high but the pressure score is lower than the previous peak, it may indicate weakening demand.

How can I access Order Flow Analysis? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.