Looking at Order Flow momentum

One of the powerful applications of a computer is to not just tally up the volume numbers for order flow analysis, but also to organize those results in novel ways. One program that does this with many flexible options is the MarketDelta software. This program provides a tool that accumulates the net volume activity on the Buy side or Sell side, but then resets this number as soon as any bar on the chart changes from Buy-dominant to Sell-dominant, and vice-versa. It is similar to the cumulative order flow volumes discussed in previous articles, but it builds these accumulations many times a day. As you can see, when you look at order flow over many bars and compare it to the actual price action, you often get some alarming divergences that are quite predictive of market reversals. Take a look at this chart of the Oil August contract.

Rotations and the Delta Pullback

Plotting Oil's Demise