Utilizing Wiseguy order flow to read market sentiment is the most unappreciated benefit this intel can provide to your trading. Not only does Wiseguy order flow provide traders with a huge edge, but it can be incorporated into nearly any trading style.
Now, there are way too many ways to utilize the flow to list them all, so I’ll quickly run through some of the basic elements so you can get a feel for things.
Divergence is probably the most important element of guidance that this information provides. It goes a little like this: if the market and prices are showing weakness but the order flow is bullish, that divergence is telling you that the pros are buying into weakness. Even though the market shows bearish sentiment, it’s also telling the trained eye that they should be doing the opposite.
When there is strong divergence, a lot of times it can signal an upcoming turning point. During strong divergence, traders look to position themselves to take advantage of a bounce or a trend reversal to the upside. The stronger the divergence between order flow and prices, the stronger the probabilities pointing towards a reversal.
To list out all the elements of ‘bullish’ order flow would be inefficient. So here’s the gist: if order flow is showing traders that the pros are buying into weakness, they would also like to see bullish flow in some of the higher beta names and/or ETF’s. It should go without saying, but more buying than selling in ETF’s will actually drive market prices higher. You won’t see this same effect when smart money plays in select small, mid-cap, or specific sector related names.
Generally you want to look for bullish orders in SPY, QQQ, IWM or in individual names like AAPL, FB, NFLX, GS, etc. Another ETF that’s worth keeping an eye on for reversals is VXX, which is the ETF for volatility. When order flow is bullish and aggressive buying hits VXX puts, that tells traders that the pros are betting aggressively against volatility and may feel a push higher in the market is coming.
Small algo call sweepers in names, like AAPL, could also signify that the machines are pressing orders and positioning for a push in market. It could also mean players are short and are protecting against a squeeze higher that they’re anticipating.
Another way to use order flow for finding turning points is by watching flow in names/sectors that may be weighing heavily on the market that specific day. Think daily rotation.
A good example of that would be crude oil. Markets have been heavily correlated with the price of oil in 2016. So if oil goes down and takes the overall market down with it, look for buying in energy ETF’s (USO, XLE, XOP) signaling that pros are positioning for a bounce in oil prices. This pushes overall market prices with it.
Understand that you’re not going to just walk in and have an eye for reading order flow immediately. But this is what the Steamroom is for. Not only do we offer color and non-stop commentary on all the flow in real time as it hits the tape, but we also teach members what to look for and why. For example, if we see VXX put buying, I will share immediate comments like “VXX put sweepers, may be positioning for a squeeze higher here”.
Wiseguy Action basically shows you how the smart money is aggressively positioning throughout the day, everyday, in real-time. There is no other realtime indicator or information source that does anything remotely close to that. But it’s the interpretation of this information that can really take you to the next level as a trader. And that’s exactly what I stress to members every single day. This is not a stock picking service. Learn what to look for and focus everyday on getting better at reading this information in a way that can actually make you money consistently in this game.