What is Order Flow Strength?

When looking at stock charts, you'll often come across the term Order Flow Strength.

Order Flow Strength is an indicator that represents the ratio of buy executions to sell executions.

Simply put, it numerically shows whether buy-side executions or sell-side executions are stronger in the current market.

Visualizing the Battle Between Selling and Buying Pressure

The Basic Meaning of Order Flow Strength

Order Flow Strength, in simple terms, is:

A ratio showing how much stronger buy executions are compared to sell executions.

It can generally be understood in the following way:

Order Flow Strength = Buy Execution Volume / Sell Execution Volume × 100

For example, if the buy execution volume is 12,000 shares and the sell execution volume is 10,000 shares:

12,000 / 10,000 × 100 = 120

The Order Flow Strength would be 120. This means that buy execution volume is approximately 20% higher than sell execution volume.

Order Flow Strength Basic Interpretation
100 Buy and sell executions are similar
Above 100 Buy executions are stronger
Below 100 Sell executions are stronger
120 or above Relatively strong buying pressure
80 or below Relatively strong selling pressure

The benchmark for Order Flow Strength is 100. If it's greater than 100, buy executions are dominant; if it's less than 100, sell executions are dominant.

What Does "Buy Execution" Mean Here?

In the context of Order Flow Strength, buy execution refers to the following:

A trade executed when a buyer directly purchases shares at the ask price.

For example, let's assume the current order book looks like this:

Ask Price 10,100$
Current Price 10,090$
Bid Price 10,080$

If someone thinks, “I want to buy right now,” and purchases the shares available at the 10,100$ ask price, this trade is recorded as a buy execution.

Conversely, if someone thinks, “I want to sell right now,” and sells shares at the 10,080$ bid price, this trade is recorded as a sell execution.

In other words, Order Flow Strength isn't just about “who bought, who sold,” but rather an indicator showing who more aggressively hit the opposing order price.

Order Flow Strength Reflects Market Aggressiveness

It's helpful to understand Order Flow Strength in this way:

Order Flow Strength High = Buyers are more aggressively buying
Order Flow Strength Low = Sellers are more aggressively selling

Thus, Order Flow Strength reveals the aggressiveness of market participants.

If buyers don't wait and directly purchase at higher prices, buy executions increase. If sellers don't wait and directly sell at lower prices, sell executions increase.

Therefore, Order Flow Strength provides slightly more vivid information than simple trading volume.

Trading volume simply shows “how much was traded.” Order Flow Strength, however, reveals which side was more aggressive within those trades.

Does High Order Flow Strength Always Lead to Price Increases?

No, it doesn't.

This point is crucial.

High Order Flow Strength does not necessarily mean prices will rise.

Even with Order Flow Strength at 120, 130, or even 150, prices can sometimes stagnate or decline.

At first glance, this might seem strange.

“If buying pressure is stronger, why is the price falling?” “Shouldn't prices rise if there's high demand?”

Theoretically, this is true. However, in real markets, the structure of the order book also plays a role.

Why Prices Might Not Rise Despite High Order Flow Strength

The most common reason is a thick layer of sell orders stacked above the current price.

For example, let's say the order book for a particular stock looks like this:

10,150$ Sell Order Volume 80,000 shares
10,140$ Sell Order Volume 50,000 shares
10,130$ Sell Order Volume 40,000 shares

Current Price 10,120$

10,110$ Buy Order Volume 5,000 shares
10,100$ Buy Order Volume 4,000 shares

If buyers continuously purchase the sell orders at 10,130$ and 10,140$, the Order Flow Strength can appear high.

However, if there's too much sell volume stacked above, the price won't easily move up.

This situation can be interpreted as follows:

Buying pressure is coming in.
However, the upward selling pressure is stronger.

Therefore, even with high Order Flow Strength, prices can stagnate or be pushed down.

Order Flow Strength is “Direction of Force”, Price is “Battle Outcome”

Viewing the relationship between Order Flow Strength and price in this way makes it easier to understand:

Order Flow Strength = Which side, buy or sell, is more aggressive
Price Change = The actual outcome of that struggle

High Order Flow Strength indicates aggressive buyers. However, if that buying pressure cannot overcome the sell orders above, the price will not rise.

Conversely, even if Order Flow Strength isn't very high, if the sell orders above are thin and price resistance is weak, prices can easily climb.

In other words, Order Flow Strength is an important signal, but it must always be considered alongside price movements.

Why Relying Solely on Order Flow Strength Can Be Risky

There are situations where buying based solely on Order Flow Strength can be risky.

For instance, let's say Order Flow Strength remains high for a stock that has already risen significantly.

On the surface, buying pressure might seem strong. However, in reality, someone might be continuously offloading shares at higher price levels.

In such cases, the following patterns might appear:

Order Flow Strength is high
Trading volume is also high
But the price can no longer rise
Candlesticks repeatedly form upper wicks
Highs are getting lower

This situation might not be a good buy signal; instead, it could indicate supply coming to market or resistance at higher levels.

Therefore, Order Flow Strength must always be considered alongside the following factors:

Price position
Candlestick shape
Trading volume
Whether previous highs are broken
Upper and lower wicks
Order book depth
Overall market sentiment

What to Consider Alongside Order Flow Strength

1. Is the Price Actually Rising?

If Order Flow Strength is high, the first thing to look at is the price reaction.

High Order Flow Strength + Price Increase = Buying pressure is pushing the price up
High Order Flow Strength + Price Stagnation = Buying pressure exists, but overhead supply is strong
High Order Flow Strength + Price Decline = Selling pressure or resistance may be stronger than buying pressure

Order Flow Strength is a number. But what's truly important is whether the price is reacting to that number.

2. Is Trading Volume Also Increasing?

Order Flow Strength is a ratio. Therefore, its significance can be weak when trading volume is too low.

For example, if buy execution volume is 12 shares and sell execution volume is 10 shares, the Order Flow Strength is 120.

However, the trading volume itself is too small. Such Order Flow Strength is difficult to give much meaning to.

Conversely, if Order Flow Strength of 120 appears with sufficient trading volume, its significance becomes much greater.

Low Volume + High Order Flow Strength = Low Reliability
Increasing Volume + High Order Flow Strength = Increased Reliability

3. Has the Previous High Been Broken?

If Order Flow Strength is high, trading volume is increasing, and the current price breaks through a recent high, its significance grows.

For example, if the high of the last five 1-minute candlesticks was 10,000$ and the current price has risen to 10,010$, it can be seen as having overcome short-term resistance.

In such cases, it can be interpreted as follows:

Buy executions are strong.
Volume has also picked up.
The price has also overcome resistance.

When these three factors appear together, the reliability of Order Flow Strength increases.

4. What is the Candlestick Shape?

Even with high Order Flow Strength, caution is advised if candlesticks are bearish or forming long upper wicks.

High Order Flow Strength + Bullish Candlestick = Buying pressure is being reflected in the price
High Order Flow Strength + Long Upper Wick = Supply is continuously coming from above
High Order Flow Strength + Bearish Candlestick = Buying pressure exists, but potential for price defense failure

Especially if long upper wicks repeatedly appear near highs, caution is necessary even with high Order Flow Strength.

Order Flow Strength Interpretation Examples

Example 1. A Case Closer to a Positive Signal

Order Flow Strength 130
Increasing volume
1-minute bullish candlestick
Breakout of the high of the last 5 candlesticks
Short upper wick

In this case, buying pressure is actually leading to a price increase. Order Flow Strength is highly likely to act as a meaningful signal.

Interpretation:

Buyers are actively purchasing, and that force is actually pushing the price up.

Example 2. A Case Requiring Caution

Order Flow Strength 130
Increasing volume
Price stagnation
Repeated long upper wicks
Failure to break recent highs

In this case, buying pressure is coming in, but supply might be continuously appearing from above.

Interpretation:

Buying pressure exists, but it's failing to break through the overhead selling volume.

In such a situation, rather than buying solely because Order Flow Strength is high, it's better to confirm whether the price actually breaks through resistance.

Example 3. A Risky Case

Order Flow Strength maintained at 120 or above
Volume surge
Current price decline
Bearish candlestick expansion
Breakdown of lows

This combination is extremely dangerous.

The price is already being pushed down. Someone is merely absorbing the selling volume coming from above, but that buying isn't able to lift the price.

If the buy order volume below cannot hold up in this scenario, the trend can change instantly. The moment the supporting buy orders are exhausted, the price might not just descend step-by-step but plummet as if falling into empty space.

Interpretation:

It might not be strong buying pressure, but rather a struggle to barely absorb overwhelming selling volume. If the absorbing power ceases, the price could collapse like a cliff in an instant.

Therefore, in this situation, current price decline, bearish candlestick expansion, and breakdown of lows should be given more weight than the Order Flow Strength number.

When is Order Flow Strength Useful?

Order Flow Strength is particularly useful in short-term trading.

It has reference value in the following situations:

Moment of short-term breakout
Moment of sudden increase in trading volume
Moment of attempting to break through a specific price level
Moment of rebound after a pullback
When observing supply and demand changes for a stock of interest during the trading day

For example, if a stock has been quiet and then suddenly sees increasing volume, its Order Flow Strength surpasses 100 and continues to rise, and the price also climbs above its weighted average or breaks through previous highs, it's worth watching closely.

Conversely, if Order Flow Strength remains low and the price is breaking below its lows, it can be seen as a trend dominated by selling pressure.

Summary

Order Flow Strength is the ratio of buy execution volume to sell execution volume.

Above 100, buy executions are dominant; below 100, sell executions are dominant. In essence, it's an indicator showing which side is more aggressively initiating trades in the market.

However, it's risky to decide entry or exit solely based on Order Flow Strength. If prices don't rise despite high Order Flow Strength, it could mean strong overhead selling pressure or someone using the buying pressure to offload shares.

Therefore, Order Flow Strength must always be considered alongside other trends:

Price movement
Whether trading volume is increasing
Candlestick shape
Whether recent highs are broken
Order book structure

Order Flow Strength is a crucial indicator showing which way market power is leaning. However, it's important not to look at just the number, but also to confirm whether that power is actually being reflected in the price.

By looking at Order Flow Strength, trading volume, candlesticks, and price position together, both entry and exit points become clearer. Strong buy executions leading to price increases present an opportunity, while strong executions failing to prevent a price decline become a warning sign.