Chapter 04
Order flow is the record of trades that already happened, plus the orders still waiting. Volume on a candle is the number of contracts that traded. For each contract there was one buyer and one seller. That is the whole market.
The order book shows contracts ready to trade at a price. Above the current price is the ask: passive sellers waiting. Below the current price is the bid: passive buyers waiting. The gap between the best bid and the best ask is the spread. A thick stack of contracts is a hard area for price to walk through. The common name for that picture is the depth of market, or DOM.
Most retail traders use market orders. A market buy lifts the ask. A market sell hits the bid. Aggressive hits passive. That is how a print happens. Liquidity, in this picture, is the resting size that can fill you. It is not a mystical pool.
Footprint, CVD, and delta are executed. They show what already traded. Heatmaps and the DOM are resting. They show what is still waiting. Do not mix the two. A large resting bid is not a buy that printed. A large buy delta is not a wall still sitting on the book.
Delta is aggressive buy volume minus aggressive sell volume. High positive delta does not mean price must go up. Often it is the opposite. Aggressive buyers can hit a resting sell wall and get absorbed. Price fails. The people who lifted the ask are now stuck. That failed lift is information. The raw delta number by itself is not.
Absorption is effort that does not get the result. Aggressive sellers dump into a thick bid. Sell prints get larger. Price does not break. Then it turns. Or aggressive buyers lift into a thick ask. Buy prints get larger. The wall holds. Then it fails and runs. Those are two different stories. The picture has to show the tape, not a slogan.
A useful absorption candle often has a long wick and a close back at the other end. Sellers or buyers got trapped. Wait for that close at the zone. Do not fade the dump in the middle of it.
Delta is aggressive buy volume minus aggressive sell volume in a bar. Two hundred market buys and one hundred market sells is plus one hundred delta. That is arithmetic. It is not a forecast.
New order-flow traders see high positive delta and buy. That is the first trap. High buy delta can mean buyers already spent themselves into a resting sell wall. Price fails. The people who lifted the ask are now the trapped side. High negative delta into a bid that will not break is the same story flipped.
Use delta as effort. Use the next print as result. If effort and result disagree, that disagreement is the information. The number alone is not.
CVD is cumulative volume delta. Delta measures aggressive buys minus aggressive sells in one bar. CVD keeps a running total of that difference across the session. When CVD rises, aggressive buyers are outhitting aggressive sellers. When it falls, aggressive sellers are outhitting aggressive buyers. It is a scorecard of executed aggression. It is not orders still sitting on the book.
A high CVD print means more market buys than market sells have gone off. It does not mean price must rise. Aggressive buying can run straight into a passive sell wall and get absorbed. The buyers spend themselves, the wall holds, and the move fails. Read CVD as effort. Price is the result.
The useful signal is the shift, not the level. Buyers flatlining on CVD after a push higher does not guarantee a reversal. It makes you pickier. Sellers pressing CVD lower into a bid that will not break is the same idea flipped. CVD tells you who is swinging. Price tells you who is winning.