Forex Intraday Market Flow System

Author: Martin Moni
Martin Moni
All publications of the author

I have found that, the highest profits are usually those that are realized from following long-term trends. This is what the intraday market flow system helps a trader do by identifying how the markets are trending and moving with it.

Components to use for this trading system

In order to determine the trend in Forex markets, we are going to use four main tools. All of them will be applied in the next section, but first we need to clarify what these components are. (Did you know about: PAT in Forex)

Using trend lines

These are very simple tools drawn on Forex charts to help in indicating the overall trend. They are also one of the most common indicators among Forex traders, although they are used in all other financial markets like futures, commodities and stock trading. To draw a trend line, you connect either the swing highs or swing lows with a diagonal line. On an uptrend such as the one illustrated below, the trend line should connect the swing lows. (Remember what we learned about: Using trendlines in your Forex trading)

Not only do trend lines indicate trend direction, they also act as dynamic S/R levels as the markets are moving. For example, in the image above, whenever prices started to go down toward the trend line, buying pressure increased and prices bounced upwards, continuing to trend upwards. Later on in the chart above when prices broke below the trend line, the uptrend was reversed and started to head down.

Levels of S/R

These are very important in all markets because they present the most ideal entry points for trading. Illustrated by horizontal lines running across the Forex trading platforms, these are the areas where prices experience repeated downward or upward pressure. In the image below, you can see how prices bounced off the three levels repeatedly. (Learn: How to draw S/R levels like a pro)

At the lower level, as prices were heading down, there was increased trading volume to buy. If the buying pressure at this level is strong enough, then prices start to go up. However, if selling pressure exceeds buying pressure, then that level is broken and prices go lower.

Market flow

This is a very important tool in spotting the general trend of the market, eliminating the noise and seemingly contradicting signals. Have you noticed how the trend in the markets can be moving in different directions on different timeframes? If you are not careful, you may find yourself following a short-term trend while ignoring the main trend.

This will happen when there is some news announcement on the Forex calendar that perhaps alters the trend shortly. This is what market flow tries to help with. This indicator is usually available by default on the MetaTrader platform, and when loaded appears like this:

The arrows pointing up are the highs, which represent swing highs. These are formed when there has been two lower highs before and after it where it represents a high point in the markets. Whenever the markets are forming subsequent swing highs. Downward facing arrows and their effects are the exact opposite.

Candlestick patterns

There are a lot of shapes and patterns that form on trading charts, and these can also point to great trading opportunities. Despite there being many such patterns, we shall only need a few when trading this market flow system. These include the:

  1. Pin bar candlestick – a bar with a long shadow and a thin body
  2. Inside bar – one that is completely engulfed by the one before
  3. Engulfing bar – the one that completely engulfs the one before it
  4. Dark cloud – when a downward bar appears atop an uptrend, starting at a higher level than the previous upward bar but ending halfway or further down
  5. Piercing line – reverse to the dark cloud; an upward bar starts lower than the last downward bar but closes halfway or even further above it
  6. Railway track – two bars of equal or near equal length, one going up and the other going down, appearing as the parallel railway tracks

These patterns and more appear very often, and they can signal change in trend direction may be on the way. In other cases, they are used to confirm whether the prevailing trend is about to reverse, therefore being used as a marker to close the trade. (The: 7 Powerful Candlestick Patterns to Learn and Understand)

Putting it together

Now that we have seen the four components involved in this system, it’s time to see how it all comes together. The first important thing is to determine the market flow. However, we don’t just want to know the short-term trend, but the long-term one. To do this, we are first going to check market flow on the daily charts. Generally, market flow analysis is gets more reliable the higher the timeframe is, and the daily charts are pretty good. (What’s the difference between: Long-term vs. short-term trading)

If you focus on the highlighted area, you can see that the previous swing high was broken when a new fractal appeared above the one before it. This is a sign that buying pressure is rising, and that the bulls are pushing prices higher. The downtrend is over and now we should be looking for buying opportunities, and this is where the other components come into play. First, though, we shall go back to the hourly timeframe. (This is: All you need to know about pivot points)

The point marked by the vertical line represents the area where the higher fractal had appeared. At the same time, prices have just reached a top level that has temporarily stopped the uptrend. Nevertheless, we know that there is a bullish market flow, so we should wait until the prices break this level. If it happens, this point will turn to a bottom and the uptrend continues. This is exactly what happened!

After breaking above the top level, prices kept going up for an entire month, collecting about 350 pips – not a bad haul for just one trade. In our example, we used S/R levels to identify the ideal position to place a trade, but the purchase could also have been triggered by any of the two other components. (Is there a reason: Why Traders May Need To Use a VPS Service)

Once you’re in the trade, you should also observe proper trade management by observing changes in the trend. (How to observe: Risk-management on Forex)

Want to see how this strategy can be applied on an actual trading system? Watch this:

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