SPY Order Flow - Bear Market Not Over

Hey traders,

Given that the 3rd wave down on this current bear cycle exceeded the previous one in magnitude (-13.28% vs -10.03%) while matching in speed (14 bars each), the chances are quite high this retracement will find, eventually, more legs lower, to complete an ultimate 5 wave-count move down.

Whenever, in a sequence of waves, you get the current structure of expansionary legs down, countered by smaller percentage retracements back up, the path of least resistance remains bearish until proven wrong via a different waves structure.

Can we look for sell-side opportunities in this environment? We sure can. What I typically do is to drill down into the lower timeframes, apply the OFA script and look for the recurring patterns that exist to get into trades.

There are tones of examples I've published in the past via my profile where one can get a rough idea of the setups to spot via the reading of order flow. We don't force any trades, we simply let the market show us, constantly, the path of least resistance in alignment with the underlying trend.

Remember the two key main features of the OFA script :

Magnitude: A major clue that will help determine the health of a trend is the type of progress by the dominant side in control of the trend. We need to ask the following question: Are the new legs in the active buy-sell side campaign as identified by the script increasing or decreasing in magnitude?

Velocity: When it comes to the distance the price moves, the magnitude is only ½ the equation. The other ½ has to do with the velocity of the move or the speed. Was the new leg created after a fast and impulsive move? Or did price make a new low or high with the movement being sluggish, compressive and taking too long to form? A good rule of thumb is to count the number of candles it took to achieve a new leg.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.