Looking Inside the Limit Order Book (LOB)
Standard candlestick charts only show past transactions. The Limit Order Book (LOB) shows resting intent, revealing where buyers and sellers are waiting with limit orders. Analyzing order book depth lets you spot support and resistance before price arrives.
Passive vs. Aggressive Orders:
Passive limit orders provide liquidity and act as barriers. Aggressive market orders consume liquidity and drive immediate price moves.
How Liquidity Heatmaps Spot Institutional Walls
Order flow heatmaps track resting limit orders over time. When a massive buy wall remains steady across several hours as price approaches, it indicates strong passive demand. If the wall vanishes seconds before price touches it, it was likely a spoof intended to trap retail buyers.
Practical Order Flow Execution Tips
- Watch how price reacts when it reaches a dense limit cluster: absorption indicates a reversal, while swift consumption indicates a breakout.
- Avoid placing your stop-loss directly on obvious resting order clusters where market makers hunt liquidity.
- Pair order book delta with candle structure to confirm institutional absorption.