Disclaimer

This analysis is based on personal trading experience, practical orderflow observation, and independent research. The views expressed are for educational purposes only and reflect the author’s understanding of market behavior. Copying or reproducing this paper, in whole or in part, is strictly prohibited

Orderflow Imbalance Explained: How to Read Buyer & Seller Intent Correctly

Most traders look at imbalance and think it’s a direct signal.

Buy imbalance = Buy
Sell imbalance = Sell

That’s where they go wrong.

Imbalance is not a signal.

It’s a behavioral footprint of aggression — and your job is to understand what that aggression actually means.

Professional traders don’t just see imbalance — they check whether that aggression actually moved price.

In this article, I’ll explain everything step-by-step in simple terms, so even if you are new to orderflow, you can understand it clearly.

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First, Let’s Understand How Orders Work (Very Important)

Before imbalance, you need to understand 2 basic types of orders:

1. Market Orders (Aggressive Orders)

• You want to enter immediately
• You accept whatever price is available

👉 Example:

• You press Buy at Market → you buy at the ask price
• You press Sell at Market → you sell at the bid price

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2. Limit Orders (Passive Orders)

• You place an order and wait
• You don’t chase price

👉 Example:

• You place a buy order below market
• You place a sell order above market

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What is Bid and Ask? (Simple Understanding)

• Ask Price → Price where sellers are ready to sell
• Bid Price → Price where buyers are ready to buy

👉 So:

• Market buyers hit the ask (they take liquidity)
• Market sellers hit the bid (they take liquidity)

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Now, What is Imbalance? (Simple Explanation)

Now we connect everything.

Imbalance happens when one side (buyers or sellers) is much more aggressive than the other at a price level.

In simple words:

• If aggressive buyers dominate → Buy Imbalance
• If aggressive sellers dominate → Sell Imbalance

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Slightly deeper (but still simple):

• Buyers using market orders → lifting the ask
• Sellers using market orders → hitting the bid

So:

Imbalance = strong aggressive activity on one side compared to available opposite orders

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Even Simpler Way to Think

Imagine this:

• Many aggressive buyers vs fewer available sellers → Buy Imbalance
• Many aggressive sellers vs fewer available buyers → Sell Imbalance

(In reality, every trade has both a buyer and seller — but imbalance reflects which side is more aggressive.)

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How Imbalance Actually Forms (Step-by-Step)

1. Buyers or sellers start placing aggressive market orders
2. They repeatedly hit bid or ask
3. Their volume becomes significantly higher than the opposite side
4. This creates an imbalance on the chart

Now two things can happen:

• Price moves → aggression is effective
• Price doesn’t move → opposite side is absorbing

This is where real interpretation begins.

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Important Concept: Absorption (Very Simple)

You’ll hear this term often.

Absorption means the opposite side is taking all incoming orders without allowing price to move much.

Example:

• Buyers keep buying
• But price doesn’t go up

👉 That means sellers are absorbing

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But Here is the Most Important Thing

Just because buyers are aggressive does NOT mean price will go up.

So always ask:

“Did that aggression actually move the price?”

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My Preferred Imbalance Setting: 400%

Now let’s talk about settings.

I personally use:

400% Imbalance

Why?

Because I want to see only strong and meaningful activity.

At lower settings (200–300%):

• You’ll see imbalance everywhere
• Many signals will be weak
• It becomes confusing

At 400%:

• Only strong participation shows up
• Chart becomes cleaner
• Easier to focus

You are not trying to see more — you are trying to see what matters.

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The Core Idea: Where Imbalance Appears + Candle Close

This is the real edge.

Don’t just look at imbalance.

Look at:

• Where it appears → top or bottom
• Where price closes

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One Golden Rule

Imbalance shows effort. Price movement shows result.

You always compare:

• Effort (imbalance)
• Result (price move)

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A Simple Professional Framework

There are only two possibilities:

1. Effective Aggression

• Aggression happens
• Price moves in same direction

👉 Means: strong side is in control

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2. Ineffective Aggression

• Aggression happens
• Price does NOT move

👉 Means: opposite side is stronger

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Over time, I’ve found that not all imbalance matters — only the imbalance that leads to price movement is useful for trading decisions.

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Case 1: Buy Imbalance at Top Wick + Price Closes Down

What’s happening?

• Buyers are buying aggressively at higher prices
• They are chasing price upward
• But price doesn’t stay there
• Candle closes down

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Simple Understanding:

Buyers tried to push price up, but failed.

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What does this mean?

• Buying effort is high
• But result is weak

👉 Buyers are not able to continue the move

👉 Opposite side is absorbing

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What can happen next?

• Price may go down
• Buyers may exit
• Selling pressure may increase

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Case 2: Buy Imbalance at Bottom Wick + Price Closes Up

What’s happening?

• Buyers step in at lower prices
• They buy aggressively
• Price moves up and closes strong

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Simple Understanding:

Buyers stepped in and successfully pushed price higher.

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What does this mean?

• Buying effort is strong
• Result is also strong

👉 Buyers are in control

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What can happen next?

• Price may continue up
• Momentum can build

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Now Here’s Where Most Traders Get Confused

The same imbalance can mean completely opposite things depending on where it appears.

That’s why location + result matters more than imbalance itself.

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Case 3: Sell Imbalance at Bottom Wick + Price Closes Up

What’s happening?

• Sellers are selling aggressively at lower prices
• But price doesn’t go down
• Candle closes up

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Simple Understanding:

Sellers tried to push price down, but failed.

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What does this mean?

• Selling effort is high
• But result is weak

👉 Buyers are stronger here

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What can happen next?

• Price may move up
• Sellers may exit
• Buyers take control

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Case 4: Sell Imbalance at Top Wick + Price Closes Down

What’s happening?

• Sellers sell aggressively at higher prices
• Price moves down
• Candle closes lower

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Simple Understanding:

Sellers pushed price down successfully.

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What does this mean?

• Selling effort is strong
• Result is strong

👉 Sellers are in control

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What can happen next?

• Price may continue downward

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Additional Insights (Very Important)

1. Don’t Count Imbalances

More imbalance ≠ better trade

A single meaningful imbalance is more important than many random ones

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2. Watch What Happens After

Always observe next 1–2 candles

This confirms whether aggression worked or not

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3. Fast Move = Strong Intent

• Fast move → strong conviction
• Slow/stall → weak conviction

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4. Repeated Imbalance at Same Area

• One side keeps trying
• Eventually one side wins

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5. Timing of Imbalance Matters

• Early in move → can drive continuation
• Late in move → can show slowing down

Not all imbalance is equal — timing changes meaning

Timing of Imbalance Matters (Simple Explanation)

When you see imbalance, don’t just ask:

“Who is aggressive?”

Also ask:

“When is this aggression happening?”

Because timing changes meaning completely.

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🔹 Case 1: Imbalance Early in the Move

What does “early” mean?

• Price has just started moving from a level
• Breakout or initial push has just begun
• Market is not yet extended

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What’s happening here?

• New participants are entering
• Aggressive buyers/sellers are initiating positions
• There is fresh interest in that direction

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Interpretation:

This imbalance is likely driving the move

👉 Aggression is coming in at the right time
👉 There is room for price to continue

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Example (Simple)

• Price breaks a range
• You see strong buy imbalance
• Price starts moving up

👉 This suggests:

Buyers are initiating and pushing price higher

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What can happen next?

• Continuation is more likely
• Momentum can build

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🔹 Case 2: Imbalance Late in the Move

What does “late” mean?

• Price has already moved a lot in one direction
• Market is stretched or extended
• Move has been going on for some time

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What’s happening here?

• Late participants are entering
• People are chasing the move
• Early participants may start exiting

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Interpretation:

This imbalance may not drive continuation — it may show slowing down

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Common Beginner Mistakes

❌ “Imbalance means entry”
No — it means something important is happening

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❌ “Buy imbalance = bullish”
Only bullish if price actually moves up

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❌ “No imbalance = no trade”
Markets can move even without imbalance

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How I Read Imbalance (My Simple Checklist)

Whenever I see imbalance, I ask:

1. Where is it forming?
2. Did price move after it?
3. What did next candle do?
4. Is aggression effective or not?

I am not interested in who is active — I am interested in who is effective.

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Practical Execution Insight

I don’t trade immediately when I see imbalance.

I wait and observe what happens next.

This helps me:

• Avoid wrong entries
• Understand real intent
• Trade with clarity

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Final Thought

Imbalance is not about predicting the market.

It’s about understanding:

Who is trying to move the market — and whether they are succeeding.

Most traders react to imbalance.
Professionals interpret it.

Once you shift from reacting to interpreting:

• You stop guessing
• You start reading behavior
• The market starts making more sense

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Imbalance doesn’t tell you what will happen — it tells you who is trying to make something happen.

If you notice any discrepancy in this article or have questions regarding the concepts discussed, please contact the admin at sg@orderflowwithsg.com or connect with us through our Telegram channel.