Signed order flow

Signed order flow refers to the directional bias or imbalance of buy and sell orders in a market. It represents the net difference between the total volume of aggressive market buy orders and sell orders that aggressively remove resting liquidity, taking into account the direction (positive or negative) associated with each order.

In signed order flow, positive values indicate a predominance of market buy orders, while negative values indicate a predominance of market sell orders. The magnitude of the signed order flow reflects the strength or intensity of the directional bias. There is empirical evidence that signed order flow is persistent over short time periods and can be used as a predictor of future, albeit short-term, price change.

Traders and analysts often analyze signed order flow to gain insights into market sentiment and potential price movements. Positive signed order flow may indicate bullish sentiment, suggesting more buyers than sellers, while negative signed order flow may indicate bearish sentiment, suggesting more sellers than buyers.

The analysis of signed order flow can help traders identify market trends, potential support or resistance levels, and areas of liquidity imbalances. It can be used in conjunction with other market indicators and tools to make informed trading decisions.

It’s important to note that signed order flow is a measure of the overall net directional bias of orders and does not provide information about individual order sizes or specific market participants. It is typically aggregated over a specific time period and can be derived from market data or order flow data provided by exchanges or trading platforms.