ratios order-flow imbalance intermediate

What are Ratios in Order Flow Trading?

• By OrderflowHQ Team
What are Ratios in Order Flow Trading?

Ratios are powerful order flow indicators that compare buying and selling activity to identify imbalances and trading opportunities. Understanding ratios helps you see what’s really happening beneath the surface of price action.

What are Order Flow Ratios?

Order flow ratios compare different aspects of buying and selling activity:

  • Bid/Ask Ratio: Compares volume at bid vs ask
  • Buy/Sell Ratio: Compares buying vs selling volume
  • Delta Ratio: Compares buying pressure vs selling pressure
  • Volume Ratio: Compares current volume to average volume

Types of Order Flow Ratios

1. Bid/Ask Ratio

The bid/ask ratio compares volume traded at the bid (sellers) vs volume traded at the ask (buyers).

Calculation:

Bid/Ask Ratio = Volume at Bid / Volume at Ask

Interpretation:

  • Ratio > 1: More selling (bearish)
  • Ratio < 1: More buying (bullish)
  • Ratio = 1: Balanced (neutral)

Example:

  • Bid volume: 2,000 contracts
  • Ask volume: 1,000 contracts
  • Ratio: 2.0 (more selling pressure)

2. Buy/Sell Ratio

The buy/sell ratio compares total buying volume to total selling volume.

Calculation:

Buy/Sell Ratio = Total Buying Volume / Total Selling Volume

Interpretation:

  • Ratio > 1: More buying (bullish)
  • Ratio < 1: More selling (bearish)
  • Extreme ratios: Potential reversal

3. Delta Ratio

The delta ratio compares cumulative buying pressure to selling pressure.

Calculation:

Delta Ratio = Cumulative Delta / Total Volume

Interpretation:

  • Positive ratio: Net buying pressure
  • Negative ratio: Net selling pressure
  • Extreme ratios: Potential exhaustion

4. Volume Ratio

The volume ratio compares current volume to average volume.

Calculation:

Volume Ratio = Current Volume / Average Volume

Interpretation:

  • Ratio > 1: Above average volume (significant)
  • Ratio < 1: Below average volume (less significant)
  • High ratios: Strong conviction

Using Ratios for Trading Signals

Bullish Signals

Look for these ratio patterns:

  1. Low Bid/Ask Ratio (< 0.8)

    • More buying than selling
    • Bullish pressure building

  2. High Buy/Sell Ratio (> 1.2)

    • Strong buying volume
    • Momentum building

  3. Positive Delta Ratio

    • Net buying pressure
    • Buyers in control

  4. High Volume Ratio (> 1.5)

    • Above average volume
    • Strong conviction

Bearish Signals

Watch for these ratio patterns:

  1. High Bid/Ask Ratio (> 1.2)

    • More selling than buying
    • Bearish pressure building

  2. Low Buy/Sell Ratio (< 0.8)

    • Strong selling volume
    • Momentum building

  3. Negative Delta Ratio

    • Net selling pressure
    • Sellers in control

  4. High Volume Ratio (> 1.5)

    • Above average volume
    • Strong conviction

Advanced Ratio Strategies

1. Ratio Divergence

When ratios diverge from price:

Bullish Divergence:

  • Price making lower lows
  • Ratios showing buying pressure
  • Potential reversal up

Bearish Divergence:

  • Price making higher highs
  • Ratios showing selling pressure
  • Potential reversal down

2. Ratio Exhaustion

When ratios reach extremes:

Buying Exhaustion:

  • Extremely low bid/ask ratio
  • Very high buy/sell ratio
  • Potential top

Selling Exhaustion:

  • Extremely high bid/ask ratio
  • Very low buy/sell ratio
  • Potential bottom

3. Ratio Confirmation

When ratios confirm price moves:

Bullish Confirmation:

  • Price moving up
  • Ratios showing buying
  • Strong move likely to continue

Bearish Confirmation:

  • Price moving down
  • Ratios showing selling
  • Strong move likely to continue

Combining Ratios with Other Tools

With Price Action

Ratios confirm price patterns:

  • Breakout with ratio confirmation: High probability
  • Breakout without ratio confirmation: Lower probability
  • Ratio divergence: Potential reversal

With Volume Profile

Ratios at key levels:

  • POC with strong ratio: Significant level
  • Value area with ratio: Important support/resistance
  • Low volume node with ratio: Weak area

With Time and Sales

Ratios from tape reading:

  • Large prints with ratio: Strong signal
  • Small prints with ratio: Less significant
  • Speed with ratio: Urgency indicator

Common Ratio Patterns

1. The Imbalance Pattern

When one side dominates:

  • Strong buy ratio: Buying imbalance
  • Strong sell ratio: Selling imbalance
  • Stacked imbalances: Strong directional move

2. The Reversal Pattern

When ratios reverse:

  • Buying to selling: Bullish to bearish
  • Selling to buying: Bearish to bullish
  • Quick reversal: Strong signal

3. The Exhaustion Pattern

When ratios reach extremes:

  • Extreme buying: Potential top
  • Extreme selling: Potential bottom
  • Volume spike: Confirmation

Best Practices

1. Use Multiple Ratios

Don’t rely on one ratio. Combine:

  • Bid/ask ratio
  • Buy/sell ratio
  • Delta ratio
  • Volume ratio

2. Consider Context

Always consider:

  • Overall trend
  • Time of day
  • Market conditions
  • News events

3. Look for Confirmation

Wait for multiple signals:

  • Ratio signals
  • Price action
  • Volume confirmation
  • Order flow patterns

Tools for Ratio Analysis

Professional ratio analysis requires:

  • Real-time ratio calculations
  • Customizable displays
  • Historical analysis
  • Multiple timeframe ratios

Vtrender provides advanced order flow ratio tools for professional analysis.

Common Mistakes

1. Trading Every Ratio Signal

Not every ratio signal is a trade. Wait for:

  • Clear patterns
  • Multiple confirmations
  • Proper risk/reward

2. Ignoring Context

Ratios alone aren’t enough. Consider:

  • Price action
  • Overall trend
  • Market conditions
  • Time of day

3. Not Using Stops

Ratios aren’t perfect. Always use:

  • Stop losses
  • Position sizing
  • Risk management

Conclusion

Order flow ratios are powerful tools for identifying market imbalances and trading opportunities. By comparing buying and selling activity, you can gain insights that aren’t visible on price charts alone.

Start using Vtrender’s ratio analysis tools to identify imbalances and improve your order flow trading.

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