I have noticed that there are many similarities between the order flow approach and the Wyckoff style of trading, Could someone explain to me what the differences are if there any at all?
There are some who would argue that Wyckoff/VSA is order flow trading. Wyckoff/VSA attempts to "measure" the amount of professional buying or selling during a price interval by looking at the relationship between the Volume, Spread (Range), and the Close.
OrderFlow trading takes on many forms, but the essence involves looking at the actual buy and sell orders in the market.
Take a look at the chart.
Wyckoff/VSA would consider price interval (A) to be a sign of strength. Why? Because the interval is a widespread DOWN interval with very high volume that closed well off its lows with the next interval (B) UP. Wyckoff/VSA contends that this can only happen if the Professional, or Smart, Money is buying. Which is to say that the flow of orders from the Professionals must be on the BuySide. But this conclusion is being extrapolated without looking at any information about actual orders.
OrderFlow traders would look "inside" price interval (A) to determine strength or weakness. While it is true that for every buyer there is a seller, what actually moves price is the aggression of the buyers or sellers. Aggressive buyers or sellers trade At the Market. This "footprint" chart tells a trader how many contracts were bought or sold At the Market at each price level within the interval.
An OrderFlow trader might determine this is an interval of strength due to the presence of buying imbalances at the lower price levels of the interval. This is determined diagonally and beyond the scope of this post.
Of course, there is much more to OrderFlow trading than this. The point here is that OrderFlow trading, unlike Wyckoff/VSA looks at actual orders placed into the market.
Without VSA, you're playing checkers while the Smart Money plays chess.
