Today’s STOXX 50 futures contract, traded on EUREX, offers a very nice illustration how monitoring Order Flow can allow you to piggy-back on the institutional, hedge fund and proprietary trading desk orders which drive the market.
Notice how the WOW Index flips from Red (Sellers) to Green (Buyers) just at the days low.
The trading entities that have very large technology budgets have algorithmic insights that allow them to know when to buy. We do not have the same technology budget that these big shops do.
Even though we do not have the insights into why these entities buy, we do have the ability to monitor their activity and, like the pilot fish who let the sharks do all of the dirty work, we can eat at the same table as the sharks.
Hope this helps.