Thank you Torero. I wanted to add a few things.... bids and asks getting withdrawn are not always traders playing games. This can easily be due to uncertainty, fear, or nervousness regardless of whether the person was a private or insitutional trader. How many times have we placed a limit order just to withdraw at the last minute due to uncertainty?
Regarding market profile and order flow, I personally do not have a tight correlation between the two. Market profile is more of an understanding of auction theory to me instead of a rigid trading methodology. For example, this is how I would use MP in my trading. Lets say prices break the previous day low swiftly on stop runs and momentum shorts. However, order flow slows and the tape surprisingly shows diminishing sellers. All of a sudden a burst of buy orders, short covering, and momentum longs enter the market and the order flow is twice as fast on this move up compared to the move down. As a matter of fact, the tape shows a burst of buying emotion with order flow showing most contracts being traded at the ask. You ask yourself... okay, if we break into the previous day range I am going long for a possible rotation back into the previous day
POC or
VAH. Why? Because this tail it left below the previous day low is rejection and value must be higher. (market profile concept) So I wouldnt even hesitate and throw in a market buy order once price breaks into the previous day range again.
I think specific setups are nice to catch and wait for because they line up perfectly with the tools traders use whether they be support and resistance, internals, indicators, etc... However, understanding order flow allows one to enter based on momentum and gut instinct. (important you realize u have a solid instinct and not impulse)
Lets say prices decline to test the low of day. I am observing tape and level 2 to determine whether to fade this move or play a breakdown. I see temporary support with buyers trying to keep prices up. However, tape and level 2 shows a thick ask as prices move up by a few ticks. In other words, sellers are still trying to dump contracts. Order flow tells me this is weak and that we are likely to break the low. Hence, I would short at 1-3 ticks above the previous day low. For new traders, you might wonder why in the world would you do that? I am comparing the action on level 2 and tape on the leg up vs leg down. (the leg can be anywhere from 3-10ticks)
Happy Trading.