Recently started diving deep into the order flow system. To be honest, when I first encountered it, I was a bit confused because there are so many people talking about order flow in the market, but most of what they discuss are market depth analysis or order flow footprint charts, which are completely different from what we need to learn.

What we actually need to study is the logic of smart money, also known as SMC. Simply put, it’s about thinking from the perspective of the main institutional players. What’s the biggest difference between retail traders and institutions? Capital. Retail traders can freely move in and out with tens of thousands of dollars, but institutions have hundreds of millions or billions, and can’t flexibly enter and exit like retail traders. That’s the core issue.

So, the main problem institutions face is liquidity. They want to buy low and sell high, but they don’t have enough chips. What to do? They have to find ways to buy more chips at low prices. These chips are actually orders, and behind the orders is money, which we collectively call liquidity. Institutions are like sharks in the ocean; what we need to do is follow them like small fish.

There’s a key concept called the cost recovery mechanism. When institutions build a position, suppose they plan to buy 100 million, but only manage to buy 50 million, still 50 million short. They notice a large amount of liquidity at a certain level, mostly retail stop-loss and breakout orders. What do they do? They first push the price down, eating up that 50 million liquidity. But this also causes their short positions to be trapped. No problem—they then push the price back up, sell some at the top to cover their positions, and at the same time complete the remaining position building. That’s cost recovery.

It sounds a bit complicated, but the core logic is that institutions actively trap themselves to acquire liquidity, while retail traders are passively trapped. The difference is that institutions don’t have a concept of stop-loss; they aim to recover their costs.

The learning path for order flow actually varies from person to person. I started with some beginner books, then read articles, watched videos, and only then could I truly understand. The learning method is simple—three steps: first, skim through all the content to get a general idea; second, identify the 20% that’s most important to you; third, go find answers to your questions.

Most importantly, you need to change your perspective on the market. Previously, we emphasized trends; now, we need to look at where the orders are and where the liquidity is. Price action follows the trend, but order flow follows the big funds. This is a qualitative shift.

For example, why does the B-wave structure appear? In the past, we said it was a pattern; now we know that smart money is actually sweeping the liquidity below, those stop-loss and breakout orders. I was just being hunted along with them. Once you understand this logic, your feel for the market will be completely different.

If you want to delve deeper into order flow, I recommend directly learning from authentic courses. What I’m sharing now is more about integrating my own system of understanding because I have my own stable profit methodology. So, in the upcoming courses, I’ll mainly be guiding you in, but the real practice depends on you.

In the next session, we will discuss the principles of liquidity in detail and why mastering liquidity is so important. Are you ready?