medium · Order Flow Analysis order-book-dom
A trader observes a 5-minute ES bar with 14,000 contracts of total volume. This is significantly above the average bar volume of 8,000.
Why is this 'Volume Confirmation' necessary for a valid signal?
- It mechanically guarantees the bid-ask spread will narrow throughout the bar
- High volume ensures that random high-frequency trading noise is largely minimized
- It prevents the exchange's matching engine from misclassifying which side is the aggressor
- It indicates that institutional money is actively participating in the move
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