Overview

This article summarizes a discussion between a host and futures trader Fabio Valentino on the Chart Fanatics channel. Valentino presents two order flow models, explains the principles behind them, and applies them to live NASDAQ futures trading during the New York session. The discussion covers market structure, auction market theory, volume profile, cumulative volume delta, risk management, and the psychological demands of scalping.

The speaker states that he ranked in the top three of a world trading competition over a 12-month period, with a return above 500 percent in the futures division. These performance claims are the speaker's own and were not independently verified in the source material.

Core Premise: Market Structure and Probability

Valentino argues that many traders lose money because they trade structural patterns without a volume-based frame. In his account, a trend-following entry on a break of structure, change of character, or breakout has a lower success rate when the pattern forms against the lower part of the day's volume distribution.

He states that, based on his experience, a trend-following pattern entered against the volume distribution succeeds approximately 30 percent of the time. The remaining trades stay within the fair value area and produce repeated stop-outs. He also states that traders who expect win rates of 70 to 80 percent, or who target 1:3 risk-reward ratios without reading volume, usually see results well below those expectations.

Auction Market Theory

Valentino describes the market as an auction. Price moves between two states:

• Balance: Participants transact efficiently around a value area.
• Imbalance: One side becomes more aggressive, and price moves to find a new balance level.

He states that markets spend most of their time in balance. Traders who enter long or short trades on the assumption of constant imbalance experience streaks of stop-losses. He states that changing the entry condition to wait for imbalance raises the win rate by at least 20 to 30 percent.

He distinguishes a model from a strategy. In his view, a strategy consists of strict rules that do not account for changing conditions. A model is a framework that adapts to the market's narrative. He cites the US strike on Iran and the resulting gap-down open as an example of a condition that changes expected behavior.

The Three-Step Framework

Valentino's trend-following model uses three sequential steps.

Step 1: Location

Location identifies the area where a trade is valid. Valentino uses:

1. Market state: The trade is taken only when the market is out of balance. Balanced conditions are excluded.
2. Supply and demand zones and inefficiency: He defines inefficiency as an imbalance of aggression, where one side moves the market rapidly. He notes that the term "fair value gap" is commonly used for this concept.
3. Volume profile: The previous balance area, its point of control (POC), and the value area define the target zones.

Step 2: Validation

The second step confirms the direction and level. Valentino identifies three potential take-profit levels by reviewing other areas of the volume profile.

He also refers to order flow as a method for reading the market rather than a standalone concept. He contrasts this with multi-timeframe analysis, which he states is the approach used by most traders. He describes a low volume node (LVN) as a level where price tends to react quickly. He states that a low volume node within a trend makes continuation toward the next level probable.

Step 3: Trigger and Aggression

The third step identifies aggression. Valentino uses large order detection on order flow platforms, which display large orders as bubbles. He sets a filter to show orders above a defined size:

• New York session, 1-minute and 5-minute charts: 30 contracts.
• London session: 20 contracts.

He states that the presence of direction, location, and aggression produces a trade with a defined stop placement. His stop loss sits above or below the large aggressive order rather than above the high or below the low. He describes this approach as reading the market rather than predicting it.

Trade Management

Valentino describes the following management rules:

• Stop placement: The stop is placed one to two ticks beyond the high or low of the setup. This avoids the acceleration that often occurs at obvious stop levels. He states that the occasional loss of five or six ticks is offset by fewer total losses over time.
• Entry confirmation: He does not take the first breakout. He waits for a retest and a candle close, because breakouts can reverse as fake-outs.
• Break-even: He moves the stop to break-even after a small move in favor of the trade.
• Position risk: He risks 0.25 percent of his personal account per trade. Under the competition rules, he states that he risked up to 0.5 percent per trade and, after returns above 100 percent, up to 1 percent. He states that his maximum daily loss limit is 2 percent.
• Profit-based sizing: In directional sessions, he states that he risks a portion of the day's accumulated profit rather than fresh capital.
• Exit: Under the trend model, he exits the full position at the target rather than scaling out, because he estimates a 70 percent probability of reversal at the target.

Model Two: Mean Reversion

The second model applies in consolidation. The market state is balance, and the trade seeks a return to the balance area after a breakout.

Valentino's procedure:

1. Identify the consolidation range using the profile of the previous day or a compressed range on the chart.
2. Wait for the first breakout and do not enter on it.
3. Wait for the retracement into the low volume node and the high-volume area.
4. Enter when large aggressive orders appear in the direction of the reversion.
5. Place the stop one to two ticks beyond the high of the move.

Valentino states that mean reversion works best during the London session, when indices tend to range. He states that the same model is unsuitable for the New York session, where the trend model applies.

Session Timing and Market Conditions

Valentino makes the following claims about timing:

• New York session: He states that the trend model performs best during the New York session, specifically for US equities such as NASDAQ.
• London session: He states that the first hour of London produces fake-outs. He uses mean reversion during London.
• Summer months: He states that compressed conditions in the summer months of 2023 and 2024 reduced the effectiveness of the trend model. He states that the mean reversion model suits these periods better.
• Trade duration: He closes all positions at the end of each session and does not hold overnight, because futures require additional margin.

Edge Decay

Valentino defines edge decay as the loss of a model's effectiveness when market conditions change. He cites an example of a supply-and-demand trend model whose stop distance grew when volatility changed, causing losses even when the directional call was correct.

He states that order flow reduces edge decay because it tracks the underlying auction rather than fixed rules.

Leading and Lagging Indicators

Valentino classifies tools as follows:

• Lagging: Indicators derived from price, such as MACD, stochastic, and RSI.
• Real-time: Price action.
• Leading: Volume-based tools.

He states that volume reveals the developing narrative before price reflects it.

Cumulative Volume Delta

Valentino uses cumulative volume delta (CVD) as a measure of volume pressure. He explains that rising CVD with price moving higher, without aggressive sellers, indicates that buyers are willing to pay higher prices. He uses this signal to move a stop to break-even earlier than price action alone allows.

He illustrates the concept with an auction for a 1969 Mustang, in which bids rise from a starting price as buyers enter at each level.

Live Trading Session: NASDAQ, New York Open

The live segment took place during the New York session. Valentino's sequence of observations is summarized below.

Pre-Market Context

• The US had struck three Iranian sites over the weekend.
• NASDAQ opened with a gap down, which the market recovered.
• Valentino identified a previous daily high as the first target.
• He states that he does not trade in the 10 to 20 minutes before the open, because the volatility range changes and stops are frequently triggered.

Live Sequence

1. Failed auction: Large sell aggression pushed price into the value area low. No follow-through occurred, and buyers absorbed the sell orders.
2. Squeeze setup: Price reached the low volume node and reversed as sellers closed positions.
3. Entry: Valentino entered long after a one-minute candle closed above the failed level, with a stop placed below the aggressive buy orders. Risk was approximately $260 to$280 per contract.
4. Stop-out: A later entry was stopped out for a loss of $255.
5. Position management: After a further move, he moved the stop to break-even and scaled out partially.
6. Daily result: Valentino reported a daily profit of approximately $1,000 per contract at the point of the final management decision.

Valentino states that the trade illustrates the principles of waiting for confirmation, taking partial profit, and protecting capital before pursuing additional profit.

Psychological and Operational Demands

Valentino identifies three costs of the trend model:

1. Drawdown: Compression days produce repeated small stop-losses. He states that a 5,000 dollar loss followed by a single take-profit of 15,000 to 20,000 dollars causes heavy psychological strain for beginners.
2. Stress: Per-contract risk can reach 2,000 to 5,000 dollars within two to three minutes.
3. Time commitment: The model requires attention from the start of the New York session until its close. He states that he manages the first three to four hours of the session.

He also states that he has experienced a day in which he held a 28,000 dollar floating profit, reversed, and lost the profit.

Advantages Claimed by the Speaker

• Trade frequency: A high number of trades produces statistically meaningful data and reduces the time needed to recover from drawdowns.
• Lower decision burden: The model requires reading the market state, location, and aggression rather than forecasting.
• Reduced revenge trading: Trades are taken only when the defined conditions appear.

Disadvantages Claimed by the Speaker

• Compression periods reduce the win rate.
• The model requires constant monitoring.
• High per-trade risk causes emotional strain.

Commissions

Valentino states that approximately 600 executions per quarter can cost 10 to 20 percent of an account in commissions, which must be recovered before profit is realized.

Risk-Reward Expectations

Valentino states that a risk-reward ratio of 1:2.5 is the minimum acceptable level for the model. Ratios of 1:4 to 1:5 are common, and ratios of 1:10 to 1:20 occur rarely. He states that such ratios occur on days when the NASDAQ moves 2 to 3 percent.

Key Takeaways

• Trade only when the market is out of balance for the trend model, and when the market is in balance for the mean reversion model.
• Use volume profile to locate low volume nodes and value area boundaries.
• Wait for large aggressive orders and confirmation before entering.
• Place stops beyond the level of aggression, not at obvious highs or lows.
• Size positions to the account and limit daily loss.
• Move to break-even early and take partial profit when the market behavior no longer supports the setup.