📈 Expert Analysis of #Bitcoin’s Toxic Order Flow (TOF): Impacts and Mitigation In crypto, as in traditional stock markets, market participants can be classified into two categories: informed traders vs. uninformed traders. As informed traders’ activity increases, it signals an upcoming price change. 🔍 TOF Origins The study of Toxic Order Flow is often analyzed through VPIN: Volume Synchronized Probability of INformed trading. Developed by Easley, Prado, and O’Hara in 2012, VPIN builds upon their earlier work on the Probability of Informed Trading (PIN, 1992). The Kingfisher adapted this model to crypto trading, providing valuable insights, especially when used alongside accurate liquidation maps. 🤔 What is TOF? Toxic Order Flow (TOF) identifies the probability that part of the order flow belongs to informed traders. High TOF indicates a likely spike in volatility. This is because informed traders' actions create significant volume imbalances. ⚠️ Impact of TOF TOF occurs when uninformed traders provide liquidity at a loss to informed traders. For example, retail FOMO after a viral social media post fills the standing orders set by informed traders. 🔄 Feedback Loop There’s a positive feedback loop between TOF and high-frequency liquidity. A negative liquidity shock boosts VPIN locally, leading to further liquidity drain and potential liquidations. Market makers widen their spread during high TOF, increasing local volatility. 📕Textbook $BTC liq hunt & TOF: On the 30th of May, in the early morning, #Bitcoin’s price shot up over 6% within 8h. Can liquidations and toxic order flow offer an explanation as to what happened? 1: Right before the first pump, we can see a short liquidation cluster built up right above the price (box 1) This liquidity was captured by a first “small pump”, forcefully draining the local liquidity 2: Toxic Order Flow starts to build up → market makers slowly remove liquidity (box 2) 3: Pulling a short-term liquidation map (optical_opti) shows a new short liquidation cluster built up right below the previous high (box 3) 4: Toxic order flow further increases as liquidity locally drains, yet again, as #3’s liq cluster gets captured, leading to market makers further increasing their spread and removing liquidity 5: Liq all them short 🎣 Thanks for playing! 🔧 Using Kingfisher’s TOF Spike in Toxic Order Flow on 1-min candles indicates over-extended price action. This can be traded for quick scalps. TOF is useful in higher timeframes too. 🔗 Learn More: Guide: Telegram: @theKingfisher_btc_chat KF Pro: Links: #Bitcoin #Crypto #ToxicOrderFlow #VPIN #TradingAnalysis #MarketInsights