Predicting Breakouts - Accumulation/Distribution

[UrmaBlume 10]

As price consolidates the question is always, how will it break from the consolidation?

 

The answer is that the Net New Trade or net buying and selling during the consolidation will usually tell the story.

 

The graph below represent trade on 12/16/2008 in the hours before and immediately after a Fed announcement.

 

The bottom graph is our calculation of Net New Trade and is reset at midnight PST. Primarily we use this to determine the net longs or shorts for the session but it also is a very good measure of intra-session net accumulation/distribution.

 

Notice that in the hours before the announcement (which came just after 1100 PST) price was completely flat and traded whithin narrow and well defined boundaries.

 

During that same 4 hour period before 1100 Net New Trade demonstraded steady accumulation.

 

This is a further demonstration of how different measures of buying and selling power do a better job of predicting price than price base indicators such as CCI, MA, EMA, Stochastics, RSI, Bollinger Bands......

 

While the chart below shows almost a whole session the same indications are present in micro intra-session time frames for all of these indicators.

 

[sfmain 10]

thats a cool indicator are you selling it sharing it whats the deal?

[UrmaBlume 10]

Thanks for the kind words.

 

There are many different ways to calculate accumulation/distribution/moneyflow, this is ours.

 

We are a small group of private traders and none of our technology is for sale. We do however engage in conversations about the concepts behind our work such as the posts here.

[ramora 10]

Ok, lets engage in a conversation!!! It looks like the standard money flow indicator something like:

 

if (trade is >= ask)

VolumeAccm = VolumeAccm[t-1] + thisVol;

else

VolumeAccm = VolumeAccm[t-1] - thisVol;

 

It is helpful but hardly a new development.

 

How is your indicator different than MFI?

 

Thanks again!

[UrmaBlume 10]

Ok, lets engage in a conversation!!! It looks like the standard money flow indicator something like:

 

if (trade is >= ask)

VolumeAccm = VolumeAccm[t-1] + thisVol;

else

VolumeAccm = VolumeAccm[t-1] - thisVol;

 

It is helpful but hardly a new development.

 

How is your indicator different than MFI?

 

Thanks again!

 

While we do it a bit differently the base concept is close.

[atto 20]

While we do it a bit differently the base concept is close.

Okay, so let's dig here, as this seems to be the base of most of your developments. How are you measuring buying vs selling pressure? This is important, because it is quite obviously not bid/ask differences, so must be a different angle. The number of contracts sold is the exact same as bought in all situations, so you're obviously measuring pressure using something similar to bid/ask. Possibly price movement (buying pressure = on uptick, selling pressure = on downtick)?

[Eiger 10]

... Possibly price movement (buying pressure = on uptick, selling pressure = on downtick)?

 

Or on the wave. To me, it looks as if you might be calcuating the small swings (or waves) and designating them as either up or down. Volume (or perhaps some other measure of activity) is cummulated by adding the volume in the up waves and subtracting volume in the down waves.

 

Even if this is not on the right track, you have something that looks very good here.

 

Eiger

[jasonckb 10]

Or on the wave. To me, it looks as if you might be calcuating the small swings (or waves) and designating them as either up or down. Volume (or perhaps some other measure of activity) is cummulated by adding the volume in the up waves and subtracting volume in the down waves.

 

Even if this is not on the right track, you have something that looks very good here.

 

Eiger

 

 

seems using the XTL concept in Advanced Get showing up-swing and down-swing.

[BlowFish 10]

Is this indicator

 

Unbounded?

 

UnNormalised?

 

Reset each day?

 

I don't think this reveals to much...my strong hunch is yes to all.

[Eiger 10]

seems using the XTL concept in Advanced Get showing up-swing and down-swing.

 

Not familiar XTL & Advanced Get. The cumulative up/down swing volume just seemed logical from the chart. Nevertheless, I can see how useful this can be.

[UrmaBlume 10]

Is this indicator

 

Unbounded?

 

UnNormalised?

 

Reset each day?

 

I don't think this reveals to much...my strong hunch is yes to all.

 

Yes to all three, it is reset everday at midnight PST.

[UrmaBlume 10]

seems using the XTL concept in Advanced Get showing up-swing and down-swing.

 

This work has nothing to do with Elliott Wave/GET. GET is based solely on price, this particular indicator does not use price in any form as any part of its calculation.

[atto 20]

This work has nothing to do with Elliott Wave/GET. GET is based solely on price, this particular indicator does not use price in any form as any part of its calculation.

Okay, so it seems calculating volume of waves isn't how you do it (as that uses price). I asked before, but the post may have been overlooked: Mind sharing what you are looking at for measuring up/down volume (as you said before, it isn't at bid/ask)? I don't think this little bit of information would threaten your trading systems in the least, and would probably help some of us follow what you're doing further.

 

Thanks

[zdo 20]

Hi,

 

This is interesting - for one, because during congestion it better for me to fade my 'accumulators'

 

Urma, does Net New Trade have a trade size condition in its calculations?

 

Thanks,

 

zdo

[UrmaBlume 10]

Hi,

 

This is interesting - for one, because during congestion it better for me to fade my 'accumulators'

 

Urma, does Net New Trade have a trade size condition in its calculations?

 

Thanks,

 

zdo

 

ZDO,

 

How astute, good catch. Transaction size as a measure of cash commitment.

 

While the indicators I have posted here do not include this consideration, others we use do.

 

From a macro prospective what we, as micro short-term action junkies do, is try, in a very precise manner, to locate out of sync commitments of cash to the market place.

 

Again, Good Catch ZDO - In many very diverse markets, immediate knowledge of large/out of sync cash commitment can spawn profits. Regardless of time frame, there is almost always high intensity trade at the extremes.

 

 

cheers

Edited January 22, 2009 by UrmaBlume

[habi 10]

As price consolidates the question is always, how will it break from the consolidation?

 

While the chart below shows almost a whole session the same indications are present in micro intra-session time frames for all of these indicators.

 

 

Since 4 days, the ES is consolidating in a range. Does your indicator works for this period too? What is it telling us about the breakout?

 

[AgeKay 10]

Your indicator looks like a cumulative "delta" (volume on ask - volume on bid) to me.

[UrmaBlume 10]

Before computerized exchanges pit traders held one huge advantage over the public and other off the floor traders - THEY COULD SEE THE ORDER FLOW.

 

In the pits to signal a buy the trader showed both hands palms inward - one hand indicated price and the other the size. Palms out to sell.

 

Orders come from either outside the pit via the phone banks or from traders inside the pit.

 

Inside the pit are several different kinds of traders - individual speculators, brokers, locals and most important of all - the commercial traders. These commercial traders execute large size speculative and hedge trades for the big firms and funds. Everybody in the pit makes sure he knows exactly who these guys are and knows that when the commercial trader puts his palms out to sell that he probably has enough selling to do to put in at least a short term top.

 

With this understanding, should a trader look toward the phone bank and see a sea of palms he knows that a wave of selling is about to hit the market. At the same time should he see a known commercial with palms out he knows size selling is coming.

 

In our trading we use an indicator of session net new commercial trade as shown below. This chart shows several hours before an announcement from the Fed - While price was completely flat - accumulation by commercials was obvious.

 

While it is easy to miss the excitment and energy of the floors of old at the Merc and CBOT - we online traders have it better than they ever did.

 

 

[Hlm 10]

You already posted this indicator over HERE. If you had something more to say about it you probably should have just added it to the other thread. At the very least you should have used a new chart that wasn't two and a half months old.

[UrmaBlume 10]

This is an entirely different discussion that happens to use the same chart. Because it is different it is not appropriate to post it on the other thread.

Edited March 1, 2009 by DbPhoenix

[Order Flow Man 10]

I seem to find myself on this web site again inadvertently after Googling something related.

 

I thought I might mention (my 2c) that if you want to spot accumulation/ ditribution than you can use the CD indicator. In the more retail markets (specifically the currencies) you will see large divergence in the CD and price chart before large reversals. Just plot it out for a couple of weeks and you will see it happening each day. There is a bit more to it than that, but if you think about market dynamics you might be able to put it together.

 

This is not so prevalent in the ES. A bit in the ZN but works slightly differently. You can look at retesting levels but lower values of CD to show less strength and possible reversals. This market is a lot thicker so is more reliable, also has a lot of games by big prop firms being played.

 

Also, if CD moves significantly higher and price doesnt move, you can assume some type of accumulation or distribution. It is easy to see in the currencies and ZN where the big money is (exiting an old position/ taking partial profit/ starting a new position) but not so much in certain other markets like ES. Like I said, ES will pretty much track CD all day as it is a very market order driven instrument.

 

I highly recommend plotting the CD for a variety of markets over the medium term and understand their players, characters and cycles. And dont listen to the standard way of reading the CD for every market. It is different for each market based upon its depth and players. There is more to look at but this is good info!

[MightyMouse 12]

 

I thought I might mention (my 2c) that if you want to spot accumulation/ ditribution than you can use the CD indicator. In the more retail markets (specifically the currencies)

 

Where do you get this info?

All markets are predominately institutional. And most institutional trades are not speculative

 

The wrong assumptions make the game very dangerous.

[Order Flow Man 10]

I wouldnt think it is the wrong assumption. I am only talking as per the COT reports.

 

I would say that ES and currencies have a lot of dumb money in them (as per the usual expression). This doesnt mean that there isnt just as many (if not more) commercial and non-commercial speculators to balance their positions, because there is. But there is a huge difference between 10% small trader involvement and 30% small trader involvement and what this means for how the market moves day to day.

 

For example, at the moment the S&P futures (see full COT report) you will see that both the commercials and non-commercials (eg hedge funds) are net short. There needs to be some pretty big small time trader involvement for this to happen. Who is holding the other side of their trade? Well not me, I can assure you of that, I am short. But a lot of small traders are long. In other markets, the commercial and non commercial move almost inversely as their is practically zero non-reportable positions.

 

Example- heavy retail markets:

 

--------------------------------------------------------------| NONREPORTABLE

NON-COMMERCIAL | COMMERCIAL | TOTAL | POSITIONS

--------------------------|-----------------|-----------------|-----------------

LONG | SHORT |SPREADS | LONG | SHORT | LONG | SHORT | LONG | SHORT

--------------------------------------------------------------------------------

($50 X S&P 500 INDEX) OPEN INTEREST: 3,190,988

COMMITMENTS

440,541 487,310 84,694 2121988 2391851 2647223 2963855 543,765 227,133

 

CHANGES FROM 02/18/14 (CHANGE IN OPEN INTEREST: 27,216)

15,851 -19,411 3,893 -23,622 57,523 -3,878 42,005 31,094 -14,789

 

PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADERS

13.8 15.3 2.7 66.5 75.0 83.0 92.9 17.0 7.1

 

NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS: 546)

108 108 54 215 219 347 357

 

 

Example Non-retail

 

BUTTER (CASH SETTLED) - CHICAGO MERCANTILE EXCHANGE Code-050642

FUTURES ONLY POSITIONS AS OF 02/25/14 |

--------------------------------------------------------------| NONREPORTABLE

NON-COMMERCIAL | COMMERCIAL | TOTAL | POSITIONS

--------------------------|-----------------|-----------------|-----------------

LONG | SHORT |SPREADS | LONG | SHORT | LONG | SHORT | LONG | SHORT

--------------------------------------------------------------------------------

(CONTRACTS OF 20,000 POUNDS) OPEN INTEREST: 6,905

COMMITMENTS

579 4,168 22 4,965 2,286 5,566 6,476 1,339 429

 

CHANGES FROM 02/18/14 (CHANGE IN OPEN INTEREST: 518)

188 281 -1 342 194 529 474 -11 44

 

PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADERS

8.4 60.4 0.3 71.9 33.1 80.6 93.8 19.4 6.2

 

NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS: 31)

8 6 3 14 9 22 18

 

 

 

I think the main point I was trying to make is that a plot of CD can show you accumulation/ distribution. But it really depends on the market on how you should interpret it. Simply by definition, if their is divergence in the price and the cumulative delta then their has to be a surplus or lack of limit orders from the previous.