Order Flow Analytics

[sevensa 10]

FulcrumTrader can you add some words to my questions?

 

i)Can you confirm FESX leads UE morning Market?

ii)An "inventory grab" event is more important than a persistent divergence of a different sign?

 

Thanks

 

P.S.Please ZOSO let the Vendor and the Buyer continue the conversation.

 

Maybe the buyer and vendor can use the vendor's own forum for support and not a forum to give him free advertising?

[shrike 10]

Why are you sad about it?

 

i make a ts on some EU share or futures , but the variable "move of USA futures or market " i'm not able to do

 

i'm in UE ,so each movement from USA , here is amplified and hard to manage .

so is easyer trade USA stock and futures

[Tams 20]

Maybe the buyer and vendor can use the vendor's own forum for support and not a forum to give him free advertising?

 

 

Many vendors cannot afford sponsorship advertising. LOL

 

 

 

 

p.s. I don't know how much sponsorship costs... It might cost as much as a stoploss !

[BlowFish 10]

Hi

 

sad telling this but

night and day European markets are driven by USA futures ,and when open ,by the USA markets .

 

try it with matlab this Kolmogorov-Smirnov Test

 

That is not my experience, particularly the EU morning session. If that is sincerely your belief it's probably better to respectfully disagree than argue the toss as we clearly live in different 'realities'. You don't think the worlds largest market (FX) has a bearing on things during one of its most liquid periods? Or announcements from the European Central Bank for that matter. You don't think some of the worlds largest businesses (which are funnily enough not all USA based) have some small effect on the indexes?

 

As an aside How would you use the Kolmogorov-Smirnov test to see which data set 'leads' the other? isn't it simply a correlation test? Stats is not my strong point but I am always keen to learn.

[paolfili 10]

I agree.

IMHO (and from my observation) Liquidy drive (futures index) markets.

FESX in the EU Morning.

ES (and son) in USA working hours.

Asian index futures in the EU night.

Anyway I think is important to share different observation.

 

That is not my experience, particularly the EU morning session. If that is sincerely your belief it's probably better to respectfully disagree than argue the toss as we clearly live in different 'realities'. You don't think the worlds largest market (FX) has a bearing on things during one of its most liquid periods? Or announcements from the European Central Bank for that matter. You don't think some of the worlds largest businesses (which are funnily enough not all USA based) have some small effect on the indexes?

 

As an aside How would you use the Kolmogorov-Smirnov test to see which data set 'leads' the other? isn't it simply a correlation test? Stats is not my strong point but I am always keen to learn.

[FulcrumTrader 10]

CASH SESSION markets frequently lead futures markets. When the US cash session is trading the ES will frequently follow the equities side buy and sell program activity of the cash markets. When the EU session is trading the same behavior will be in place....up to the point a significant futures zone of resting inventory is traded to or until there is a news release triggered reaction in the markets. Futures markets tend to lead at the times large positions are initiating new buy or sell response, this is usually at developing zones of resting futures side inventory or in reaction to news. Futures can also lead for a brief time when a significant zone of resting LONG or SHORT inventory is neutralized....there will be futures market lead price reactivity as the held resting inventory is turned into a weaker hand. The quick covering of that held inventory will create strong order flow bias and solid price movement in the futures market which will lead the equities market for that event.

 

When cash sessions are trading you need to follow the buy and sell program activity for those markets as you trade the futures index instruments.

[bgtrader 10]

Hi everyone,

I understand that traders on this forum are critical of claims, methodologies, etc...This is one of the main reasons why I came to traderslaboratory. However, I think in the fever of wanting to shoot down any potential snake oil sales guy, posters will fire a critique with a chart very quickly without much attempt on one's own to see the chart from multiple perspectives first before forming an opinion. I am definitely guilty of this in my internet conversations with traders, wherein I will often lazily state such and such about a chart and put it to the more experienced guy to prove me wrong. I'm not calling Paolfili lazy, that's just how I feel about myself sometimes . I'm just noticing my own tendency to want someone else to either be wrong or show me something. Obvisouly, there's nothing wrong with posting questions and firm critiques, I'm just rambling about the dynamics of gentlemanly conversation on Traderslab.

 

For example, Paolfili, posted a chart with the words "divergencenotrespected" in the title. Let's look at those divergences:

1. Grey line: Grey line on bid/ask delta shows increased selling on greater down slope than grey line on price. Grey line on price ends on an attempt to go down, but doesn't reach 1088.50 region, stalls at 1090 region. So, perhaps, we can say, that sellers hit the bid fairly aggressively (some profit taking for longs and shorts taking positions), the sellers tried to get price to go back to at least 1088.50, but a combination of market makers & institutions held price and allowed sellers to take on risk, building up pressure, then the market reverses upwards taking out sellers stops and causing more profitable upward momentum. This happens all the time, I believe most traders refer to this as "hidden divergence". I feel that cumulative delta volume shows this really well, as it's not a momentum price formula, rather it shows us actual trade volume that wanted to go short so badly that they aggressively hit the bid....BUT, those aggressive sellers weren't able to move price to a significantly lower low. Upon seeing this accumulation of short positions where price couldn't go to expected range, predatory entities (market maker, institution, any firm big enough to move price around) may step in to run the market up and cash out of long positions as the sellers stops get hit. From a hidden divergence perspective, this could've been a good long setup.

2. Blue line: may be showing the same condition. I would've put the blue line on the market price and delta volume "tops", showing that the market went higher but aggressive buyer volume wasn't as strong, possibly setting up a "normal" divergence setup as a short at 1097. And price did go down around 8 points, pretty good divergence play . Blue lines also form potential hidden divergence long play before market was taken down.

3. green line: while we don't see much farther than the green line and I don't have my charting opened to see what happened next. Maybe, stressing the maybe, the down sloping delta volume is just showing us that "overall" the roughly 4 hour period, more long positions were sold than entered and short positions were accumulated.

 

However, if you read through fulcrumtrader's blog, free videos, and youtube channel, I believe you'll glean that his analysis of divergences goes much deeper than simply eying slope differences between price and an indicator. When the market is moving, traders that mean to enter with size and have the means to "pulse" in the orders (ala UrmaBlume's posts), how are they going to do that so fast? Probably by entering mostly aggressive orders, often market orders. So, the bid/ask delta can show us the preponderance of market order entries. Now, it's not perfect, as UrmaBlume stated in a post, the very distinction of trades at bid and ask can get messy, as for example, there's 2000 available at the first 2 tiers on the offer side of the DOM, and someone comes in to aggressively buy 3000, perhaps 2000 will show up as a green trade on time and sales and 1000 will show up as red. But, the overall magnitude of delta of bid/ask can show us a clue as the sentiment of players that are powerful enough to move the market. I think like a tracker in the wilderness examines odd features & details of the environment which provide information, most of the data of volume, time, and price can give us something, some clue as to what may be occurring. The key of the successful hunters and traders is the robust filtering and interpretation of this information.

 

I am a student of Fulcrumtrader's methods, as well as studying tons of other material like everyone else, and I really like the simplicity that Fulcrumtrader brings to volume analysis.

-hugs,

Brian

[paolfili 10]

??????

 

First of all I' m following a daily CumalativeDelta analysis.(and in a longer timeframe this analysis can be completely wrong).

 

1)I disagree completely from your analysis.I don' see any logic in what you said.

In my vision of the Market, Volume leads the price.What do you mean when said:

Upon seeing this accumulation of short positions where price couldn't go to expected range, predatory entities (market maker, institution, any firm big enough to move price around) may step in to run the market up and cash out of long positions as the sellers stops get hit ?

 

After the reversal following the grey lines (I' ll call a microdivergence becouse is relative is a 100.000 volume timeframe and the slope difference between the lines is not so high)

you don' t see any spike in volume that recall any short covering of the group of "your seller" in the up front of the reversal wave.Remember that seller want to defend his position, and on the up front there are little buyer.

 

2)As you said : "same condition"

 

3)Ok.And based on the premise you indicate that "more long positions were sold than entered and short positions were accumulated" can we state something on the following part of the chart?It will be (with a favour probability) up or down?

 

 

I thinks is reasonable talking about other events (grab inventory) to try to interpret the dynamics of the Market, but CumulativeDelta is ALL about more buying or more selling.

 

 

 

Hi everyone,

I understand that traders on this forum are critical of claims, methodologies, etc...This is one of the main reasons why I came to traderslaboratory. However, I think in the fever of wanting to shoot down any potential snake oil sales guy, posters will fire a critique with a chart very quickly without much attempt on one's own to see the chart from multiple perspectives first before forming an opinion. I am definitely guilty of this in my internet conversations with traders, wherein I will often lazily state such and such about a chart and put it to the more experienced guy to prove me wrong. I'm not calling Paolfili lazy, that's just how I feel about myself sometimes . I'm just noticing my own tendency to want someone else to either be wrong or show me something. Obvisouly, there's nothing wrong with posting questions and firm critiques, I'm just rambling about the dynamics of gentlemanly conversation on Traderslab.

 

For example, Paolfili, posted a chart with the words "divergencenotrespected" in the title. Let's look at those divergences:

1. Grey line: Grey line on bid/ask delta shows increased selling on greater down slope than grey line on price. Grey line on price ends on an attempt to go down, but doesn't reach 1088.50 region, stalls at 1090 region. So, perhaps, we can say, that sellers hit the bid fairly aggressively (some profit taking for longs and shorts taking positions), the sellers tried to get price to go back to at least 1088.50, but a combination of market makers & institutions held price and allowed sellers to take on risk, building up pressure, then the market reverses upwards taking out sellers stops and causing more profitable upward momentum. This happens all the time, I believe most traders refer to this as "hidden divergence". I feel that cumulative delta volume shows this really well, as it's not a momentum price formula, rather it shows us actual trade volume that wanted to go short so badly that they aggressively hit the bid....BUT, those aggressive sellers weren't able to move price to a significantly lower low. Upon seeing this accumulation of short positions where price couldn't go to expected range, predatory entities (market maker, institution, any firm big enough to move price around) may step in to run the market up and cash out of long positions as the sellers stops get hit. From a hidden divergence perspective, this could've been a good long setup.

2. Blue line: may be showing the same condition. I would've put the blue line on the market price and delta volume "tops", showing that the market went higher but aggressive buyer volume wasn't as strong, possibly setting up a "normal" divergence setup as a short at 1097. And price did go down around 8 points, pretty good divergence play . Blue lines also form potential hidden divergence long play before market was taken down.

3. green line: while we don't see much farther than the green line and I don't have my charting opened to see what happened next. Maybe, stressing the maybe, the down sloping delta volume is just showing us that "overall" the roughly 4 hour period, more long positions were sold than entered and short positions were accumulated.

 

However, if you read through fulcrumtrader's blog, free videos, and youtube channel, I believe you'll glean that his analysis of divergences goes much deeper than simply eying slope differences between price and an indicator. When the market is moving, traders that mean to enter with size and have the means to "pulse" in the orders (ala UrmaBlume's posts), how are they going to do that so fast? Probably by entering mostly aggressive orders, often market orders. So, the bid/ask delta can show us the preponderance of market order entries. Now, it's not perfect, as UrmaBlume stated in a post, the very distinction of trades at bid and ask can get messy, as for example, there's 2000 available at the first 2 tiers on the offer side of the DOM, and someone comes in to aggressively buy 3000, perhaps 2000 will show up as a green trade on time and sales and 1000 will show up as red. But, the overall magnitude of delta of bid/ask can show us a clue as the sentiment of players that are powerful enough to move the market. I think like a tracker in the wilderness examines odd features & details of the environment which provide information, most of the data of volume, time, and price can give us something, some clue as to what may be occurring. The key of the successful hunters and traders is the robust filtering and interpretation of this information.

 

I am a student of Fulcrumtrader's methods, as well as studying tons of other material like everyone else, and I really like the simplicity that Fulcrumtrader brings to volume analysis.

-hugs,

Brian

[paolfili 10]

Ok.

You open another direction of investigation.

You said the equities buy/sell programs leads the future till the price is touching one

"zone of resting inventory".

And in your experience is TRIN (as I' ve seen in some of your video) sufficient to infering something on the buying/selling activity of the "Big Boys" box?

A more complex instrument (involving also the Volume and the Value of the Whole - or the main part - of the equities market) can be more useful, IYO?

 

Thanks

 

CASH SESSION markets frequently lead futures markets. When the US cash session is trading the ES will frequently follow the equities side buy and sell program activity of the cash markets. When the EU session is trading the same behavior will be in place....up to the point a significant futures zone of resting inventory is traded to or until there is a news release triggered reaction in the markets. Futures markets tend to lead at the times large positions are initiating new buy or sell response, this is usually at developing zones of resting futures side inventory or in reaction to news. Futures can also lead for a brief time when a significant zone of resting LONG or SHORT inventory is neutralized....there will be futures market lead price reactivity as the held resting inventory is turned into a weaker hand. The quick covering of that held inventory will create strong order flow bias and solid price movement in the futures market which will lead the equities market for that event.

 

When cash sessions are trading you need to follow the buy and sell program activity for those markets as you trade the futures index instruments.

[bgtrader 10]

Hello Paolfili,

Okay, let's learn together.

1) on your chart alone, it seems that short positions over all are being accumulated and as you say "defended". Within this defense, I believe there is at least one example of some shorts being turned into weak holders and capitulating to other parties. The down leg of price by the grey trendline starts it's down move at around 1092.50. If we generalize and say that weak holders will have stops 2 points above that at 1094.50, then I believe we see some capitulation/exchange volume activity between rough times 16.51 & 16.54. In the larger picture, I agree with you it seems "microdivergence". However, the point of my post was to address what you said about divergence. I wanted to demonstrate that the grey line's divergences were respected in a "hidden divergence" sense, where sellers stepped in and price was not permitted to go to a new low yet. I wanted to demonstrate that this divergence, on an intraday basis, was tradeable.

 

I believe this is an example of volume leading price. Imagine martial artists fighting for a moment. In one fight, you've got opponent "A" who has an injured right arm, it's observed by opponent "B", opponent "B" exploits this weakness and wins. This would be normal divergence of volume leading price in the way we tend to "expect". In another fight you've got opponent "C" who purposefully leaves his right arm down to lead his opponent into a position that fighter "C" has anticipated and has a hidden agenda about. This would be hidden divergence, wherein the losing fighter took the bait, expecting to find weakness but his expectations weren't met. Again, I agree with you on the daily perspective. I was addressing intraday trading ideas and delta volume divergence that is respected.

 

2,3, and your last post, let's chat via skype or gmail chat for better communication flow if you're into it:)

[paolfili 10]

I think it is difficult learn together.

We have very different (opposite) opinion on using the Cumulative Delta.

Anyway the recovering (as you immagine) in area 1094.5 is very weak compared with the sell in area 1092 and I don' t share the "Order Flow Analitics" hypothesys of a market

ALWAYS guided by the "2 point stop" tricks of Market Maker.

Occasionally It may be in this way ...but the dynamics is more more complex.

 

What to say....

We have different point of view on same events...

Is difficult to find a common language.

 

Hello Paolfili,

Okay, let's learn together.

1) on your chart alone, it seems that short positions over all are being accumulated and as you say "defended". Within this defense, I believe there is at least one example of some shorts being turned into weak holders and capitulating to other parties. The down leg of price by the grey trendline starts it's down move at around 1092.50. If we generalize and say that weak holders will have stops 2 points above that at 1094.50, then I believe we see some capitulation/exchange volume activity between rough times 16.51 & 16.54. In the larger picture, I agree with you it seems "microdivergence". However, the point of my post was to address what you said about divergence. I wanted to demonstrate that the grey line's divergences were respected in a "hidden divergence" sense, where sellers stepped in and price was not permitted to go to a new low yet. I wanted to demonstrate that this divergence, on an intraday basis, was tradeable.

 

I believe this is an example of volume leading price. Imagine martial artists fighting for a moment. In one fight, you've got opponent "A" who has an injured right arm, it's observed by opponent "B", opponent "B" exploits this weakness and wins. This would be normal divergence of volume leading price in the way we tend to "expect". In another fight you've got opponent "C" who purposefully leaves his right arm down to lead his opponent into a position that fighter "C" has anticipated and has a hidden agenda about. This would be hidden divergence, wherein the losing fighter took the bait, expecting to find weakness but his expectations weren't met. Again, I agree with you on the daily perspective. I was addressing intraday trading ideas and delta volume divergence that is respected.

 

2,3, and your last post, let's chat via skype or gmail chat for better communication flow if you're into it:)

[bgtrader 10]

I agree with you. I think there is a misunderstanding. I realize there are much more complex dynamics to the market's movements than what I stated. I was simply addressing the basic idea that the divergence that you pointed out in your chart was tradeable. I noticed the trades taken on your chart, 2 trades which seemed to both lose. I was just pointing out out the grey line's divergence as a possible very short term intra day trade setups that might've worked. I am not stuck in Tom William's approach or Order Flow's approach. I was curious about your statement that divergences seem not respected and I examined how possibly they were respected. I don't think my view is the correct one, it's just the opinion that I formed today.

[BlowFish 10]

I think it is worth re-iterating some basic points. For every buyer there is a seller (in the futures markets at least). Each trade may have - both long (buyer) and short (seller) opening - both buyer and seller closing - or finally one or other opening and the other closing. To assume that just because a trade took place at the ask that it represents a 'buyer' or 'more buying' is rather naive at best imho. Sadly some of the arguments that are being advanced are based on this questionable assumption.

 

I have some problems conceptually with using delta as a proxy for order flow (as you might guess), it's about all we have to work with I suppose. I am interested in Fulcrums work it seems that he too must be making certain assumptions (though perhaps not naively ) On a more practical level I have a hard time seeing that someone accumulating inventory will necessarily do so through aggressive buys quite the reverse I would think they are going to buy every last bit they can on the bid as close to the bottom of the zone as they can and even may become aggressive sellers at the top of the range to 'cap' price if they haven't accumulated their line. Likewise they may well sell (on the ask) into the tail end of a rising market.

[paolfili 10]

BlowFish I think you are one of the most sharp and interesting posters in TL forum and you are one of the 3 nick I follow regularly.

Anyway I think that to TRY to explain some dynamics in Cumulative Delta (even if it may be a waste of time) can be profitable in the long period.

I think that this can be a real interesting direction of investigation.

It' s not a pre-compiled solution.But can be an important edge (for MY

personal style of trading).

On the specific point of the top/bottom of reversal (with an illogical(?) huge sell in bottom and huge buy at the top) I think that It can be a subject for a detailed study,but,for now, we have just hear some "suggestion" on this event from UrmaBlume.

Probably in next week/month I will post some detailed analysis on the phenomen.

 

 

 

 

 

 

I think it is worth re-iterating some basic points. For every buyer there is a seller (in the futures markets at least). Each trade may have - both long (buyer) and short (seller) opening - both buyer and seller closing - or finally one or other opening and the other closing. To assume that just because a trade took place at the ask that it represents a 'buyer' or 'more buying' is rather naive at best imho. Sadly some of the arguments that are being advanced are based on this questionable assumption.

 

I have some problems conceptually with using delta as a proxy for order flow (as you might guess), it's about all we have to work with I suppose. I am interested in Fulcrums work it seems that he too must be making certain assumptions (though perhaps not naively ) On a more practical level I have a hard time seeing that someone accumulating inventory will necessarily do so through aggressive buys quite the reverse I would think they are going to buy every last bit they can on the bid as close to the bottom of the zone as they can and even may become aggressive sellers at the top of the range to 'cap' price if they haven't accumulated their line. Likewise they may well sell (on the ask) into the tail end of a rising market.

[BlowFish 10]

Thanks for the kind words. There are, I guess, some things that just 'work' regardless of whether there is a natural phenomena behind them or not. Maybe there is some fundamental 'law' or maybe some things are 'self fulfilling prophecies'. I must say I think what Fulcrum is doing makes interesting reading and he has put together what seems to be a consistent framework to make trading decisions. I am one of those people that want to know the reason for things ....why something is as it is? A good example is market profile, it's clearly a powerful tool that some successful traders lean on to make trading decisions. Personally though I have a much easier time 'accepting' Jperls excellent "trading with market statistics" concepts because to me they make more sense.

 

Anyway....perhaps it is not really necessary to know why something 'works' (take a look at the "why does support turn to resistance" thread for example). A better question is perhaps 'how can this help me make better trading decisions'?

[jcash 10]

tracking trades at the bid/ask is more or less a study of order types. who places limits and who places markets? when do they do so? and does a "smart investor" use both with any consistency in entry or exit scenarios?

[bgtrader 10]

Hi Blowfish,

I would like to second Paolfili and say that I really appreciate your insightful posts and gentleman's attitude toward dialogue. Reading your posts was one of the reasons why I joined traderslab also. I am definitely naive and I can see the difference years of experience has in the clarity & succinct use of language your posts have over mine. Thank you and all the other good experienced folks here for sharing . I apologize if I came off as very "certain" of my assumptions in my posts in this thread. I have been synthesizing some models of understanding different market participants' unique ways of entering/exiting the markets, and in excitement I joined the discussion when I saw the mention of divergence between price and cumulative volume, as I was just thinking about that.

 

I tried to communicate in my post that although bid/ask differentiation is not perfectly showing us pure buyers and pure sellers, after studying a bit with Fulcrumtrader, it seems like when the bid/ask tracking scale tips to a big enough order of magnitude (i.e. 4000-10000+ contracts in ES) that this can give us something useful. Perhaps, in a fractal sense, even smaller ratios could give us some actionable information also for shorter moves. Fulcrumtraders research in working for and interviewing institutional trading firms revealed that often the firms will enter a good deal of their positions in the market very quickly via market orders, thus "perhaps" showing up to a greater degree on one side of the DOM.

 

Also, I wanted to hear your feedback about an addendum to your clarification of "for every buyer there is a seller". In a talk a few years ago, Sebastian Manby brought up the idea that technically, large numbers of single human buyers may run into an iceberg order of one or two entities, and he stated thereby that there's not necessarily a seller for every buyer. I thought about this as I read your post and wondered, obviously the permutations you listed of contract per contract buying/selling hold. However, do market participants, as in a well capitalized firm, behave differently when they can take on exponential multiples of risk compared to the 1000s of traders they may be buying from or selling to? So, I'm proposing that on a contract per contract basis you're right, but because there are entities that can think as a single unit yet take the other side of a trade of 1000s of free thinking units (retail)-that this makes their relationship to the 1:1 buyer/seller equation more complex and perhaps requires a more robust model.

 

In studying the works of Fulcrumtrader; a bond futures market maker family member of mine who works on Wallstreet; Futurescalper (http://www.futurescalper.com); the Institute of Auction Market Theory; balancetrader (frank at balancetrader.com), Urma Blume's posts, and others, I've been opened to the idea that like groups of predator animals living near each other-lions, cheetahs, leopards, hyeenas, and wild dogs, the market has different elite participants that due to their superior and sometimes varying resources have certain completely different ways of relating to buying and selling. Futurescalper's youtube channel has alot of interesting ideas about market maker participants that almost only execute their orders through resting orders on the DOM, UrmaBlume's firm tracks institutions that rapidly pulse in orders, Fulcrumtrader's research into institutional trading within very liquid instruments assumes that large institutions are often pulsing in market orders, then there are also areas of resting limit orders that can create pauses or tops and there are blends of these tactics and more tactics that all these groups and other groups I haven't mentioned employ. So, I've been exploring models that try to account for the dominant features of these powerful groups and their behavioral tendencies.

 

The bid/ask mechanism (please critique this idea I'm about the share) seemed to say to me that in order for price to tick up a participant has to hit the offer or an a series of stops is struck that cascades offers being hit & vice versa for the downside. Futurescalper adds the idea that there are participants that he is calling "market makers" who rely on crowding the DOM books to move price by moving their DOM orders up or down and inviting the market to follow, and essentially always making the spread. These are only two dimensions I've been considering in the bid/ask mechanism recently. So, the very physics of the trade ladder for how orders get entered seems to show that bid/ask classification can have useful meaning. I know I'm missing details here and I'd love to hear your's and other's feedback.

-best regards,

B

Edited December 1, 2009 by bgtrader
grammar :)

[BlowFish 10]

Hi BG, don't have the time to give your post that it deserves right now (dinner soon)....but there where a couple of things I picked up on a quick read through that I thought I'd comment quickly on. Some while back someone introduced me to the idea that an absolute cumulative delta was usually needed to sustain a 'decent' move. I can't remember who it was right now but I remember it was someone I respected. I didn't prove or disprove it for myself but on the times I have watched delta I have often noticed 'strange' effects. (Like a market rising all day while delta declines).

 

As for the different market participants (your jackals and hyenas) I certainly buy into that idea. Harris (or O'Hara I would guess) details all sort of participants and methods they might use to get there positions. It also details which participants are likely to be the other side of their trades. Many large participants are not even profit motivated in the traditional sense of buy low sell high (or buy high sell higher). I found Harris pretty interesting others have found it 'difficult'. One thing that you do get from it is that there are a wide range of types of participant that act in quite different ways.

 

One of the things that cuts short my forays in to market delta as a proxy for order flow is the difficulty of getting and maintaining accurate data. You have pretty much to run 24/7 in real time it seems to me or use marketdelta or investor rt. Not sure of the accuracy of there historical bid ask changes. I understand (though might have mis remembered) that Rithmic (that zenfire is based on) has historical bid and ask info available....I think it only provides 1 day historical tick so probably the same bid ask history.

 

This kind of leads me back to the subject of this thread. I wonder on the accuracy of the OFA software (particularly the ninja stuff) I am a wee bit sceptical to be honest.

[bgtrader 10]

Hi Blowfish,

Thanks for your reply and for the research leads I look forward to more research sharing in this arena. I do believe that the DTN data source Iqfeed.net provides bid/ask data on every tick of trade for 30 days of history.

:)

[BlowFish 10]

Hi Blowfish,

Thanks for your reply and for the research leads I look forward to more research sharing in this arena. I do believe that the DTN data source Iqfeed.net provides bid/ask data on every tick of trade for 30 days of history.

:)

 

I can't help feeling that there is something there (market delta) and I am just not seeing it. Of course being 'intellectually prejudiced' (to make up a term) against some of the core assumptions can't help with me 'seeing it'.

 

I did have another look at Order Flow Analytics site. They seem to be a pretty new vendor, there is an incomplete feel to their site. They have got a couple of vids now (that where dead links when I first came across this thread). It looks pretty similar to market delta's stuff to be honest.The key thing they seem to have is they seem to 'shift' to a new column (bar if you like) on a certain event....some sort of shift in delta/order flow. It looks like quite a 'scalp' type tool. Kind of hard to really see what they are up to.

[FulcrumTrader 10]

I can't help feeling that there is something there (market delta) and I am just not seeing it. Of course being 'intellectually prejudiced' (to make up a term) against some of the core assumptions can't help with me 'seeing it'.

 

I did have another look at Order Flow Analytics site. They seem to be a pretty new vendor, there is an incomplete feel to their site. They have got a couple of vids now (that where dead links when I first came across this thread). It looks pretty similar to market delta's stuff to be honest.The key thing they seem to have is they seem to 'shift' to a new column (bar if you like) on a certain event....some sort of shift in delta/order flow. It looks like quite a 'scalp' type tool. Kind of hard to really see what they are up to.

 

Not "seeing it" is actually not that uncommon.....many activities within the order flow are actually counter-intuitive at first. As a trader starts to learn street level Auction Market Theory and the mentalities of the more influential players (those with the liquidity) it all starts to make sense imo. The market LOVES to trade between zones of resting inventory and the last few days have been brilliant examples of just that (last two days in the S&P500 Emini were exceptional imo).

 

Commercial participants will continually drive the markets back and forth between the significant zones of resting inventory as they USE "retailers" inventory for their exits. The "retailers" resting inventory at various pricing levels is turned into the weaker hand when price is driven back to pricing levels where the "retailers" resting inventory was first initiated (or beyond the initiating price levels to their resting "stops"......OUCH! :doh: ).

 

Commercial participants should not be thought of as wondrous MIT braniacs in their various order flow activities......not at all, they are more like MOB families using their power (in the commercials case their liquidity) as they operate on their own turf extracting income from others weakness. Knowing what zones of price where the "hurt" can be put on the weaker hands is powerful information as one tracks the order flow intraday.

[electroniclocal 10]

With greatr respect to everyone, you are making this way too complicated.

 

It's the agression of the buyers and sellers and their size that moves the market. I measure this with both Volume Breakdown and a SMOOTHED Cumulative Volume Delta. An additional thing I use is a couple of CCIs to see the momentum effect of the volume. Market Profile provides the context of the trade and the support and resistance. The charts I use are attached.

 

Another important factor as was said in a recent post to his blog by Dr Brett Steenbargerm is to analyse the timeframe you are trading. So the periodicity of what you are monitoring is important. There is no point in looking at a longer timeframe as you will mistime your trades.

 

I have been teaching my 25 year old daughter to day trade like this and she became profitable within a few months after coming off the simulator. Anyone interested can see details at electroniclocal.blogspot.com (nothing for sale).

[FulcrumTrader 10]

I don't like to make it too complicated so I don't use smooted CD or CCi's for my primary trading......I like to just track the zones of resting inventory (supply) and then see what is the demand as price trades back to those zones.

 

BTW, checked out your blog.....very cool! :-)

Edited December 6, 2009 by FulcrumTrader

[bgtrader 10]

Hi Electroniclocal and friends,

Very cool blog , thanks for the link. It's funny blowfish and everyone, I was just thinking of posting about the aggression of buyers/sellers to move the market way of seeing things and I wanted to hear blowfish's opinion. Also, to keep it relevant to this thread, I spoke on the phone with Order Flow Analytics for around 2.5 hours and will provide a review when I'm feeling more awake later today .

 

I was taught, while for every buyer there's a seller, in order for price to actually move in a trend direction for an extended period of time, one group-the buyers or the sellers-needs to behave more aggressively and eat through the offers (aggressive buyers) or eat through the bids (aggressive sellers)....and that eating through the available contracts of one price level and then consistently going through the next level and the next, thereby lifting the offers or lowering the bids causes the price to actually move up or down. There's some very good free videos on this idea from Kam Dhadwar over at this link:

L2ST - Trading Futures Online - Contact Us

Scroll down to the three videos under the phrase "L2ST FREE Webinar Recordings" on the bottom left side on the screen.

 

What's interesting about what Futurescalper's (Futures Scalping Home Page, and youtube channel under 'Futurescalper'), is that he shows pretty clearly that there's an additional dimension to the price movement often preceding the shift of aggressive buyers/sellers, that being the groups that are sitting on the DOM levels-market maker types that have the resources to get in front of the globex orders and stay there....when they want to move the market up they often begin by moving large amounts of their offer DOM inventory to higher and higher tiers, thereby inviting the aggressive buyers and auto-trading programs to buy...vice versa for the sell side and their bid DOM inventory. This detail happens so fast that it is often missed. And the DOM orders seem to be disappearing and reappearing so randomly that it doesn't seem to make any directional sense, and there's really spoofing going on as well. But, if you applied signal processing and variance statistics to the DOM activity some patterns seem to emerge, even the spoofing being accounted for. And, yes, I understand that many very knowledgeable and successful traders say the DOM is rubbish as an indicator. I'm not saying I'm certain that it's useful. I'm open to the research of Futurescalper and encourage other traders to check out his ideas.

 

So, those are 2 dimensions, the behavior of people actually hitting the offers or bids more/less aggressively and the behavior of market makers moving their DOM orders. I think very often the sequence starts for example, with market makers replenishing their bid[/i ]DOM orders against a group of sellers and then when enough pressure builds up, the market makers will begin moving their [i]offers up on the DOM triggering buyers to behave more aggressively and leaving the sellers in a losing position (obviously, reverse happens often also where market makers replenish offers on the DOM against buyers, only to later spike price down by lowering their bids. Part of the idea here is that only certain groups could afford the risk involved with stuffing lots of orders on the DOM tiers and often take the opposite side to everyone else's trades all day/night long.

 

The auction market theory guys like to describe things in terms of responsive and initiated buying/selling. Where, often price will run into a block of resting limit orders and pause for a while = responsive. And then, groups will aggressive hit one side of the DOM consistently and move price up or down for a trend = initiated. So, perhaps the responsive resting limit orders gives us a 3rd dimension of price movement to the other dimensions of aggressive entering of orders on one side of the DOM more than the other, and moving large blocks of DOM inventory higher or lower.

 

I'm sure someone with more experience can describe other dimensions of why price moves on say the globex futures system like arbitrage activity and other factors. In my first post in this thread, where I commented on Paolfili's chart with divergences, I tried to communicate that cumulative delta of volume can show us moments where, for example, the bid was being hit very aggressively--showing red cumulative delta candlesticks plot lower and lower, and price was not able to make a new low. I tried to communicate that this is sometimes called 'hidden divergence' as perhaps it's showing that while sellers behaved more aggressively on the DOM, bids were replenished against this aggression, thereby holding price against these groups. Often, price will move in the opposite direction soon after this, as was the case in the grey trendline divergences on Paolfili's chart.

 

As, this thread is about Order Flow Analytics software, and their software is partly based on the assumption that orders going off at the bid are market order sells (red on time & sales) and orders going off at the ask are market order buys (green on time & sales), I felt the above ideas are relevant. The phrase market order, on Order Flow Analytics website videos, I think both means actual market orders that were entered as market orders AND groups that enter on limit orders that want in on the market right away, so they are willing to buy at the higher offer prices and sell to the lower bid prices, rather than sticking their buys in the bid DOM tiers or sells in the offer DOM tiers and waiting for a better price....again, I understand that as price is moving up, orders on the bid side of DOM are triggering as buys also and reverse, but I think what Order Flow Analytics and other auction market/cumulative delta traders are getting at is that in order for the price actually move one way or the other, many traders are hitting the offers as buys and hitting the bids as sells, foregoing the chance to get tick price improvement in order to join the party...and the cascading sequence of this activity seems to cause the price to trend.

 

Later today I'd like to comment on what I learned about Order Flow Analytic's take on this for developing their trading signals and Blowfish's comment about whether the data tracking in Order Flow Analytics and other means of bid/ask volume is accurate enough for good trade decisions. Blowfish and others, I'd love to hear your perspectives on these ideas. -best wishes always, BG

p.s. Blowfish, sorry I missed your comment on 'strange effects' of market going up and delta going down. Can you post a chart like this so we can analyze it together?

Edited December 6, 2009 by bgtrader

[electroniclocal 10]

Thanks FT.

 

We all need to find what works for us.

 

Congratulations on a successful methodology. I'm always happy to hear of success in a business that has so many casualties.