VSA and Per-bar Delta

[joshdance 10]

I am looking for practical ways to correlate principles of VSA and bid/ask volume in my trading.

 

So, in VSA a wide spread down bar with high volume after a period of trending can show exhaustion of the trend, and weakness, correct? If, in a down trend, we get a wide spread down bar on high volume, and indeed there is weakness, according to the principles of VSA, wouldn't we typically expect to see a large negative delta, that is, more market sellers hitting the bid, to indicate passive buyers beginning to accumulate for a move up?

[TheNegotiator 13]

I think it's all got to be viewed in context to current market activity and position of the market within the overall price structure. I am no big VSA expert although there are a few here on TL, but some of the principles are more widely used in trading. I think for delta though, I'd be using it as a confirmation. On a reversal such as the one you described, I would think a large negative delta to indicate an imbalance in trading would likely be useful in your decision making. You'd have to watch the delta though for these types of circumstances and see what you would believe to be a large delta imbalance in terms of the market and 'time'frame you trade is.

[johnw 10]

I think it's all got to be viewed in context to current market activity and position of the market within the overall price structure. I am no big VSA expert although there are a few here on TL, but some of the principles are more widely used in trading. I think for delta though, I'd be using it as a confirmation. On a reversal such as the one you described, I would think a large negative delta to indicate an imbalance in trading would likely be useful in your decision making. You'd have to watch the delta though for these types of circumstances and see what you would believe to be a large delta imbalance in terms of the market and 'time'frame you trade is.

 

 

Excellent thoughts.

 

And watch carefully when a large MO reverses the imbalance before you have time to be filled.

 

MOs move price and deltas lag.

This is not apparent in anything other than real time.

The Neg is correct "You'd have to watch the delta" and you can only watch in real time.

[joshdance 10]

Thanks Negotiator .. johnw, what is "MO" .. (momentum?).

 

How true that these things can't just be taken as mechanical signals, that's definitely not what I want anyway.. just a way to add a bit more objectivity to my analysis. Have a look at this chart and see the delta associated... thoughts?

 

In real time today when this happened, I thought the third bar would be the one to short if I were going to go against the strong movement because of what I saw in the volume, though I was not confident enough to take the trade. The first bar with the arrow says to me "we're getting tired" .. the second says "one more try" from the bulls (note the higher delta on this bar, indicating they still have the momentum). The last one says that the bears finally have enough on their side to push it down even if just for a bit, with the lessened positive delta compared to the first two bars, and the close near the lows.

 

What do you think of my analysis?

[johnw 10]

.. johnw, what is "MO" .. (momentum?).

 

 

MO = Market Order [as opposed to Limit Order]

[joshdance 10]

Thanks john, got it.

[TheNegotiator 13]

Thanks Negotiator .. johnw, what is "MO" .. (momentum?).

 

How true that these things can't just be taken as mechanical signals, that's definitely not what I want anyway.. just a way to add a bit more objectivity to my analysis. Have a look at this chart and see the delta associated... thoughts?

 

In real time today when this happened, I thought the third bar would be the one to short if I were going to go against the strong movement because of what I saw in the volume, though I was not confident enough to take the trade. The first bar with the arrow says to me "we're getting tired" .. the second says "one more try" from the bulls (note the higher delta on this bar, indicating they still have the momentum). The last one says that the bears finally have enough on their side to push it down even if just for a bit, with the lessened positive delta compared to the first two bars, and the close near the lows.

 

What do you think of my analysis?

 

With context, some of the best indications given from delta are when heavy buying or selling fails to take out a level. In this case, I would say the first clump of +ve delta shows that there is buying interest which is likely to take the market higher. The second single high delta candle showed some strength although in isolation it would have to be questioned. A pullback to the high volume candle in the first delta push and failure to retake it to the downside should've said that the market was not quite ready to give up on it's attempt higher. When the test came however, it was on slightly lower volume but considerably lower delta. Coupled with the fact that it couldn't close above the high of the prior high delta candle, that would've said that at least the move up was over for now.

 

Hope that make's some sense!!

[TheNegotiator 13]

I have to ask josh, do you ever look at cumulative delta?

[joshdance 10]

I have to ask josh, do you ever look at cumulative delta?

 

I do, and I have, and I have found it to be about as useful in finding divergences as price-based oscillators. Sometimes it works, sometimes it doesn't. Sometimes the delta is higher, sometimes it's lower... conclusions drawn from that information cannot be relied upon consistently, from my brief experience looking at it on the charts.

[joshdance 10]

But Negotiator, I will say this (just forgot to mention this earlier) .. on crude oil on 4/12 the other day, I didn't have CD up at the time but upon examining it later, there was massive market order buying into that down move... But again, you can draw any one of several conflicting conclusions from that:

 

1) Aggressive buyers were buying lots of inventory from limit sellers, and they will continue to buy, thus moving price up.

 

2) There were very few passive (limit) buyers in relation to passive (limit) sellers, so the sellers have built up a large short inventory and will soon take the market lower.

 

3) and on, and on...

 

There's no way to know if that market buying near the bottom was profit taking or "inventory buildup" ... sometimes when there's a huge divergence like this, price will drop, other times it will rise.

 

The only thing that mattered after this huge divergence was: which group of aggressive participants will now overwhelm the opposing, passive, side and take the market in their direction? From where price "landed," at a retest of a trendline drawn from two highs on the daily time frame, and after a 1200+ drop in two days, price was due for at least some kind of move up, and that was without having any knowledge of bid/ask delta.

 

That's always the question: okay, so X happened--what is likely to happen NOW? Oscillators work sometimes when price is more cyclical, but fail when the market decides that they will just keep buying or selling. Same with CD--there's nothing stopping the current dynamic from continuing except that in the present moment, a shift in supply and demand happens and the market takes a turn. In the above case, market buyers could continue to buy away, but if their more passive limit buying counterparts are relatively few compared to the number of market sellers (who still are not as numerous as the market buyers) and the passive sellers are strong, then price will continue to fall, delta divergence and all.

 

Of course, an argument can be made that any indicator, like a buying tail on a 1 minute candle, really has no bearing on what is about to happen, and that we are all just placing trades on what is likely to happen.

[johnw 10]

I do, and I have, and I have found it to be about as useful in finding divergences as price-based oscillators. Sometimes it works, sometimes it doesn't. Sometimes the delta is higher, sometimes it's lower... conclusions drawn from that information cannot be relied upon consistently, from my brief experience looking at it on the charts.

 

joshdance,

 

Cum delta works best on big frames.

ie on a Daily frame you can sometimes see the big boys building a position over several days and when price is allowed to eventually turn it results in a big move.

 

On a smaller intraday frame,cum delta cannot distinguish between Limit Orders and MOs, so you are better advised to follow price only .... in fact looking back over intraday bars, the cum delta looks not unlike the MACD which is a 50/50 call on divergences, but lookback at say a 5 min frame is useless for the reason I have mentioned.

 

To day trade ES you need to give yourself a significant advantage beyond 50/50 accuracy and then follow through with a healthy reward/risk ratio.

 

Forget any nonsense about a low accuracy [30-40%] producing profits and concentrate on producing a high figure [70 - 80%+].

At the same time avoid the temptation to "scalp" for few tics...

this is a dismal adventure at best .... the easiest way of avoiding this trap is to follow the 15min frame and when you have a signal for a buy/sell zone, drop down into a lower frame if you need to do so.

Eventually you will learn that all you need to know already exists in the 15 min frame ... ie levels of s&r and s&d plus the price of course.

Knowing where the POC,VAH and VAL won't do you any harm either. But make sure that you roll yesterday's values plus today's values together.

 

good luck

[joshdance 10]

Cum delta works best on big frames.

ie on a Daily frame you can sometimes see the big boys building a position over several days and when price is allowed to eventually turn it results in a big move.

 

Thanks for the comments John. Even in this big time frame I think to draw conclusions on cumulative delta is to make assumptions about who's placing what type of order, and I think that is at best a guess. People design these systems to systematically enter orders over periods of time, in different sized chunks, using different types of orders, and sure, sometimes it will look like it will work, but overall my personal (worthless to most) opinion is that it's a crap shoot.

 

To day trade ES you need to give yourself a significant advantage beyond 50/50 accuracy and then follow through with a healthy reward/risk ratio.

 

Forget any nonsense about a low accuracy [30-40%] producing profits and concentrate on producing a high figure [70 - 80%+].

At the same time avoid the temptation to "scalp" for few tics...

this is a dismal adventure at best .... the easiest way of avoiding this trap is to follow the 15min frame and when you have a signal for a buy/sell zone, drop down into a lower frame if you need to do so.

Eventually you will learn that all you need to know already exists in the 15 min frame ... ie levels of s&r and s&d plus the price of course.

 

I actually mostly trade oil. Do you follow oil, and if so, do you find a 15 minute chart to be superior? It's certainly "calmer" than a 5/1/tick type of setup. I currently have 1/5/15/60/240 on my screen to get various perspectives on the picture, with a small tick chart for timing, which is probably too granular in your view. What are your thoughts?

[johnw 10]

Thanks for the comments John. Even in this big time frame I think to draw conclusions on cumulative delta is to make assumptions about who's placing what type of order,

 

 

 

Hi joshdance

 

Can you expand on this statement above and explain exactly what you mean please.

I think I know what you are saying, but it is better if you expand in your own words.

[johnw 10]

 

 

 

I actually mostly trade oil. Do you follow oil, and if so, do you find a 15 minute chart to be superior? It's certainly "calmer" than a 5/1/tick type of setup. I currently have 1/5/15/60/240 on my screen to get various perspectives on the picture, with a small tick chart for timing, which is probably too granular in your view. What are your thoughts?

 

Try if you can to stay out of the frenzy of small frames ... it is bad for your health

Take a look at CL today at 15 mins.

 

Ask yourself what the big traders use ... if you answer "tic charts" then your tic charts are the way to go.

[joshdance 10]

Yes, I simply mean that larger traders who want to disguise their orders and not negatively affect their average price of entry will likely not just use one type of order, but rather mix it up, sometimes using market orders in small chunks, other times limit orders. As a result, a group who is accumulating may themselves produce a net zero delta by market buying 100 shares, and limit buying 100 shares, giving a net delta of 0. Thus, the intent of the trader and the identification of the group cannot be known just by observing bid/ask (IMO, can't be known, period, and doesn't matter that much anyway).

 

Either way, a positive delta over a period of time only means one thing anyway: there was more volume traded at the offer than at the bid. Period, nothing else. Price can still decline when this happens IF there were few passive buyers, for example. Price is the only true reflection of buyer/seller imbalance. Delta measures aggressive buyer volume versus aggressive seller volume. But it does not take into account imbalance due to fluctuations in passive buyers and sellers. It's the same reason a high volume bar can either mean exhaustion or continuation, or why price can move up on low volume for a number of weeks or months--it's not the total volume that matters, it's the imbalance at that time. Hence, the only way to see the real buying and selling pressure is to look at the price bars.

[joshdance 10]

Try if you can to stay out of the frenzy of small frames ... it is bad for your health

Take a look at CL today at 15 mins.

 

Ask yourself what the big traders use ... if you answer "tic charts" then your tic charts are the way to go.

 

My bias was long today, though I did not take any trades as I'm still gaining confidence using 15m and above bars. My plan was to buy after the 13:30 bar today which bounced off the key .85 level, on a retest near .85, actually a bit earlier at the 13:20 5m bar reversal ... would have been an excellent trade at least at this point, targeting 114 IMO, though it did get hit enough times to make me nervous.

[Tams 20]

do you have any charts to show us?

[johnw 10]

My bias was long today, though I did not take any trades as I'm still gaining confidence using 15m and above bars. My plan was to buy after the 13:30 bar today which bounced off the key .85 level, on a retest near .85, actually a bit earlier at the 13:20 5m bar reversal ... would have been an excellent trade at least at this point, targeting 114 IMO, though it did get hit enough times to make me nervous.

 

Thanks joshdance

What is 0.85

[joshdance 10]

Here is a 60m chart from this morning at 11:30, I was expecting a move lower after the test of 110.85.

 

Next chart is current chart after price has broken up above, with what I think will be the ultimate target of 114, and the final chart is the 5m view showing the nice reversal bar. The 110.85 ish line I drew last night before going to bed, as it's clear resistance twice (well, last time on 4/17 didn't quite make it there), and it was the breakout point on end of day 4/7. Once we broke above 111 around midday today, I expected the 110.85 level to hold. This afternoon price danced around it and dipped below it once down to .70, but within a few minutes it was back up above. After a late shakeout move down near the close of the pit, it rallied back up. That last move down was my last opportunity to get in at .85, but as I said I am not confident enough in my analysis as I am quite the beginner.

[joshdance 10]

Thanks joshdance

What is 0.85

 

110.85, see my last post, the red line has been a key level several times in april.

[johnw 10]

As a result, a group who is accumulating may themselves produce a net zero delta by market buying 100 shares, and limit buying 100 shares, giving a net delta of 0. .

 

.

 

OK I see where you are coming from ... if 100 contracts are bought at the ask and 100 are bought at the bid then the cum delta is 0

 

But what has this to do with market and limit orders and in the longer term [ more than here and now] what has this to do with say the daily cum delta.

 

Being a perpetual student of the markets, I switched to 1 tic frames [ some years ago] on the ES to see the cum effect of selling at the ask AND the bid and buying at the bid AND the ask.

 

This simple exercise taught me more than anything I had ever read.

 

cheers

[joshdance 10]

OK I see where you are coming from ... if 100 contracts are bought at the ask and 100 are bought at the bid then the cum delta is 0

 

But what has this to do with market and limit orders and in the longer term [ more than here and now] what has this to do with say the daily cum delta.

 

What I'm saying is basically that personally, in my humble and newbie opinion, measuring the cumulative delta over a period of time yields no useful information that can be used as a real edge in a trading situation. That's for ME of course, and others will undoubtedly find their situation different. Just as fibonacci traders will find some use in their lines which sometimes work and sometimes don't. Ultimately, no trading tool is infallible, but at least support and resistance are accepted by enough traders that it provides some logical process to work from.

 

Being a perpetual student of the markets, I switched to 1 tic frames [ some years ago] on the ES to see the cum effect of selling at the ask AND the bid and buying at the bid AND the ask.

 

This simple exercise taught me more than anything I had ever read.

 

If you could expound on this I would be most grateful, as I'm not quite sure what you mean.

[johnw 10]

[quote name=joshdance;

If you could expound on this I would be most grateful' date=' as I'm not quite sure what you mean.[/quote]

 

No problem,

Set your frame to 1 tic and write a simple program to cum all up tics versus down tics at ask and also at bid

Then compare this to price movement and see how they compare.

 

Price is PURE it doesn't care how you board the train [ ask or bid]

Therefore you need to satisfy your curiosity as to what % is at ask and what is at the bid.

 

I always find that I learn through the quality of questions that I put to myself .. this only happens when I am not looking at the screen.

 

Once I began to appreciate the order flow I found that I could begin to appreciate price.

 

cheers

[johnw 10]

What I'm saying is basically that personally, in my humble and newbie opinion, measuring the cumulative delta over a period of time yields no useful information that can be used as a real edge in a trading situation. That's for ME of course, and others will undoubtedly find their situation different. Just as fibonacci traders will find some use in their lines which sometimes work and sometimes don't. Ultimately, no trading tool is infallible, but at least support and resistance are accepted by enough traders that it provides some logical process to work from.

.

 

I know that this is not what you want to hear, so just discard it it.

 

I reached a point where I decided to turn off the PC,then in my mind I took away ME and YOU,and all INDICATORS so that I was only left with price and volume.

 

Slow as I am, I realised that price is the only thing traded and so I dropped volume and from there I tried to piece together just what the few Traders who trade the bulk of the contracts each day, are trying to do.

 

Imagine my surprise when it slowly dawned upon me that they are marching to a completely different tune to the one being force feed down the Retailer Traders mouth.

 

That realisation took me back to the core of the order flow and from there I rebuilt myself.

 

But as you say ...everyone is different

[joshdance 10]

No problem,

Set your frame to 1 tic and write a simple program to cum all up tics versus down tics at ask and also at bid

Then compare this to price movement and see how they compare.

 

Price is PURE it doesn't care how you board the train [ ask or bid]

Therefore you need to satisfy your curiosity as to what % is at ask and what is at the bid.

 

I always find that I learn through the quality of questions that I put to myself .. this only happens when I am not looking at the screen.

 

Once I began to appreciate the order flow I found that I could begin to appreciate price.

 

cheers

 

Forgive my lack of understanding, but from my understanding, you can't buy at the bid. You can place a limit buy at the bid and you can get filled but a buy market order, one which actually fills a resting sell limit order, must do so at the asking price.

 

Is what you're suggesting to do the same as the traditional cumulative delta except instead of bid/ask volume use up/down tick? Let's say the bid is 100 and the ask is 101. An uptick can't go from 101 to 100, only from 100 to 101, or from 101 to something higher. So, I'm not sure how to count an uptick at the bid and an uptick at the ask. Obviously I'm not quite sure what you mean still, I apologize and wonder if you can clarify further.

 

 

I know that this is not what you want to hear, so just discard it it.

 

By the way, I want to hear anything that has validity, even if it flies in the face of what I currently believe! I am here to learn!