Volume Delta Analysis Thread

[Soultrader 12]

I want to dedicate this thread to a study of Volume Delta. Delta is still a relatively new study to me so please add your input freely.

 

Quick Intro to Volume Indicators

 

Below is a list of TS indicators created by the members of the forum:

 

1. Volume Delta created by Walterw

2. Volume Delta Oscillator created by Walterw

3. Up/Down Volume Indicator created by Blu-Ray

4. Market Delta Footprint created by Ant

5. Bid-Ask Tape Indicator created by Insideday

 

The indicators above show an interesting way of viewing bid vs ask per price bar. Instead of just a simple volume histogram, it shows whether the buyers or sellers are in control and can be very useful in analyzing supply vs demand as price approaches a key pivot or support and resistance level.

 

I am currently using the Volume Delta created by Walterw, so I will be referring to it for my charts. What I want to accomplish is to design new strategies based on delta. Perhaps combining other tools to help decide turning points in the market and to create filter/rules for each delta based setup. I will be looking forward to various inputs from traders.

 

My setups and strategies are still in the beta phase where I am still testing out different methods. But I would like to go over one observation I found interesting. It is a combination of the TTM Heikin-Ashi Indicator and the Volume Delta. I am interested in price behavior as it reaches a key pivot such as daily pivots, previous day low/high, 50% fib retracement, VAL, VAH, and POC.

 

Let's take a look at the first example. The chart below uses a 50-61.8% fibonacci retracement clustered up with a daily pivot (PP). In combination with the fibs and PP, I am interested in using delta to further help me enter a position. The example shows a color divergence between the TTM Heikin-Ashi and Volume Delta. Notice the blue TTM vs a red on top Volume Delta. This shows price advancement but with seller dominance.

 

 

 

The second example below from Jan. 31st, 2007 requires further analysis. Its a fairly interesting chart with a combination of delta and volume analysis. Notice the first group of arrows. This shows the first half hour of choppy trading using the Value high pivot as support. Notice the several TTM and Volume Delta color divergence. Next, notice the increase in volume with the uptrend showing confirmation. The pullback occurs on less volume. Also notice the TTM and Volume Delta color divergence as price pulls back. Then an increase in volume again for a continuation of the rally.

 

 

Very interesting examples of Volume Delta in action. I understand that some of you use Oscillators for Delta to look for divergences. Please add your input on this. My aim here is to really dig deeper into Delta and how we can all design trading setups that will put the odds in our favor. Thanks

[wsam29 10]

You know what I noticed when I plot floor trader pivots to NYSE stocks, they trade pretty well off them.

I don't have real time to NASDAQ or other exchanges.

 

Try it yourself, this is the Tradestation floor trader pivot indicator that plots the levels on its own based on the previous days close.

[notouch 10]

What are the benefits of using tick delta compared to volume? Common theory is that you buy when price and volume are increasing at support or sell when price is decreasing but volume is increasing at resistance. This seems to be a better way of looking at it than tick delta. As I understand it tick delta doesn't distinguish between a 1 contract tick and a 100 contract tick.

[Soultrader 12]

Good point there notouch. How about the Volume Up/Down indicator by Blu-Ray? From my understanding it will plot buy volume vs sell volume. My main focus is to better understand fear vs greed. Yes volume alone will show this. However, let's say a tall red candlestick occurs on nice volume. A simple volume histogram would indicate panic and alot of selling. However, the volume up/down or TICK delta indicator would show the ratio of sellers vs buyers. This can be useful in getting in 1-2 candlesticks earlier before the crowd. Although volume spikes can indicate a reversal, price can still decline. (price often reverses at a top but I have seen price decline further during a panic) Understanding the buying vs selling at these particular bars can be useful in my opinion.

[TinGull 10]

Analyzing the number of contracts at the bid vs the ask is extremely helpful in seeing the pressure being taken off or being applied. Notice on this chart, the 5th of january, you can see very quickly the buying pressure being released and selling coming in as we retrace to pivot levels. This shows you that there is not going to be a rejection at that pivot, and we will continue in the way of the trend.

 

 

Also, you can see that as it hits an extreme reading going in the direction of the mini trend, we are watching for a reversal due to exhaustion in that direction.

 

My graph is plotting the number of contracts at the bid vs ask, not the up ticks vs downticks.

[walterw 10]

Hi Tingull, how do you establish this extreme levels ? thanks Walter.

[TinGull 10]

Those were levels I observed very early on with the YM noticing that when there was a net difference of over 290 contracts or so in either direction, a turnaround happened.

[mjp 10]

Thanks to Soultrader for aggregating this category of indicators in one thread. And for placing the several contributing thread links in the first post. I earlier had spent time going through all the threads/etc looking for all the references to these types of indicators. Helpful to find them in one place.

[walterw 10]

Ok guys, I think we all need to understand what our formulas are all about and I even have my doubts about how they are really working in terms of ticks or volume delta really...

 

First of all Tick Delta and Blue ray up /down volume are the same formula, same data in consideration, the only diference is that tick delta will show on the top of the histogram the most traded one... its just diferent visual of the same thing....

 

Now what is the tick delta showing ?... well its a simple volume histogram, same as volume indicator...(its taking into acount volume data) if you put your volume indicator below tick delta you will find that both look exactly the same... the diference is that tick delta is asigning (up or down ticks) to x volume... and here is my great question.... we are dealing with volume information here and not tick information... if the histogram would only consider up/dn ticks without distinguishing volume... every histogram bar would end ( lets say in a 233t chart) with 233 reading...

So I really have my doubts if we are dealing here with a tick delta or if we are actually making some sort of volume breakdown....

I attach an example.... cheers Walter.

[Blu-Ray 10]

Your dead right there Walterw, I was just responding to a request from James when I noticed that all the indicators produced the same results ie volume and not ticks.

 

Then I've just come across your last post and as you say both indicators are displaying exactly the same info, it would therfore be down to whatever suits the individual.

 

I've just downloaded your TickDelta indicator so I'll give it a go in real time tomorrow, because I was wondering if the colours kept swapping intrabar.

 

Cheers

 

Blu-Ray

[walterw 10]

Blue Ray : they do swap intrabar, if you want the real thing confirmed , maybe you want to disabble the "update value intrabar" so you will not get fooled on the last still active bar.... or do update intrabar BUT pay only atention when you are 1/4 th amount of ticks left to finish bar... (ie 233t at 58t left on bar )...

 

seems we agree that we got some sort of real Volume breakdown here... and not tick delta.... cheers Walter.

[TinGull 10]

I agree...what it looks like there is you're breaking down the contracts difference at bid vs ask.

[Soultrader 12]

Ok my mistake. Let's turn this into a volume analysis thread for now. Blu-Ray pointed it out to me earlier and I actually prefer it. So basically we are seeing buyers vs sellers from Walters and Blu-Ray's indicator?

 

Note: I made some changes to my initial post and the title of the thread.

[walterw 10]

Yes Soul, we found out that this indicator is better and more reliable than we thought... it actually uses volume data and not tick data, so we should even change the indicators name from Tick Delta to Volume Delta if you wish ... cheers Walter.

[Anonymous 11]

I really don't like indicators. I favor Price and Volume. They are real, they do not lie and the do not lag.

 

Having said that, this thread along with another site got me thinking. Could I find an indicator that gauged buying and selling pressure in the market, while remaining true to core Price/volume/VSA beliefs? Enter what I call (at least for now) the SDI - Supply Demand Index.

 

First, one must understand a key concept:

 

"There are only two basic definitions for bullish and bearish volume:

 

1. Bullish volume is increasing volume on up-moves and decreasing volume on down-moves.

2. Bearish volume is increasing volume on down-moves and decreasing volume on up-moves.

 

Knowing this is only a start and in many cases, not a great deal of help for trading". Tom Williams, Master The Markets, p.19.

 

This is the basis for the tradeguider volume thermometer. The SDI tries to emulate that. It is showing the bullishness of previous volume in relation to the bearishness of previous volume. In other words, the amount of demand versus the amount of supply in the background. This indicator is looking back over time and is not simply looking at the current bar.

 

check out the attached chart.

 

* The blue area above the hollow area represents the amount of demand greater than the supply (hollow area).

 

* the red area above the hollow area represents the amount of supply greater than the demand (hollow area).

 

* Hollow bar outlined in yellow-supply equal demand.

 

*** This is not actually intended to be used to make trading decisions. Although some may find it helpful in that vein. ***

 

1. First black arrow on chart. This is a Squat bar, or Volume Churn bar. The range is less than the previous bar but the volume is higher. We have Supply entering the market on this bar. That supply, is seen by the market makers and thus the range is kept narrow as they believe prices will soon fall. In this case price moves up one bar on momentum and then falls sideways. The two small blue arrows connote volume less than the previous two bars. Falling prices on less volume-Bullish. Note that the SDI is Blue during this time. The background demand is swamping the supply that entered on the squat. The yellow arrow points to narrow range bar that closes lower with volume less than previous two and closes on its low. This is a classic definition of NO Supply. With no sellers underneath, price moves up.

 

2. The red horizontal line is at 0300. My initial balance period is 0230-0300. Note the first bar after the open. It is a wide range bar with ultra high volume that closes up from the previous bar and closes near the middle of its range. This is very key bar in VSA. The high volume and middle close tell us that there is a transfer of ownership going on in that bar. VSA, moreover, states that markets do not like wide spread up bars on high or ultra high volume. Why? Because there could be potential selling in the bar. Clearly there was here. The SDI turns from blue to red on this new wave of Professional selling. There is a such thing as momentum, however, and price continues up. Technically, upside momentum is decaying, or, downside momentum is increasing.

 

3. The key bar, if you where paying attention comes where the second black arrow is. Here again we have a Squat bar. What make this one special though is that it comes as price hits the VAL. Seeing signs of Professional activity at known support/resistance areas is what we want. After the open, the pros are rejecting yesterday's value, a good sign that the day might be down.

 

4. The next black arrow points to a second chance entry. Note that the bar just before this Volume Churn bar has a small blue dot. The volume on this bar is less than the previous two bars. Lower volume on down-bars is bullish. With an up-close near the high on less volume , we would can this a form of a test. On the very next bar we see more supply enter as the range narrows. The test bar did not find substantial volume, but as soon as price rises, Supply was there to meet it. We thus have what Tom calls on page 155 in his book, "No result from a test". No immediate result from a previous test can show weakness is present bear market (falling market). With weakness in the background- the squat at the VAL and as seen by the SDI, it is no surprise that the test failed on the very next bar in the form of a selling Squat entering the market.

[walterw 10]

Pivot : can you explain how your software distinguish wich trades were made at the bid and wich at the ask.. ? we are looking for delta... bid/ask volume analisis, thats our mision on this thread... cheers Walter.

[Anonymous 11]

Ok my mistake. Let's turn this into a volume analysis thread for now. Blu-Ray pointed it out to me earlier and I actually prefer it. So basically we are seeing buyers vs sellers from Walters and Blu-Ray's indicator?

 

Note: I made some changes to my initial post and the title of the thread.

 

 

Sorry Walter. I was focusing on the Volume Analysis part of the thread name. I also seem to recall a couple of posts stating that the indicators where looking at volume and not tick delta. My mistake.

[walterw 10]

Thats not a problem Pivot, I think you got something very nice to share and its very valuable information, maybe it would be nice if you could open a new thread on this very specific topic arround vsa... it sounds to me a Wickoff type off aproach.... do you know if there are indicators on this aproach for TS... ? I encourage you to keep sharing this very nice information on Volume... I think, maybe I am wrong, that this thread would be only on deltas.... but please keep sharing, very good stuff yours, cheers Walter.

[walterw 10]

Ok, I am going to explain very brief how the Volume Delta Oscillator works...

 

If you look on a chart at both Volume Delta (VD) and Volume Delta Oscillator (VDO) and if you put the settings on the VDO at 1-1-1-2-1-1-100 then you will have a "raw" VDO... the VDO refers to an aditional information that the VD doesnt show so clearly... lets say for example you got on VD a green histogram on top, ok... but whats the size of that green vs the red part of the histogram, what is the diference.... lets say you got a histogram of 100 contracts and 80 where green and 20 where red... well thats quite bullish... would not be the same if 55 where green and 45 red... so here comes the VDO... it will measure the difference of the green vs the red on the histogram... it will show the "degrees" of Buying and selling going on... what I love to see here its that we are not only taking into acount delta but also volume itself... the oscillator is going to show the intensity or commitment of volume into a buy or sell move... so we know "HOW MUCH" and from "WICH SIDE" .... now the raw parameters on the VDO its just to take a look how he works on taking the differences of green vs red on VD histogram... its a nice excercise to understand how the indicator works... now a raw parameter I find it useless, it negates the cyclical factor of the market... so if we put some higher inputs to the VDO, we will take into acount what happened in the X previous period as to the money flow of the market... this can be very usefull to see in a very clear way again the true flow of money from a volume and delta point off view.... I attach both examples raw and with parameter

1-3-2-2-8-3-6 in Russell 110 t chart...

 

about aplications, well there is a lot to be said... cheers Walter.

[walterw 10]

On the coding forum I did present the Volume Delta Cumulative... its something new I am experimenting on... there are multiple aplications to this indicator.... one I found today and sharing the spirit of failed Breakouts presented by Soul is how this indicator during the false break he did not validate the break... as you all know I do work on small time frames, that doesnt mean you can not apply this to a higher time frame, I attach an example today of how on this very range bound market there was so clear opportunities to get clearly in... I did papertrade... and must say it was a confortable experience... cheers Walter.

[bradipogs 10]

where can I find cumulative volume delta ?

 

Thanks

[LS_Chad 10]

Investor/RT - Answers  (LinnSoft.com)