Thursday, November 19, 2009

Using Information Within the Bars on Market Delta Charts


If you click on the Market Delta chart above, you'll see the numbers within the 60-minute footprint bars. These numbers are quite helpful in managing positions in the market.

First, however, let's go over some basics:

Inside the bars, at each price, are two numbers. The first is the volume at that time transacted when that price was the market bid. The second is the volume at that time transacted when that price was the market offer. When volume transacted at the bid exceeds that at the offer (sellers more aggressive), that price level is color-coded red. When volume is transacted at the offer exceeds that at the bid (buyers more aggressive), the price level is color-coded green. The shifts of color within the bar show how buyers and sellers have behaved at each price level traversed during that period.

You can see that each bar has one price level and number pair in a box. That represents the high volume price for that period. By looking from bar to bar for the boxed prices, we can see where the market has been facilitating trade over time. In a downtrending market, the boxes will occur at successively lower prices; in an uptrending market, the boxes will occur at rising prices.

To the left of each bar is a vertical line that is either colored green or red. If the bar is color-coded red, the period's closing price was below the open. In such a case, the top of the bar represents the open price for the period; the bottom of the bar represents the closing price. Conversely, if the vertical line is green, that means that the close of the period was above the open price. In that case, the bottom of the line represents the open price; the top is the close.

That way, we can gauge the market open and close relative to the highs and lows for each period.

When we look at the numbers vertically within each bar, we can track where active trade occurred and where trade was shut off. This is very important: if trade is not facilitated as we're moving higher or lower, that means that we're running out of buyers or sellers at that time. Savvy short-term traders can use that information to gauge market exits.

When we look at numbers horizontally from bar to bar at particular price levels, we can see if trade is being facilitated at those prices from period to period. If volume shut off at a price in period one and then expands at period two, we know we're seeing market acceptance of that price as value. That can be very helpful information for entries and exits, as it tells us whether the flow of orders is going for or against our positions.

In coming posts, I will illustrate concrete trading applications of these data, with an eye toward better execution and management of trades. (Please note: I am not commercially or otherwise affiliated with Market Delta; the charts are tools I use and have found valuable in my trading and coaching.)

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1 comment:

Vijay said...

Nice educational post. Thank you.

This morning's breakout to the downside has occurred on big MD negative delta numbers. Also, TICK registered a lower reading than yesterday's low on the 9:40 am EST bar, which essentially is a confirmation signal.

But, it was difficult to get in unless one shorted the open by looking at the overnight action.