Sunday, March 07, 2010

More on Reading the TraderFeed Market Delta Charts


Before launching into this post, please check out my earlier post regarding reading Market Delta charts. See also this post on using information within the Market Delta bars. A great deal of information about the charts--including features not illustrated above--is available on the Market Delta site.

The information I most frequently consult from the chart are (please click above chart to see more clearly):

1) Sentiment Across the Day - The green and red histogram bars along the X-axis indicate whether more volume is coming in at the market offer (green) or at the market bid (red). From the columns below the histogram, I can read the total volume for each bar and the range of Delta values during that time period. (Delta is the net volume transacted at the market offer minus that transacted at the bid). In a glance, I can see if volume is elevated or not and whether the elevated volume is skewed toward buyers (lifting offers) or sellers (hitting bids).

2) Sentiment Within the Period - Here we look within the bars at each time and price to see if more volume is being transacted at the market offer price (green color) or at the market bid (red color). As a rule, in a bull move, we should see the red areas of successive bars at higher prices, as sellers cannot move price lower. In a bear move, we'll see green areas of successive bars at lower prices, as buyers cannot move price higher. Range markets will tend to show a relatively even distribution of volume at offer and bid within and across bars. In general, if I'm a buyer, I want to buy the market during the red periods, when I see that sellers cannot move the market to new lows; vice versa if I want to sell. Elevated volume within bars often serves as an alert for a one-sided (directional) market that is becoming more two-sided (balanced).

3) Volume-Weighted Average Price - This is the red line running through the center of the chart. It represents the emerging average price over the course of the day. In a range market, the VWAP line will be relatively flat; in a directional market, it will have a positive (bullish) or negative (bearish) slope. In a range market, we want to be buyers below VWAP and sellers above. In a trending market, we want to follow the direction of VWAP and execute trades closer to VWAP and exit further away.

4) Distribution of Volume During the Day - This is the histogram at the right side of the chart along the Y axis. It shows volume at price throughout the day, so that we can visualize the day structure. In a range market, we'll see a volume bulge toward the center of the price distribution, with dwindling volume above and below. That shows that demand and supply have shut off below the value area (the area where 2/3 of volume has occurred). In a trending market, we'll accept volume at successively higher or lower price levels, extending the price range beyond the opening, morning parameters. Volume bulges on the histogram will often serve as price targets for moves back into the day's range.

Of course, much of the challenge of trading is placing all of this information into a clear framework that allows for rapid, accurate decision-making. The real money in markets comes from seeing day structure early in the session and rapidly recognizing shifts in structure. Seeing how volume is distributed within and across periods greatly aids those challenges.
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10 comments:

adrian said...

If find it very fascinating that Fridays rally weren't lead by the buyers , much so the absent of sellers.

NYSE tick didn't touched the +1000 tick and yet we saw a broad market advance.

From what I have read in your blogg you ofter comment about the big players, which are the ones that makes the Nyse tick tagg the extreme TICK readings

Could you go as far as saying that retail Joe was the one leading the Fridays rally and that it should not be "trusted"

Brett Steenbarger, Ph.D. said...

Hi Adrian,

I show plenty of +1000 TICK readings on Friday. You may need to check your data source. It was a day of *very* significant buying--

Brett

Wolfs said...

I see that you use the NYSE tick quite frequently in your analysis. Do you find that it tells a more telling story then cumulative delta?

Brett Steenbarger, Ph.D. said...

Hi Wolfs,

NYSE TICK and Market Delta cover different facets of intraday sentiment. I find the information conveyed when both are moving in the same direction--and when they're not--to be very helpful.

Brett

Michele said...

If I might make a small suggestion - Blogspot now offers a "Search This Blog" gadget that's really easy to add to a blog.

That might be helpful for people who want to find a particular topic, especially since there's such a wealth of valuable information on your blog.

Michele said...

"I show plenty of +1000 TICK readings on Friday."

Hmm - I counted seven 5-minute bars with $TICK's above 1000 on Friday. I'm using eSignal, same as you I believe. Is that the number you got?

What was really interesting was that the 10-MA never went below +153 the entire session.

Brett Steenbarger, Ph.D. said...

Hi Michele,

On Friday, there were 41 TICK readings > +800 (which is my cutoff of significance) and 8 readings of +1000 or greater. There were no TICK < -800. Very skewed to the buyers.

Brett

Jorge said...

Michelle,

Maybe this helps:

Best trading,

Jorge

MemphisBelle said...

Hi Brett,

Thanks for posting this. I've wanted to know and understand the Delta charts you have been posting.

Question:
In looking at 7:30 to 10:00 timeframe (a bullish time frame on this chart), I see the bars greener at the higher price range at the top of the bars but "we should see the red areas of successive bars at higher prices, as sellers cannot move price lower." "if I'm a buyer, I want to buy the market during the red periods, when I see that sellers cannot move the market to new lows"

I feel like I am reading this upside down or something. I can see a trader should buy them in the red but the red is found at the lower price ranges and "As a rule, in a bull move, we should see the red areas of successive bars at higher prices"

I am a bit confused. Maybe this chart is in a trending mode and the rule is for longer time frames. Can you help me to better understand the Trader Feed Charts?

Thank you for sharing your knowledge with us. I so enjoy and appreciate this blog.

Nidhi said...

Dr.S,

How does the Delta charts for multi day (at daily level) look like. I can imagine a similar chart like in the intraday but with higher volumes. But just curious to see if the daily delta charts are any different?

Thanks,

Nidhi