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Understanding futures market ( delta , time and sale )

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Market Wizard
SF Bay Area + CA/US
Trading Experience: None
Platform: TS, TOS, Ninja(Analytics)
Favorite Futures: NQ CL, ES when volatile mrkts
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Posts: 1,687 since Oct 2011
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@voluma I think its a great question..

I think @hobart has given a good explanation and ties in OF & nuances of how it is done. @hobart thnx.

Its what happens during and after the markets hit which causes the ebbs in OF and how participants react or capitulate which hobart described. Also the way in which the market orders are generated. Its not that i understand all of it... but its the key to markets....

cheers n only good luck...your questioning mind is on the right track

hobart View Post
First,i think your answer was tailored to the experience level of the original poster, and is a good simplification. i wanted to add to it with the delta piece

in context of "delta", there are three scenarios

a) MKT orders hitting the other side (causes delta to increment)
b) LMT orders hitting the other side (causes delta to increment)
c) MKT orders unable to locate a counterparty, and have to look to a new price level (extending range by a tick, causes delta)

In this screenshot, the top pane is price, the bottom pane is a standard cumulative delta. What makes Delta interesting is that in exhibit 1, you can see a strong imbalance of scenario A and C, causing delta to shoot wildly down. Call it an exhaustion climax, a successful stop run, often key reversal points look like that, when 'two sided' trade breaks down. In exhibit 2, i think that is what makes people think delta is such a powerful tool. you see descending price action, which leads you to think sellers are hitting C, when in reality, those are buyers AND sellers just taking profits and adding to positions on LMTs. The delta continues to creep up, which in hindsight correctly "predicted" a high probability of additional buying to break out above the pullback/range/consolidation price action. Good luck trying to interpet that at the time watching a 3k volume chart and a cum delta chart on ES and CL during cash hours can SOMETIMES give you pretty clean hints of what may happen next. outside of cash hours, its very uncorrelated. imho delta is very difficult indicator to interpret, and is best ignored by traders without intimate knowledge of order flow in THAT market.
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