Understanding futures market ( delta , time and sale )
I've new to futures trading and been trying hard to understand the theory behind it. I've read few article from the web and it mentioned that futures market it's a place where buyers and sellers meet in order to transact. For every buyer, there is a seller and for every seller, there is a buyer. If this statement "For every buyer, there is a seller and for every seller, there is a buyer " is true , i would like to know why there is a delta difference for each candle ( chart type in minutes) . If each price level got transaction between each buyer and seller, the delta should be remain zero.
Apart from it, i'm also finding it hard to understand time&sale print. Assuming i'm buying 5 contracts and there's seller willing to sell to me. Will the T&S print both 5 contracts buy and 5 contracts sell together at T&S ?
Hope some of the senior here could give me some guidance. Thanks in advance.
fyi, i'm using order flow and the chart type in minutes. so each bar, i'm looking at delta ask vs bid traded. So the question would be why there's delta difference since amount of contracts between buyer and seller are the same.
for T&S, using the same question i raised before, if 5 buy contracts are filled with 5 sell contracts, would like to know what will appear in T&S ? will it be 5 contracts of buy or 5 contracts of sell or both of them should be appear in T&S.
There are 2 types of orders, limit or market. Limit is an order that sits in the DOM, and is passive, market order is an aggressive order that buys/sells a resting limit order.
For a market to move the market orders need to overwhelm the limit orders resting on the DOM for it to tick up/down.
Delta is a measure of how aggressive a buyer or seller is, delta is calculated per bar, the formula is buy market orders minus sell market orders. A positive delta means more buying aggression, and vice versa.
T&S will only print the market order. so if a buy market order hits the offer, it will show up on the T&S as a limit offer order that was hit (usually in green, to show buying aggression).
There can't be a print unless there was a market transaction, and a market transaction can only happen when a market order hits a limit order, it can't be the other way around. Hence, it "prints the market order" - in layman terms, since the fellow asking didn't seem to know that there was no difference and that a transaction is a transaction regardless of the results as you so pointed out (i.e. there won't a print on the buy and sell side, just a single print showing which side initiated the market order by the colour).
And yes obviously other stuff like crossings, but I don't think he needs to know that.
The following user says Thank You to PeakGrowth for this post:
ad bis/ask delta: This is a common add-on for splitting up the order flow by adding a differentiation if an order from T&S was executed at the bid or at the ask. With adding this level of complexity, you don't have the T&S identity any more. E.g.: 100 trades of T&S - identity of the number of buyers and sellers. T&S only shows time & sales - as the name says. When you add a comparison now, if these T&S were made at the ask or at the bid, you normally get a delta.
ad T&S: The answer is still: 5 contracts @ price X @ time Y - T&S shows the transaction that was closed + when it was closed. No double counts; it's one transaction.
The following user says Thank You to choke35 for this post:
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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Last edited by hobart; September 4th, 2015 at 07:20 AM.
The following 7 users say Thank You to hobart for this post:
thanks a lot for such a detailed explanation. i'm really appreciate it.
Apart from that, thanks for sharing the cumulative delta trading style.
Having different data provider, will the delta calculation among the data provider will be different as well because some of them are using bundle /unbundle feed. I'm asking this because i saw a post in link here that showing the different cumulative delta between DTNQIFEED and ZENFIRE .