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Green bar with red delta implies what?


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Green bar with red delta implies what?

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  #1 (permalink)
Bellheim Germany
 
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Hello,

I'm watching the NQ with number bars (aka footprint chart) and also bid/ask delta to decide if I enter at a potential reversal area or not.

What I keep seeing from time to time is for example a green bar (close > open) but with negativ delta.
So this implies that although more contracts have been traded on the bid side than on the ask side so, more "people" or contracts wanted to leave the market than to enter, the price moves up.

Does this imply that buying power is so large that even active selling is not able to push through the resting limit buys so it might be a good idea to go long?

But I also notice that if that happens, even if the market then goes up, it is often a messy thing and often drops right back.
Please keep in mind, this is something I watched, I might be biased. I have no good statistics on this because I guess the information is useless without the right location, which is difficult to put into a statistic.

Might it also be that the above example just states, that that little market buying which occurred was enough to push through the resting offers so there is just no one willing to sell and we do not have a big buying impulse. But how does that fit together with the larger market selling than buying?

I have this on 700 Volume bars. So every bar has the same volume.

I would love to read some thoughts on that topic.

Thanks!

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Hi,

Footprint charts only will show you one side of the market, called aggressive traders (sellers-bid/buyers-ask), but you are missing the counterpart (inside bid/inside ask aka limit orders) and how this limits orders can affect the price movement.

Buyers can buy aggressively with market orders(delta would be positive) or can buy passively with limit orders (delta would be negative). There is no way to know which will be if you don't read the context. Order flow by itself and without context is useless.

Cheers

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The most interesting thing about Delta to me is the concept that I heard Peter from Jigsaw mention once or twice. If you think about price going up and down like the floors of a building then Delta can show you the "thickness" of the floors and ceilings. If price is moving up but Delta is negative then I perceive that theres more sellers (a thicker roof) than buyers but the buyers are being aggressive although if things don't change the move might be unsustainable. But aggressiveness often does change things.

That being said I've never found it enough to base winning trades off. PA support and resistance is all that I have found that is "current" enough to actually get in when I need to get in. I sure have tried to make Delta work though as I love the concept of what it can show but I am definitely falling on the "simple is better side".... the least amount of info to make a decision.
Good luck... there are great webinars on Delta out there...
Craig

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  #5 (permalink)
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Blue Eagle View Post
If you think about price going up and down like the floors of a building then Delta can show you the "thickness" of the floors and ceilings.

Uhm, I was under the impression, that the count of limit orders (dom) at a price level represents the thickness of floor or ceiling.

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pema83 View Post
What I keep seeing from time to time is for example a green bar (close > open) but with negative delta.
So this implies that although more contracts have been traded on the bid side than on the ask side so, more "people" or contracts wanted to leave the market than to enter, the price moves up.

Does this imply that buying power is so large that even active selling is not able to push through the resting limit buys so it might be a good idea to go long?

But I also notice that if that happens, even if the market then goes up, it is often a messy thing and often drops right back.

Might it also be that the above example just states, that that little market buying which occurred was enough to push through the resting offers so there is just no one willing to sell and we do not have a big buying impulse. But how does that fit together with the larger market selling than buying?

"But how does that fit together with the larger market selling than buying"

It's about context. I'll return to this in a second, but first:

1) A delta divergence does not immediately mean that you need to fade the direction, or the delta.

2) I used to stare at delta quite a bit, but I've found that it did more harm than good in the long run.

In one case, you might have significant buyer absorption. That was the case Tuesday morning of this week in ZN. Price was on the lows around 120'230 and sellers kept selling onto a bid which refreshed. In this case, delta is certainly going down, but price isn't moving. This is a reversal signal, and it sure as hell made a green bar when it traded right back up into the range.

In another case, you might have aggressive sellers hitting into a bid at the highs. Bob at Goldman is putting on some size, which pushes the delta negative, but then Bob at Goldman thinks he can get a better price for his short. So he pulls his offer. Others pull their offers, and the market ticks up higher on low volume to make a green bar. But then Bob realizes that he was the only one offering at those highs; nobody else wants to sell! So on the next bar, he turns around and buys back his short (and then some), which drives the market higher.

In a third case, Jim at Goldman needs to adjust his risk exposure. He's long quite a few thousand shares of FB, but Zuckerberg did something silly today, so his position is in the red big time. His manager is going to have his ass if he ends the week in the red, so he heads into the NQ and buys a few thousand to try to drive the market up, hoping to have that move translate into his stocks, where he's trying to offer out above. The only problem is that the broader market is selling off, so Jim's positive delta of a few thousand gets swallowed up as the other sellers around the world drive it down.

It's all situational, which is why it's important to learn to read the order flow. Having deltas and bars is helpful to get a picture of the price action, but the real meat of the trade is in seeing what bids and offers do at prices in which you're interested.

As a side note, the NQ is a real pain to try to read. It's thin and whippy, which means that you or I could probably sweep a price if we accidentally clicked a 0 next to the usual 1 lot we trade The order flow games which you see are much easier to read in thick markets, where people who trade big size are forced to show their hand at one or two prices, instead of eight or ten different prices in the NQ or ES.

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pema83 View Post
Uhm, I was under the impression, that the count of limit orders (dom) at a price level represents the thickness of floor or ceiling.

Hi, I'm not very articulate at 5:30 am I guess. Yes it's the orders in the que that are the "thickness" of the floors and ceilings. My only point was that if buyers are buying EVERYTHING in the que as quickly as it shows up and sellers keep adding trying to keep them down you will get negative Delta and upward price movement... if the Buyers are strong enough the "imbalance" will result in a short covering rally of some amount at some point. If the Sellers can hold them of the Delta should shift and price will drop quickly as buyers disappear.
This is my understanding and I have no issue if I am wrong... as I said I don't really use it anymore .
Craig

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  #8 (permalink)
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Hi,
Liquidity is not provided only with limit orders. Stop market orders are buyers and sellers and are not showed in the orderbook. A big buyer resulting in a positive delta, can be a passive seller absorbing it to run out stops. This means floors and ceilings can't be knowed only looking at level 2.
Again, context is the king.
Cheers

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  #9 (permalink)
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Hi,

Basically what you are asking is not possible to answer. They are involved too many factors.

Cheers

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ignacio90 View Post
Hi,
Liquidity is not provided only with limit orders. Stop market orders are buyers and sellers and are not showed in the orderbook. A big buyer resulting in a positive delta, can be a passive seller absorbing it to run out stops. This means floors and ceilings can't be knowed only looking at level 2.
Again, context is the king.
Cheers

I have to disagree. Stop orders eat through liquidity. Stop orders become market orders, and market orders eat though the limit orders at any price level. This is part of the issue with flash crashes and huge ranges in ES like we saw in early February; if there's no liquidity because the ranges are huge and nobody wants to make a market, then stop runs become 10 handles instead of 10 ticks.

If that big buyer is actually a passive seller, then you'll see signs of spoofing. It'll be something like the market trades down from 10 to 5, somebody shows size to buy at 5, offers at 6 pull and the market hits up for only a couple of hundred contracts--which won't be a huge delta--and then sellers rush in to hold 7s, hit 6s and 5s, and crack down to 4s and 3s. That offer at 6 pulling is probably just the one guy who wants to push it further short. He just doesn't want to sell 5s and 4s if he's bidding 4s and 3s to exit. If he's one of three to five large guys playing that day, he probably is the offer at 6s. All he has to do is pull to create a domino effect for smaller folks to follow. Once orders chase up, he refreshes his sells and cracks the market down.

You can see it real time in the "Level 2", which is really just order flow, which is really just short-term psychological games and people trying to screw each other out of money.

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Thank you for your replies.

I guess NQ isn't really the right market to interpret stuff like that into it.
I've given up to try to interpret level 2 data on NQ because the moment you realise that there are orders added to a certain price level, the market is somewhere else...
Maybe it would work if one could watch .25, .50 and .75 as one and realise that in that group orders are added to.

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For every buy there is a sell, there is never more buying or selling.
for that being said, what moves the market?? the answer is market orders. market orders being hit on the buy side show bullish and opposite for sell.
So if you have a green bar and the delta is negative....... What you are seeing is shorts are trying to get out and they are slapping the bid..
so I would predict the price to go up into close as shorts cover their positions.

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For every buy there is a sell, there is never more buying or selling.
for that being said, what moves the market?? the answer is market orders. market orders being hit on the buy side show bullish and opposite for sell.
So if you have a green bar and the delta is negative....... What you are seeing is shorts are trying to get out and they are slapping the bid..
so I would predict the price to go up into close as shorts cover their positions.

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dustin mann View Post
For every buy there is a sell, there is never more buying or selling.
for that being said, what moves the market?? the answer is market orders. market orders being hit on the buy side show bullish and opposite for sell.
So if you have a green bar and the delta is negative....... What you are seeing is shorts are trying to get out and they are slapping the bid..
so I would predict the price to go up into close as shorts cover their positions.

that is not exactly correct

buy and sell orders (bid and ask) you see on the dom are limit orders. so if the bid (buy) gets hit, that is a sell order. and if the ask (sell) gets hit, that is a buy order. marketable orders are the aggressor what determines if it's a buy or a sell.

a green bar and a negative delta means a lot of sellers, but price is going higher. could create a good buying opportunity.

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pema83 View Post
Hello,

I'm watching the NQ with number bars (aka footprint chart) and also bid/ask delta to decide if I enter at a potential reversal area or not.

What I keep seeing from time to time is for example a green bar (close > open) but with negativ delta.
So this implies that although more contracts have been traded on the bid side than on the ask side so, more "people" or contracts wanted to leave the market than to enter, the price moves up.

Does this imply that buying power is so large that even active selling is not able to push through the resting limit buys so it might be a good idea to go long?

But I also notice that if that happens, even if the market then goes up, it is often a messy thing and often drops right back.
Please keep in mind, this is something I watched, I might be biased. I have no good statistics on this because I guess the information is useless without the right location, which is difficult to put into a statistic.

Might it also be that the above example just states, that that little market buying which occurred was enough to push through the resting offers so there is just no one willing to sell and we do not have a big buying impulse. But how does that fit together with the larger market selling than buying?

I have this on 700 Volume bars. So every bar has the same volume.

I would love to read some thoughts on that topic.

Thanks!

The initial answer is simple: a green bar with red delta means that there has been selling absorption from resting buy orders (limit orders etc) and for the time being the delta sellers at market price have been beaten. How to use it is another matter I have looked at volume charts and they are excellent for working out SR levels. However they fail on giving you an idea of the velocity of any move.

To give you an example, how would you interpret the price move you have described, but instead you say that it happened at the Previous Daily Low, on a 5 min chart, with heavy overall volume, heavy selling delta that was beaten, and a bullish pinball had formed. What would you do?
Context is everything, as is velocity.

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This behavior you described occurs as a function of limit orders being canceled.

There is more to the picture that just the transacted volume, though this is the only metric that any software tool I am aware of tracks. Here are all the relevant components that must be considered.

1. Starting Volume of Bid / Ask
2. Added Volume of Bid / Ask
3. Canceled Volume of Bid / Ask
4. Transacted Volume of Bid / Ask
5. Ending Volume of Bid / Ask

Transacted volume only typically makes up 25% to 50% of the action that actually occurred. The Cancelled Volume makes up 50% to 75% of the action typically and this is never usually tracked by any software tool.

Visually looking at charting software you won't be able to tell the difference between transacted and cancelled in real time, but with code we can extract all the individual price level data and reconcile it and observe all the points above. The rabbit hole is a lot deeper then many would assume...

Ian








pema83 View Post
Hello,

I'm watching the NQ with number bars (aka footprint chart) and also bid/ask delta to decide if I enter at a potential reversal area or not.

What I keep seeing from time to time is for example a green bar (close > open) but with negativ delta.
So this implies that although more contracts have been traded on the bid side than on the ask side so, more "people" or contracts wanted to leave the market than to enter, the price moves up.

Does this imply that buying power is so large that even active selling is not able to push through the resting limit buys so it might be a good idea to go long?

But I also notice that if that happens, even if the market then goes up, it is often a messy thing and often drops right back.
Please keep in mind, this is something I watched, I might be biased. I have no good statistics on this because I guess the information is useless without the right location, which is difficult to put into a statistic.

Might it also be that the above example just states, that that little market buying which occurred was enough to push through the resting offers so there is just no one willing to sell and we do not have a big buying impulse. But how does that fit together with the larger market selling than buying?

I have this on 700 Volume bars. So every bar has the same volume.

I would love to read some thoughts on that topic.

Thanks!


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pema83 View Post
Hello,

I'm watching the NQ with number bars (aka footprint chart) and also bid/ask delta to decide if I enter at a potential reversal area or not.

What I keep seeing from time to time is for example a green bar (close > open) but with negativ delta.
So this implies that although more contracts have been traded on the bid side than on the ask side so, more "people" or contracts wanted to leave the market than to enter, the price moves up.

Does this imply that buying power is so large that even active selling is not able to push through the resting limit buys so it might be a good idea to go long?

But I also notice that if that happens, even if the market then goes up, it is often a messy thing and often drops right back.
Please keep in mind, this is something I watched, I might be biased. I have no good statistics on this because I guess the information is useless without the right location, which is difficult to put into a statistic.

Might it also be that the above example just states, that that little market buying which occurred was enough to push through the resting offers so there is just no one willing to sell and we do not have a big buying impulse. But how does that fit together with the larger market selling than buying?

I have this on 700 Volume bars. So every bar has the same volume.

I would love to read some thoughts on that topic.

Thanks!

To follow on from my post above, please see the screenshots for the DAx this morning. I traded this imbalance.
Price was resting at a level that I had already marked out (some previous opens on the Dax-always a heavy volume area) as well as being a swing high that had previously been used as support when beaten.

So the first criteria is met-has to occur at an are of interest.
Now look at the amount of aggressive market selling occurring which is the delta. The selling has gone past the previous swing selling, and yet price is much higher. So limit orders are absorbing the selling, and it means there are trapped traders who are selling on the delta. So you enter a position (can't be bothered to go through all the detail) based on the opinion that there are trapped sellers, price is being supported by hidden buyers at a key level. If you have this info then you have to go long.

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Keab View Post
Now look at the amount of aggressive market selling occurring which is the delta. The selling has gone past the previous swing selling, and yet price is much higher. So limit orders are absorbing the selling, and it means there are trapped traders who are selling on the delta. So you enter a position (can't be bothered to go through all the detail) based on the opinion that there are trapped sellers, price is being supported by hidden buyers at a key level. If you have this info then you have to go long.

1. I'm jealous because I'd love to also trade european markets during daytime. Instead I have to trade us markets after work
2. Yes I think your example fits what I have asked for one bar, but over a longer timeframe. In both cases context is king as you said.

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pema83 View Post
1. I'm jealous because I'd love to also trade european markets during daytime. Instead I have to trade us markets after work
2. Yes I think your example fits what I have asked for one bar, but over a longer timeframe. In both cases context is king as you said.

Well it holds true for US markets too but yes it's great to be able to trade the European session so I am lucky in that respect. Between the SandP and the DOW, or whatever you trade, if you have a few markets up then one will normally exhibit this divergence.

It would help you to view the delta from a big picture point of view like I was describing, rather than focussing on just one bar. Bear in mind that the opposite holds true for a sell i.e. lots of buying on the delta but price is lower, whilst it is occurring at an area of previous interest. When you have that overview then it's up to you to work out whether you simply enter, or wait for an event to occur. I do both, but I do prefer an event to occur. This morning it was a quick drop in price, with heavy volume on both the delta and normal volume, which was quickly rejected. This was set against the overall backdrop of sellers being caught out by limit order buyers. See chart where the are small brown lines at my entry candle. Apologies for the stupid white line on the chart-it doesn't signify anything-didn't know it was there, unlike the following chart where it shows the open this morning.

Here is the dax open this morning screaming...what? I didn't take this as find the open a bit quick-might need to work on my entries. 8am open is the white vertical line.

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