I would really recommend getting the GOM Recorder setup, for it is by far one of the best tools available for NT (My personal favorite). I am currently working on converting all my work (XavPack) to use the GOM Framework, and will post the updates once I am finished.
The following user says Thank You to Xav1029 for this post:
In the above screenshot, we can see that from points A to B, delta was moving with the price. In this case, there is very little that delta adds to the picture, although delta helped us to see the lack of buying participation in the pullbacks. From B to C the price move is good but the move in delta looks quite lethargic. We can see that we got to point C with much less participation. As a bonus, we can also see that a lot of players joined in that move up right at the end, I am sure I am not the only one that has been a buyer at the end of an up move but suffice to say that this helps tremendously to the downside (but thatís for another article). Overall from B to C, Cumulative Delta is telling us the move is weak.
From C to D, Delta moved with price. There is nothing that would have confirmed a buy on the way down, quite the contrary, the small pullbacks look weak. The move from D to E is interesting, we had the first major push upwards for a while and we saw good participation from buyers, with roughly 13,000 more market buys than sells. If we put this in perspective of the overall move down, this is a decent relative shift in Delta. The pullback from E to F, whilst perhaps a little scary on the right edge would have been a good choice for a long trade.
Whilst delta theory has a few holes in it, it does seem to play out in the real world. The key is to use it as an additional decision making factor. Generally speaking, I will be looking for the following:
- Delta confirming a move. Delta and price both doing the same thing.
- Delta moving and price not moving in the same direction. For example, if we see Delta move down but price not move down, then there is selling but it is having no reaction. There are more people selling at market than buying at market but limit orders are absorbing this. If selling doesnít move price down, then we can expect price to go up.
- Price moving but Delta not moving in the same direction. If price moves without much participation, then it helps us to confirm a trade in the opposite direction. Still, you do need a valid reason to trade in the opposite direction other than just the Delta. Delta on its own is not enough. If you have an expectation that an up move will end in a certain place and the buyers are not participating strongly up to that point, then it helps to validate your premise that price will roll back down
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The following user says Thank You to Big Mike for this post: