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custom daily indicator that using 1-minute info (Pascal Willain - Effective Volume)
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custom daily indicator that using 1-minute info (Pascal Willain - Effective Volume)

  #11 (permalink)
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Before doing anything we should look at what effective volume is about. Let me do some comparisons with other indicators:

(1) OnBalanceVolume (OBV) simply adds up the volume of the bar series shown on the chart without taking into account the price change from close to close. Upvolume is counted as positive, downvolume is counted as negative. It is a simple and effective indicator.

(2) Effective Volume also adds up volume of the bar series shown on the chart, but it does not take the total volume but only a fraction of the volume. For that purpose volume is divided into effective volume (the volume that shifted price to produce a close to close change) and ineffective volume (the volume that produced a range expansion but did not lead to a price change in the end)

(3) Cumulative delta divides the volume into bid and ask traded volume. It is not necessary to use the complex GOM framework, but you can use uptick volume and downtick volume as an approximation for bid and ask traded volume. If you don't go down to trade 5 or 10-tick charts this works well and is entirely sufficient.

Now if I look at the chart attached, the result is somewhat disappointing. Effective Volume (red) is not very much different from On Balance Volume (orange). Both indicators mainly reflect price, there is little information added. The Cumulative Delta looks more interesting. There was a pronounced bullish divergence. Personally, I have never been able to trade on Cumulative Delta divergences.


Applying filters

As the raw data cannot be easily exploited, it would be nice to have the indicators calculated for smart and dumb money. Pascal Willain assumes that the large volume represents smart money. This is not entirely false, as large trader's participation facilitates price moves. The problem with the concept of effective volume is that you cannot look into the bars, and you do not know whether the bars are made up of a few large trades or many small trades. An assumption is made that higher effective volume can only be observed, when large traders participate. Therefore an effective volume threshold is needed to divide effective volume into small and large effective volume.

For the cumulative delta, which is directly calculated tick by tick this is easier. The trade size can be directly observed and it is possible to calculate cumulative delta for large and small trades by using a size filter. From my point of view it may be more rewarding to use cumulative delta than effective volume. But this would require at least a few tests.


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  #12 (permalink)
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Fat Tails View Post
Before doing anything we should look at what effective volume is about. Let me do some comparisons with other indicators:

(1) OnBalanceVolume (OBV) simply adds up the volume of the bar series shown on the chart without taking into account the price change from close to close. Upvolume is counted as positive, downvolume is counted as negative. It is a simple and effective indicator.

(2) Effective Volume also adds up volume of the bar series shown on the chart, but it does not take the total volume but only a fraction of the volume. For that purpose volume is divided into effective volume (the volume that shifted price to produce a close to close change) and ineffective volume (the volume that produced a range expansion but did not lead to a price change in the end)

(3) Cumulative delta divides the volume into bid and ask traded volume. It is not necessary to use the complex GOM framework, but you can use uptick volume and downtick volume as an approximation for bid and ask traded volume. If you don't go down to trade 5 or 10-tick charts this works well and is entirely sufficient.

Now if I look at the chart attached, the result is somewhat disappointing. Effective Volume (red) is not very much different from On Balance Volume (orange). Both indicators mainly reflect price, there is little information added. The Cumulative Delta looks more interesting. There was a pronounced bullish divergence. Personally, I have never been able to trade on Cumulative Delta divergences.


Applying filters

As the raw data cannot be easily exploited, it would be nice to have the indicators calculated for smart and dumb money. Pascal Willain assumes that the large volume represents smart money. This is not entirely false, as large trader's participation facilitates price moves. The problem with the concept of effective volume is that you cannot look into the bars, and you do not know whether the bars are made up of a few large trades or many small trades. An assumption is made that higher effective volume can only be observed, when large traders participate. Therefore an effective volume threshold is needed to divide effective volume into small and large effective volume.

For the cumulative delta, which is directly calculated tick by tick this is easier. The trade size can be directly observed and it is possible to calculate cumulative delta for large and small trades by using a size filter. From my point of view it may be more rewarding to use cumulative delta than effective volume. But this would require at least a few tests.


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Fat Tails. Thank you for this analysis, I did not expect EV to mirror OBV so closely. If you don't mind if I ask, is that Total EV I am looking at or EV large? What period is each incremental EV period calculated over for the 1 min bars to then rank and create the small and large EV (or total) for the 1 minute?

I'm not sure that a separation of large and small transaction sizes is necessarily better, as some of the algo's will work to hide their "footprint" by transacting smaller orders, which when separated by size are ignored by Cumulative Delta but not by EV. Certainly there will be a lot of smaller transaction though that are not useful in relation to looking at what the larger players are doing. So it seems a reasonable approach to me that Pascal takes.

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  #13 (permalink)
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Bondi9999 View Post
Fat Tails. Thank you for this analysis, I did not expect EV to mirror OBV so closely. If you don't mind if I ask, is that Total EV I am looking at or EV large? What period is each incremental EV period calculated over for the 1 min bars to then rank and create the small and large EV (or total) for the 1 minute?

I'm not sure that a separation of large and small transaction sizes is necessarily better, as some of the algo's will work to hide their "footprint" by transacting smaller orders, which when separated by size are ignored by Cumulative Delta but not by EV. Certainly there will be a lot of smaller transaction though that are not useful in relation to looking at what the larger players are doing. So it seems a reasonable approach to me that Pascal takes.

The chart shows Total Effective Volume. I have not had the time to code an indicator that identifies large and small Effective Volume. I just wanted to get an idea, how Effective Volume compares to other related concepts.

Also I do not know whether a separation of transaction sizes helps, as I have not tested it.

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  #14 (permalink)
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Hi Guys..came across this thread. interesting discussion. I too am reading the book. However do not know how to code. are there any ELD code versions for tradestation.

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  #15 (permalink)
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Fat Tails View Post
Found that version in the downloads of this forum:

Downloads - NinjaTrader 6.5 Indicators - Big Mike's Trading Forum

It looks strange, I will try to understand it.

I am searching for the same pascal's lev/sev.But this links appeared as broken in my end.
Can we get this indicator in NT7 ?

thx
CS

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csayantan View Post
I am searching for the same pascal's lev/sev.But this links appeared as broken in my end.
Can we get this indicator in NT7 ?

thx
CS

The link is broken. The Effective Volume indicator is available both in the downlaod section of this forum and in the NinjaTrader forum. Just search for it or google it.

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  #17 (permalink)
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Hi @Fat Tails


Fat Tails View Post
The link is broken. The Effective Volume indicator is available both in the downlaod section of this forum and in the NinjaTrader forum. Just search for it or google it.


not able to find futures.io (formerly BMT) version of LEV/SEV.

thx
CS

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csayantan View Post

not able to find futures.io (formerly BMT) version of LEV/SEV.

thx
CS

I think you need to be an Elite Member to get access to the Download Section.

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  #19 (permalink)
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Hi guys
I see you trade with effective volume.
I read value in time pascal books, but i have a problem about finding EV
do you know this formula?
please help me.
tnx

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