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Anyone find any edge with activity based charts over time based charts?
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Anyone find any edge with activity based charts over time based charts?

  #11 (permalink)
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LaissezFaire View Post
Nice insight! Thanks a lot, Ian!

Since you mentioned tick charts specifically. Do you have an opinion on volume charts also?

I know many people love volume charts, but to me, I feel that tick charts make more sense.

Curiously, I find that they usually don't look that different anyway. Usually, both tick/volume/minute look fairly similar on any given day. Unless you use really fine settings.

take a look at a 900 tick es chart there will be tons of pull back's for entries under 2 pts or less, you can look at volume charts in the 5000-10000 range that are very similar

i prefer a 4500 tick chart but also trade a 900 tick chart

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  #12 (permalink)
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I don't use charts myself.... but volume charts can give you an insight into what moves the market and also how much of the volume that you see resting on DOM is speculate vs. real.

If you look at the level 2 book and you see it mostly stacked with 500 per price level, then see what a 250 volume bar would plot. Typically the transaction level holds < volume than the resting levels. If every 250 volume bar is moving 1 or more price levels when you plot it, then you can assume half of the volume on the DOM is speculative. Don't think of this as fake necessarily, but people are trying to optimize their queue positions so they cancel and resubmit.

A few insights you might pick up from this:

1. If the transacted volume is roughly 1 to 1 with the resting volume in the DOM then you are usually in a very high volatility period and this tends to indicate trending systems will perform well. In higher volatility periods, a lot of MM algo's shut down, and leave mostly stoic algos that don't cancel and resubmit as much. Also it is trickier to land cancels at the transaction level when the entire price level clears in a blip.

2. If the transacted volume is 1.5x or 1x to 2x the resting volumes in the DOM then this is probably a normal level.

3. if you see something like 1x to 4x or 1x to 8x then you are in a low volatility / ranging market. Everyone is jockeying for position in the queue and no one wants to cross the spread or get a bad fill.

3. If your tick chart is plotting roughly the same visually as your volume chart with the same # settings. Let's say 100 vs. 100, then this implies that the market is made up of smaller traders more or less. But if you see that that the volume chart at 100 = the tick chart at 1000 for example, then there are larger players in the market and the average trade size is 10. Typically the competition of this is comprised of a few large trades, let's say 100, 50, 25, and then a whole lot of 1,2,3,2,1,2,3, type of trades. But it averages out. Some people like to ride the coat tails of the big players. I won't speak to the success of this logic, but if you are looking for this type of information you can easily get it with a few steps and a little logic.

The new volumetric charts from NT 8 show more detail and break up the bid vs. ask volume. This can sometimes be useful to see if a single bar of 1000 was made up of mostly bids or asks. But there is not always a clear heuristic that can be derived from this. Often times the bid volume > the aks volume but the ask side is what breaks and the price level moves up. This has to do with how the limit order book is stacked and cancelled in relation to the market order queue. So even though it may seem like a clear way to rationalize the market, there is not always a 1 to 1 heuristic.


There is nothing like this, but in terms of charts, or information in general, what would be ideal to see would be on a per price level basis:

Starting volume
Added volume
Canceled volume
Transacted Volume

If you could see this for both the bid and ask on every price level, then you could truly rationalize the behavior of the markets. But without all of these elements there is too much guess work to infer what the root cause of a price level change was. I do a lot of data analysis with these data elements, but building this type of data set is not easy. If anyone could put these elements into a trading platform they would really have something useful IMO.

Happy Trading!

Ian



LaissezFaire View Post
Nice insight! Thanks a lot, Ian!

Since you mentioned tick charts specifically. Do you have an opinion on volume charts also?

I know many people love volume charts, but to me, I feel that tick charts make more sense.

Curiously, I find that they usually don't look that different anyway. Usually, both tick/volume/minute look fairly similar on any given day. Unless you use really fine settings.


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; May 3rd, 2018 at 03:55 PM.
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  #13 (permalink)
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Ian,

Really appreciate your comment. Very insightful and new stuff to me. I will have to give this further study and thought.


iantg View Post
I don't use charts myself.... but volume charts can give you an insight into what moves the market and also how much of the volume that you see resting on DOM is speculate vs. real.

This comment also intrigued me. What are you using then...? A quantitative or automated system?

I've done quite some work these last years myself moving away from charts, but I'm now moving back towards them to aid execution and entries.

Nice signature, by the way.

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  #14 (permalink)
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Thanks. I am 100% algo. I am attempting to leverage HF / MM techniques at the upper end of retail level latency as crazy as that sounds. Like many HFT systems, my system has no directional bias and is agnostic to the majority of the conventional trading mechanics most people watch.


Ian


LaissezFaire View Post
Ian,

Really appreciate your comment. Very insightful and new stuff to me. I will have to give this further study and thought.



This comment also intrigued me. What are you using then...? A quantitative or automated system?

I've done quite some work these last years myself moving away from charts, but I'm now moving back towards them to aid execution and entries.

Nice signature, by the way.


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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  #15 (permalink)
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Interesting, Ian. Will be paying attention to your posts. Best of luck.

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Personally, I prefer non- time-based charts, since "time" is a variable and in trading, it's best to eliminate as many variables as possible. Volume charts are what I currently use for my main trading chart.(but I do experiment with others).
Just like mechanical trading systems, usually the fewer the number of input variables, the more stable and reliable the system is.

I'd suggest trying all of the different chart types and try to get a "feel" for the type that is the most comfortable and helps you see the markets most clearly.
Good trading

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  #17 (permalink)
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sptrader View Post
Personally, I prefer non- time-based charts, since "time" is a variable and in trading, it's best to eliminate as many variables as possible. Volume charts are what I currently use for my main trading chart.(but I do experiment with others).
Just like mechanical trading systems, usually the fewer the number of input variables, the more stable and reliable the system is.

I'd suggest trying all of the different chart types and try to get a "feel" for the type that is the most comfortable and helps you see the markets most clearly.
Good trading

Personally, I pay a lot of attention to time during the trading day and I like how time charts look the same every single day. They're objective and make for rational comparison, IMO. So, for me, that's a must. Using constant settings, tick/volume charts can vary some from day to day. I'm sure many people don't mind this though.

But beyond that, I'm looking to see if I can use tick or volume charts or even range charts to improve on execution and see or read something that's hidden or less obvious on a time based chart. One simple example of this would be how a bottom could form on an activity based chart while a 1-minute bar is still printing. But I'm not convinced that this couldn't simply have been observed using a sub-minute time chart instead.

I have some old data on an older hard drive which I haven't been able to acess, but I feel very certain that volume charts a few years back had this distinct pattern around market highs and lows that I can't seem to observe now. They would often form a base, if I recall correctly. It seems like highs/lows are more sharp these days.

But I need to give it more study...

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iantg View Post
2. If the transacted volume is 1.5x or 1x to 2x the resting volumes in the DOM then this is probably a normal level.

Ian

Hi Ian,

Thanks for your comment.

I've only recently started looking at the DOM, but I found your analysis on the DOM and volume bars to be interesting.
Can you explain what you mean by resting volume and transacting volume?

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  #19 (permalink)
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Hi reduktion,

This type of analysis won't be very useful for 99% of most retail traders because it is looking at an extremely granular view of the market. But here is the general idea:

The picture below shows the DOM with the strong side and weak side noted:

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The strong side: These are the two sides that carry resting volume to the transaction level. Because people can place orders ahead of time and wait in the queue, the strong side will typically accumulate more volume than the weak side and therefore historically the strong side beats the weak side.

The Weak Side: This represents new price levels that are spontaneously created and filled with limit orders at the birth of the price level. By Contrast this side can not pull resting orders from existing price levels into it. So this puts it at a disadvantage in the match-up against the strong side. The weak side will typically lose against the strong.

At the very center the two colored numbers represent the best bid vs. the best ask on the transaction level. For every price level, one side will pull resting volume from the strong side, and one will spontaneously build volume up, (this is the weak side) and the two will do battle until the market orders chop down the limit order volume from the side that breaks first, then the market will move to a new price level and repeat.


*** Notes below only apply to the ES:

When I speak of winning or losing between the strong side or weak side (Which side breaks first), I do not mean this anecdotally. I analyzed every price level change on the ES in 2017 and the ratio was: Strong side 65% weak side 35%. In times of higher volatility this becomes more even and you will see anywhere from a 50% / 50% split to as much as 45% strong side to 55% weak side. I think you will have hard time finding days where the weak side ever beats the strong side by more than 5% to 10%. In medium volatility it is usually 55% to 60% strong side winning. In low volatility this is usually 65% to 70% strong side winning.

All instruments will likely have a similar pattern, but the ones that are more mechanical will be more like the ES. I also looked the the NQ, and YM and they favored the strong side less, but this is obvious because they have less resting volumes typically and are not as automated by trading algo's.

Regarding transacted volume vs. resting volume:

Resting volume just means the volumes you see posted on the DOM from the strong side on each price level. In this example (Enclosed image) We can see that outside of the transaction level, the lowest volume on both the bid and ask is at 300 ish, and this goes as high as 800 to 900.

Transacted Volume: The transacted volume refers to how many contracts traded at the bid or ask on a given price level. *** This is the part where this analysis will lose most retail traders. Most traders aggregate their charting tools up based on fairly arbitrary units of measure such as (By # of trades, (Ticks), by Time, (Every 10 seconds, every 1 minute) etc. The action that occurs on an individual price level is important and should ultimately be viewed for each price level to make heads of tails of what occurred. Even though I don't use charts, I think the best unit of measure to see is the price levels. I would only look at this if I were a chart trader.



Here is an example of a series of events that occur on a price level:

The Starting volume from the strong side = 400
The Starting volume from the weak side = 0.
As soon as the price level is created and traders get this information the following occurs:

1. 100 HF traders immediately cancel the strong side volume, moving it from 400 to 300.
2. HF traders add 200 limit orders to the weak side. (So now we have 300 SS vs. 200 WS)

*** 1 and 2 above occur before any market orders even hit the price level.

3. Now 100 market orders hit the strong side and chop down the volume from 300 to 200
4. Market orders do not seem as interest in the weak side and only take out 20 of the 200.

*** Reaction from points 3 and 4.

5. Based on points 3 and 4 above: HF traders fill up even more volume on the weak side, they are now betting this side will win because of light interest from the first round of market orders. So now the weak side is up to 300
6. HF traders that were on the strong side see the weak side volume increasing and the market orders to their side keep coming, so it is becoming obvious that this is losing battle. Out of the 150 or so that are left. 100 cancel strategically getting out of the way, avoiding the impending doom.

7. The Ending: There are now 50 or so unlucky traders still left on the strong side that did not land their cancel in time, or did not know to cancel (Retail traders) The market orders quickly take them out and this side breaks, the strong side loses and the weak side wins.

From the points 1- 7. We can observe that around 50% of the starting volume from the strong side was strategically canceled and not transacted. Reconciling this, you can simply get an output of the transacted volume by Bid and Ask for this price level and see it.

You take the starting volume before the price level the transaction level:

1. 400
2. The transacted volume: In this example, 200 or so
3. So the delta here is 400 - 200. So this implies that 200 of the original volume was speculative, strategically cancelled and this can give you clues about a whole host of other things, but most of this will be useless to retail traders.


I think this will give you some ideas:

The edge case here is not really something that most people would ever pick up on or use. But comparing transacted volume to resting volume can give us clues about the market dynamics. You can also gain valuable insights analyzing how many orders were submitted but went unfilled on a given price level, especially on the side that won.

Hopefully this fields you query, and peaks your interest in micro structures a little.

Happy Trading

Ian







reduktion View Post
Hi Ian,

Thanks for your comment.

I've only recently started looking at the DOM, but I found your analysis on the DOM and volume bars to be interesting.
Can you explain what you mean by resting volume and transacting volume?


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; May 7th, 2018 at 01:12 PM.
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iantg View Post
Hi reduktion,

This type of analysis won't be very useful for 99% of most retail traders because it is looking at an extremely granular view of the market. But here is the general idea:

The picture below shows the DOM with the strong side and weak side noted:

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


The strong side: These are the two sides that carry resting volume to the transaction level. Because people can place orders ahead of time and wait in the queue, the strong side will typically accumulate more volume than the weak side and therefore historically the strong side beats the weak side.

The Weak Side: This represents new price levels that are spontaneously created and filled with limit orders at the birth of the price level. By Contrast this side can not pull resting orders from existing price levels into it. So this puts it at a disadvantage in the match-up against the strong side. The weak side will typically lose against the strong.

At the very center the two colored numbers represent the best bid vs. the best ask on the transaction level. For every price level, one side will pull resting volume from the strong side, and one will spontaneously build volume up, (this is the weak side) and the two will do battle until the market orders chop down the limit order volume from the side that breaks first, then the market will move to a new price level and repeat.


*** Notes below only apply to the ES:

When I speak of winning or losing between the strong side or weak side (Which side breaks first), I do not mean this anecdotally. I analyzed every price level change on the ES in 2017 and the ratio was: Strong side 65% weak side 35%. In times of higher volatility this becomes more even and you will see anywhere from a 50% / 50% split to as much as 45% strong side to 55% weak side. I think you will have hard time finding days where the weak side ever beats the strong side by more than 5% to 10%. In medium volatility it is usually 55% to 60% strong side winning. In low volatility this is usually 65% to 70% strong side winning.

All instruments will likely have a similar pattern, but the ones that are more mechanical will be more like the ES. I also looked the the NQ, and YM and they favored the strong side less, but this is obvious because they have less resting volumes typically and are not as automated by trading algo's.

Regarding transacted volume vs. resting volume:

Resting volume just means the volumes you see posted on the DOM from the strong side on each price level. In this example (Enclosed image) We can see that outside of the transaction level, the lowest volume on both the bid and ask is at 300 ish, and this goes as high as 800 to 900.

Transacted Volume: The transacted volume refers to how many contracts traced at the bid or ask on a given price level. *** This is the part where this analysis will lose most retail traders. Most traders aggregate their charting tools up based on fairly arbitrary units of measure such as (By # of trades, (Ticks), by Time, (Every 10 seconds, every 1 minute) etc. The action that occurs on an individual price level is important and should ultimately be viewed for each price level to make heads of tails of what occurred.

For example:

The Starting volume from the strong side = 400
The Starting volume from the weak side = 0.
As soon as the price level is created and traders get this information the following occurs:

1. 100 HF traders immediately cancel the strong side volume, moving it from 400 to 300.
2. HF traders add 200 limit orders to the weak side. (So now we have 300 SS vs. 200 WS)

*** 1 and 2 above occur before any market orders even hit the price level.

3. Now 100 market orders hit the strong side and chop down the volume from 300 to 200
4. Market orders do not seem as interest in the weak side and only take out 20 of the 200.

*** Reaction from points 3 and 4.

5. Based on points 3 and 4 above: HF traders fill up even more volume on the weak side, they are now betting this side will win because of light interest from the first round of market orders. So now the weak side is up to 300
6. HF traders that were on the strong side see the weak side volume increasing and the market orders to their side keep coming, so it is becoming obvious that this is losing battle. Out of the 150 or so that are left. 100 cancel strategically getting out of the way, avoiding the impending doom.

7. The Ending: There are now 50 or so unlucky traders still left on the strong side that did not land their cancel in time, or did not know to cancel (Retail traders) The market orders quickly take them out and this side breaks, the strong side loses and the weak side wins.

From the points 1- 7. We can observe that around 50% of the starting volume from the strong side was strategically canceled and not transacted. Reconciling this, you can simply get an output of the transacted volume by Bid and Ask for this price level and see it.

You take the starting volume before the price level the transaction level:

1. 400
2. The transacted volume: In this example, 200 or so
3. So the delta here is 400 - 200. So this implies that 200 of the original volume was speculative, strategically cancelled and this can give you clues about a whole host of other things, but most of this will be useless to retail traders.


I think this will give you some ideas:

The edge case here is not really something that most people would ever pick up on or use. But comparing transacted volume to resting volume can give us clues about the market dynamics.

Hopefully this fields you query, and peaks your interest in micro structures a little.

Happy Trading

Ian

This is EXTREMELY interesting to me, honestly I understand about 85% of what you said above the last few points kind of ran together, any chance you have some recommended material/starting point for understating this?

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