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How to use volume in your trading
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How to use volume in your trading

  #501 (permalink)
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Thats why i think most people fail. They treat everything with rigid rules, like if they see alot of trades at the bid, then someone is selling real hard, so you must go short. If a hammer forms, you need to take a long. If you get a green bar at a MA, you go long.

You will never make money doing that. You need to see what happens, and then react.

If you see huge orders being traded at the bid, and it stalls there for 5 min, and fails to go lower( meaning all it can muster is 1-2 ticks more to the downside), and starts trading back up, then thats bullish. Now if you see orders picking up at the ask a few ticks higher after this, then you have a reason to go long with a reasonably small stops. Its exactly what cunparis said, someone is absorbing the selling, or its a limit buyer. You don't know until the market tips its hand.

People treat their indicators like a buy and sell switch. Thats why you constantly hear people on these forums talking about how its impossible to make money.

I kind of wish i could show you guys a video ( I record all my live trades), but the files are huge, and my DOM is on there, with my account number.

If enough people are interested, i could try to do one using the ladder and record without my dom( with chart trader on) so you guys can see the trade. Ill put a separate dom up on sim so you can see the level II

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  #502 (permalink)
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Sure Michael, I'd love to see whatever you post in the way of using these tools.

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  #503 (permalink)
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josh View Post
But I must say, if it's reported as selling volume (at the bid), then it was definitely a seller-initiated trade, with the seller being aggressive and the buyer being the passive limit-order-holder. I think what you mean is that price can rise even though delta was negative. But even in this case, what it means is that there were simply more market-order sellers than market-order buyers. This is my understanding anyway, please correct me if I'm wrong.

I'm not disputing that delta is reporting who hit the bid/offer, I'm saying that who hit the bid/offer is often a matter of point of view and ambiguous. I'll give an example to be more clear.

Market is 500 bid at 1308.00 and 500 offer at 1308.25.

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I hit the offer with a limit order to buy 1000 at 1308.25. I will be matched up with the 500 on the offer and then the remaining 500 will be on the bid. The market will be bid 500 at 1308.25 and 1000 offer at 1308.50:

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now someone hits the bid with a limit for 1000:

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so the time & sales (and delta) will show:

bought 500
sold 500

but I'm a buyer of 1000 so half of my purchase was counted as a sell!

There is no way to reconcile this as if we were able to count my 1000 as a buy, the seller would be complaining that his weren't counted. So all these contracts have to be assigned to buy or sell buckets and we can see it's an approximation.

The question is how often this occurs and what is the impact. Next is your example:


Quoting 
For example, say there are resting buy limit orders: 100 at 1, 200 at 2, and 400 at 3. Now say there are resting limit sell orders: 100 at 4, 100 at 5, and 100 at 6. If 300 sellers step in and hit the bid at 3, price doesn't move. Now all it takes is 200 buyers to lift the offer to 6. So price went up, while delta was negative 100 contracts. Maybe sellers were more aggressive, but buyers wanted to buy that level, so ultimately there were not enough sellers compared to buyers--hence why delta can be misleading IMO. I'm talking this out for my own benefit by the way, I know that you know all this, but maybe someone else new such as I am can benefit from hearing it talked out this way.

Your example is a very good one and is another example of when delta can be misleading. Maybe the delta is negative because some of the buys were counted as sells. If one thinks it's bearish that delta is negative and price is going up (this would be the basis of a delta divergence) the problem is at any point those shorts can cover (or new longs can come in) and price will rocket up (breaking the divergence pattern). For this reason divergences are perfectly obvious in hindsight but real time they appear and disappear.

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  #504 (permalink)
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Right on, thanks for the info.

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  #505 (permalink)
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cunparis View Post

There is no way to reconcile this as if we were able to count my 1000 as a buy, the seller would be complaining that his weren't counted. So all these contracts have to be assigned to buy or sell buckets and we can see it's an approximation.

The question is how often this occurs and what is the impact.


Going back to your example, I do not think that there is anything to reconcile.

If you enter a buy offer limit at bid and it is partially filled, part of the order effectively becomes a market order, while part of the offer is added to the queue of limit orders. Or put in other words, part of the offer consumes liquidity taking away what is offered, and part of the offer adds liquidity.

So the liquidity after you bought 500 at offer is the same as before.

In my opinion there is nothing wrong about counting half the volume as buy and the other half as sell volume.

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  #506 (permalink)
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I think it's very important when you use delta (or time & sales) to watch price very closely as well. when you have a positive delta (or the offer is getting hit hard), but price doesn't go higher, then you know there is a big seller(s) in the market. I call this resistance. and if price starts to go lower now, you have good odds for a successful short.

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  #507 (permalink)
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cunparis View Post
I'm not disputing that delta is reporting who hit the bid/offer, I'm saying that who hit the bid/offer is often a matter of point of view and ambiguous. I'll give an example to be more clear.

Market is 500 bid at 1308.00 and 500 offer at 1308.25.

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


I hit the offer with a limit order to buy 1000 at 1308.25. I will be matched up with the 500 on the offer and then the remaining 500 will be on the bid. The market will be bid 500 at 1308.25 and 1000 offer at 1308.50:

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


now someone hits the bid with a limit for 1000:

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


so the time & sales (and delta) will show:

bought 500
sold 500

but I'm a buyer of 1000 so half of my purchase was counted as a sell!

There is no way to reconcile this as if we were able to count my 1000 as a buy, the seller would be complaining that his weren't counted. So all these contracts have to be assigned to buy or sell buckets and we can see it's an approximation.

The question is how often this occurs and what is the impact. Next is your example:



Your example is a very good one and is another example of when delta can be misleading. Maybe the delta is negative because some of the buys were counted as sells. If one thinks it's bearish that delta is negative and price is going up (this would be the basis of a delta divergence) the problem is at any point those shorts can cover (or new longs can come in) and price will rocket up (breaking the divergence pattern). For this reason divergences are perfectly obvious in hindsight but real time they appear and disappear.


...so my assumption is that it is better to monitor the buys from the sells (no delta) to determine trade direction?

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  #508 (permalink)
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Quoting 
...so my assumption is that it is better to monitor the buys from the sells (no delta) to determine trade direction?

Hi mystic,

I totally agree with your point of view! After a few months of trying to use volume delta, I came to the conclusion that itīs useless and more often misleading than not. The best solution which I found so far, is volume spread analysis because it deals with volume and Price.

Do you have a idea how one can monitor yust and only, buy and sell volume as up and down candles/bars to track divergence versus Price?

Thanks,
Abde

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  #509 (permalink)
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Abde View Post
Hi mystic,

I totally agree with your point of view! After a few months of trying to use volume delta, I came to the conclusion that itīs useless and more often misleading than not. The best solution which I found so far, is volume spread analysis because it deals with volume and Price.

Do you have a idea how one can monitor yust and only, buy and sell volume as up and down candles/bars to track divergence versus Price?

Thanks,
Abde


I am experimenting with the buysellvolume and buysellpressure indicators from ninjatrader .....

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  #510 (permalink)
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Abde View Post
Hi mystic,

I totally agree with your point of view! After a few months of trying to use volume delta, I came to the conclusion that itīs useless and more often misleading than not. The best solution which I found so far, is volume spread analysis because it deals with volume and Price.

Do you have a idea how one can monitor yust and only, buy and sell volume as up and down candles/bars to track divergence versus Price?

Thanks,
Abde

Try Investor R/T (or MarketDelta,but IRT is cheaper and just as good) .. the volume breakdown indicator does what you want.

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