[unicorn]

Originally Posted by TheNegotiator »

Top is ES bottom is cumulative delta. The divergence happened around 11:15am then 11:30am EST. Initially the ES had reached an important area.

what is the timeframe on that chart?

[PatternTrader]

I am a little confused by your post. What you are showing is hidden divergence, as opposed to regular divergence. There is a higher low in price, and a lower low in the delta momentum. This can be a sign of continuation in a trend move. However, there really wasn't a trend established yet. If you are trying to demonstrate regular divergence to demonstrate a turning point, this would be seen by lower lows in price in a down move combined with higher lows in the delta divergence, implying a possible trend reversal.

What I believe your chart post illustrates, in hindsight, is more sellers getting trapped at or near the lows, contributing to a more powerful subsequent upmove.

Regards,
PT

[Traduk]

The Negotiator,

There is something really odd about the chart you have displayed. Judging by the time you stated it looks like a 1 minute chart as there are 15\16 bars in that window. I tried to re-create that time slice in CQG and although the chart for 11.15 to 11.30 EST looks somewhat like the move you have shown, mine looks very different to yours and that is allowing for the certain slight differences in time of creation of bars.

I have ultra low latency feed with atomic clock timing (on PC) but something is really wrong because we are looking at two different charts.

I suspect that the regularity of candles is a construction from either tick volume or trade volume. What parameters have you used for cumulative delta eg are they per bar or a summation of many bars as a rolling total.

Which feed do you use?. I ask because I have seen several and some can be an impediment to trading as they just do not show what is anything like the real market.

I have always been fascinated by Volume Delta but having seen CQG's TradeFlow which has a function that shows the order book in detail, the passive side of the order book is a high speed streaming ticker of thousands of cancel and replace which is a dynamically changing beast at a speed which defies reading with the speed of the human eye.

Due to changes made at the CME (a couple of years ago) reporting of what used to be block trades is sent out as what looks like a string of small trades as an order for say 500 buys at market will reflect the resting orders hit and the 500 will be reported as all sizes hit on the ask to make up the 500 which will inevitably be dozens of 1's with a mix of others to give a total of 500. The only way I know that a large order has gone through is if the ask is cleared and replaced by many sitting on the bid in one hit. That would be say 2000 buys which clears 800 on the ask and leaves 1200 on the replacing bid..

CQG can guess at such action by time (ms) and concurrent trade prints.

The CME by changing to what is virtually matched orders has blurred the activity of the big boys and made their actions somewhat harder to see.

I would like to replicate your chart because (a) yours looks very little like mine and (b) the divergence you see is not what I call divergence at all and if anything is misleading enough to think that sellers still had control whereas I doubt that they did. In my experience the only time that volume delta is contrary to price is when the order book is comparatively empty and I do not remember seeing that on Friday. I see true delta divergence as price moving lower\higher than a prior point with the support of sellers\buyers having lost out to the other side or in other words the drivers have run out of power.

[TheNegotiator]

Unicorn, it's a 5333 volume chart.

Originally Posted by PatternTrader »

I am a little confused by your post. What you are showing is hidden divergence, as opposed to regular divergence. There is a higher low in price, and a lower low in the delta momentum. This can be a sign of continuation in a trend move. However, there really wasn't a trend established yet. If you are trying to demonstrate regular divergence to demonstrate a turning point, this would be seen by lower lows in price in a down move combined with higher lows in the delta divergence, implying a possible trend reversal.

What I believe your chart post illustrates, in hindsight, is more sellers getting trapped at or near the lows, contributing to a more powerful subsequent upmove.

Regards,
PT

You may view it this way. However, to me the big guys don't tend to do their business at market. They buy weakness and sell strength. So if the volume delta cumulative or not is showing more activity in one direction and yet price is moving in another, it certainly gets my attention. Especially when it occurs in an area where I am expecting interest to increase. I think there was enough of a trend there. But I am really not too bothered by trend being present as such or not. The market has been moving one way and trading activity was TRENDING down at that point. I'd also like to say that I have never really liked regular divergence as you describe as a reversal signal. To me, it says for example in a move down, a further price move has occurred and required LESS selling volume to trade and so buyers are relenting. Yes that could mean a capitulation move or that the dynamic is shifting, but often you do see more of a price move before trend changes.

[PatternTrader]

Thank you for your reply Negotiator. I find regular divergence to be a very accurate indicator, when taken in the proper context at the right areas on a chart. Most indicators are lagging, however divergence uniquely tends to be a leading indicator.

Cumulative delta computation and display will vary, depending on where you choose to start your count of delta from.

What you are trying to describe in your post above is sellers getting trapped, adding fuel to a reversal. It is always advantageous to have trapped traders fueling your reversal position move, when you can identify it.

Your use of the term divergence is not a standard usage, and therefore confusing. I am glad that you have found something that works for you.
Regards,
PT

[Traduk]

I see from a post that you use 5333 volume. My CQG chart is identical to yours but it looks like there could be small differences in the positive or negative size of the deltas created but not anything worthy of note. Must be a good feed that you have.

I display delta as a positive or negative histogram centred on zero. My display was exactly as expected on both the up and down moves but with the positive delta being so small on the upswing, I am not surprised that a chart created form the run of positives and negatives would give weight to the second negative set and push the chart lower. I would find that counter-intuitive because the divergence is reverse logic. Different strokes for different folks

I am surprised that you think that the big guys do not use market orders. IMO they use them all the time. I remember years ago when the e-mini was in its infancy that a regular complaint was that the big guys were blocking activity by placing a few thousand lots on the bid\ask and leaving them. Little guys can batter away at the order book from now until eternity and they will never get movement because the only way to flip a bid\ask pair is to strip out all at say the ask and leave enough to soak up any market selling against the bid. Only dealers who can hit with thousands in a clip can do that and in my book anybody who can hit with a couple of thousand plus is a big guy. There are times when the big guys are not playing and that is when prices flip\flop between two\three ticks.

[TheNegotiator]

When I said market orders, I did mean orders that are filled immediately at best price and not limit orders. The guys who stacked up several thousand on the bid/ask as you described were using limit orders. Unless I missed your point?

[TheNegotiator]

The thread on structural reference got me thinking about delta again and some of the ways in which I use it and others use it. At important structural reference points, imo delta readings have more significance, large or small. So does anyone use any particular tools or indicators to filter out or highlight delta around either automatic or user defined prices? It's certainly not an essential thing and simple price alerts can be set up.