[TheNegotiator]

Hi,

This is a new thread to discuss all things Delta - referring to the difference in trades placed at the bid compared with the offer. So for example if 10000 contracts trade at one price over a 5 minute period in the E-Mini S&P 500 contract, 6000 bought at the offer and 4000 sold at the bid, the delta of that price would be +2000. The premise is that the traders who do their business at market are the more aggressive participant. Another example would be in the same 5 minute period, regardless of price, 50000 contracts are traded. Let's say 20000 were bought at the offer and 30000 were sold at the bid. That 5 minutes would be said to have a delta of -10000.

For me, delta is a great visualisation of one way action that may lead to a decent move during the day. You can see if you are watching say a 15 or 30 minute chart the imbalance of trade building up and it can be a great indication of continuation in a particular direction.

Another way in which I have more recently found delta useful is by watching cumulative delta compared to price movement. Cumulative delta is just like a price chart but with delta. So let's say you have 5 minute bars and you have deltas over the course of 15 minutes of +7500, -1500 and + 4000. You would get a delta plot of +7500, +6000 and finally +10000. So I have found that for example when the cumulative delta is pushing down and overall price is drifting up, there is an implication that there is an underlying bid in the market which is strong enough to absorb that aggressive trade and as such often the market can then break in the direction of price. This is divergence.

I also know that with tools from certain vendors, it is possible to look at delta action in much greater detail. Traders might look at say delta at extreme prices when the market is retesting these extremes to judge better the effort of the market than simply looking at volume.

There are many ways in which delta can be applied and interpreted and I feel it could be useful to discuss them here. I am happy to answer any questions on the subject, although there will be many who know more than I do!

TheNegotiator.

[JohnBly]

Thanks for opening this thread Negotiator.

Very timely for me as I have recently started looking at these metrics myself.
One of ways I am trying using Delta is to identify trapped retail, as this is my preferred setup.

What Delta tracking tools are you using?

On what platforms/feeds?

Are there any you have tried and rejected for some reason?


Thanks and look forward to a good discussion and sharing research on this topic.


JohnBly

[TheNegotiator]

Currently I am using Ninja/zenfire. There is an add on which is pretty good for a monthly subscription but I don't use volume breakdown at price at the moment at least. I have used market delta in the past with CQG and this is very good. I did feel though it was somewhat a waste considering the cost and the basic way I used it.

How are you looking for trapped retail? With the way CME unbundled some of the tick data, isn't it easier to have commercial appear as retail? I'm sure it is possible but I've never really gone into such depth.

Cheers,

TheNegotiator.

[JohnBly]

[QUOTE=
With the way CME unbundled some of the tick data, isn't it easier to have commercial appear as retail?
[/QUOTE]

Yes the rub isn't it?


Here is a description of the new CME reporting I ran into:

"As of last Monday( early 2009), the CME changed the way that they disseminate trade information for equity index futures. Due to the changes, there are now 2.5 times more reported trades in the e-mini SP500. Here are the highlights and potential ramifications:

There used to be, on average, 1800 trades a day of 199 contracts or more. After the change, we are averaging about 400 trades a day of 199 contracts or more. In addition, the average trade size used to be 12 contracts. It is now between 3-4 contracts. Needless to say, it has become very difficult to follow "the smart money" (large buyers and sellers). This is because trade reporting is based on counterparties. Prior to the changes, if I placed an order to buy 100 contracts at market, the tape (time and sales) would show a single 100 contract market order executed, or possibly one 25 executed market order and a 75 executed market order (or something to that extent). After the CME changes, my 100 contract market order will now be reported based off of each counterparty. Therefore, if it takes 70 different counterparties to fill my 100 market order, the tape will reflect all 70 trades individually Keep in mind that it could be a single counterparty executing my trade, they could just be offering out 70 one and two lot offers as opposed to a single 100 lot offer (I called the CME, this is how they explained it to me)".


As for tracking retail vs block under these new conditions, I need to understand the exact CME trade reporting algos better before attempting to create a tool.

One basic concept I have is to track the mkt order volume over very small timeframes. If a 2000 lot block mkt order is being bled out in small lots, they are going to want to get it done fast so as not to telegraph, so one would expect flurry of trades at bid/ask over small time period (ei 1 sec). So perhaps this kind of thing could be filtered for.

If anyone feels they have a good detailed grasp of the CME trade reporting situation maybe they can post. Thanks.

[ScottB]

Hi,

Prior to the prop shop I currently work with, I worked for a decent sized prop shop in Chicago. They never put through a large order on the CME, they always "shredded" their orders, in fact, they had algorithms just for breaking up the large orders into randomly sized smaller orders (1-3 lots).

They also stacked the book in such a way as to always be near the top with some orders and yet have others sprinkled throughout. This allowed them to quickly pull an order from the front of the book if the algo "didn't like" the order flow but still retain some position in the queue in case the order flow returned to something that could be traded.

One major question - do you know of any completely unfiltered, non-coaleseced data feeds that are not institutional in terms of cost? If you are only getting snapshots, regardless of how frequent, I don't know of any way to guarantee the trade is lined up with the actual inside bid/ask of the book.

Without unfiltered data you don't really have an accurate delta because even though it looks like a trade went off at the ask, it may have been the bid when it was initiated.

Best Regards,
Scott

[ACS]

If you want to spend the time there are some great posts about Market Delta trading on Brett Steenbarger's blog Trader Feed. He stopped new posts last year but all the old stuff is still available.
http://traderfeed.blogspot.com/

[ScottB]

Thanks for reminding me, I used to follow him and then stopped for some reason.

[JohnBly]

they always "shredded" their orders, in fact, they had algorithms just for breaking up the large orders into randomly sized smaller orders (1-3 lots).

Scott, wondering how "Shredding" was used exactly.
Do you mean market orders to open a position were bled out discreetly in this way to hide their footprints?

One major question - do you know of any completely unfiltered, non-coaleseced data feeds that are not institutional in terms of cost?
Without unfiltered data you don't really have an accurate delta because even though it looks like a trade went off at the ask, it may have been the bid when it was initiated.

Researching this myself.
Someone I know who relies on Delta work swears by DTN.IQ.
I have ZenFire, CQG and Photon here so I will be comparing them over the next few weeks.
But part of the problem with this matter is that apparently the exchanges themselves bundle the data. I believe this is true primarily when order flow is high. So Time & Sales may be getting bundled when things are busy. This may mean misreporting whether hits are at bid or ask, and also bundling several small lot trades into single bigger trades. Perhaps someone who understands this better can comment.