Reading the Price Action by Looking at Each Trade

[atto 20]

No, I haven't. Much of what I have done is automated systems and a few indicators that help automate what I look for. I also heard that in the next version of Ninja, it will be possible to (easily) get data from other timeframes or markets in indicators, which would be very helpful.

[darthtrader2.0 10]

I'd love to see a way to display data that gives weight to total value for that bar (if it's far away from a wick, you know price was rejected, verses happening to close down and exposing a wick) in a friendly manner. With this said, I think there is some value in candles (and the ability to ignore wicks) for daily and larger timeframes, as it represents a market open to close.

 

I really think the key here is to get rid of time as a variable in what triggers the plots.

To me an interesting question to start from is... in a double auction market, can price go from 100 to 120 intraday with most trades hitting the bid? I'm not sure that even makes sense since for the market price to climb 20 points someone has to be lifting the offer and getting in at "bad" prices. Thats where I think plotting at X amount transacted at one side of the market makes the most sense because that is fundamentally what is happening in the double auction. Of course no one is going to make a trade decission because its exactly 10:46am as opposed to 10:06 and 21 seconds.

The biggest problem though is if you go down this path your pretty much on your own as software/data feeds are not setup for this type of analysis in general. I'm not even sure you can buy tick data that has how the tick was transacted as far as the bid/ask, even though in some sense thats probly the most important information to know.

[darthtrader2.0 10]

Ok, I've had alot of coffee and now I'm just rambling but...

Does anyone know if something like this is possible in any software available?

Using discretionary trading, I like how things are setting up using discretionary trading technique X.

So I want to get in the market, I hit a button and then my blox box fill algorithm triggers and it scraps for ticks, checks that I'm not stepping into a stupid situation on the order book, a stupid situation as far as the cash vs futures, ect ,ect...

I'm not sure what can do this but that would be a very powerfull way to trade and combine algo and discretionary trading.

[strtedat22 10]

Who says this is the 'best' way to trade?

 

Its not only the best way but the only way for me. Time and Sales and DOM have been a life saver when taking my trades.

 

GTG

[atto 20]

So I want to get in the market, I hit a button and then my blox box fill algorithm triggers and it scraps for ticks, checks that I'm not stepping into a stupid situation on the order book, a stupid situation as far as the cash vs futures, ect ,ect...

I'm not sure what can do this but that would be a very powerfull way to trade and combine algo and discretionary trading.

Very possible. I'm thinking about programming the "relative order size" (the "wall", mentioned earlier) into an entry system for NinjaTrader.

 

Let's brainstorm ideas regarding our new plot (any ideas welcome). I hear from people who use volume charts that time is useless, but I wonder. Doesn't it matter that it took x hours as opposed to y minutes to have certain volume / movement / etc? Human psychology responds to time, so I'm not completely sure that time is a bad thing. For instance, in congestion, the tight range with low volume may barely show up in a P&F or volume chart.

 

What else is important? Here's an idea I had... I am creating a good bit of this as I type, so I may ditch many concepts, add others, and then throw the whole thing away . Instead of using a candle with a body representing the different between open and close (which imho isn't that significant intraday in itself), what if we started with a 1 pixel wide verticle bar that represents the range the the bar (just as almost all charting methods use). Then, we expand the bar horizontally based on time, price or volume (undecided; if we used price, it would be the time elapsed at that price; possibly use it to show relative order size? let me get some real data on that and see what it looks like). In the attached pic, I represented an idea of bid/ask volume on either side. POC could be added with a purple horizontal bar.

 

 

Thoughts?

[mister ed 10]

Perfectly valid gripe about the book. However, I'm not sure he would tell a trader to ever go with their gut. Since we're dealing with patterns, we can very easily be duped by our brians into seeing what we want to see.

 

I wouldn't parallel the book directly to trading, but use it as a constant lesson that "less is more". I'm not sure the exact primise is applicable to trading.

 

I think the thread has moved on .... but I will have to (briefly) disagree with you atto. Gladwell's message is to trust the power of the trained mind to make split-second decisions. If my brain is seeing what I want to see (and not what is actually what I am looking for) then I have not honed my skills enough. In reference to trading the ES in a very short time-frame pausing to have a think can cause either a missed trade or a significantly less favourable entry price. Not always of course, but very often.

------------

 

Back to where the thread is now ... the Market Delta program can do some of what you are after. I use Investor R/T and that too can do some of this trade-by-trade (or very small packaged summaries of the action) analysis. For example, I R/T can plot the VWAP of a bar/candle on the bar/candle (which is basically your volume POC) - so your 96 tick example chart could have the VWAP (VPOC) plotted on each bar/candle. You are right about this indication, when the bar VWAP plots at or near the extreme of a bar, maybe for a few consecutive bars, and the price fails to continue on in the direction of the swing that took it to that point there is often a significant (read potentially profitable) reversal. It's not as simple as that obviously, but its a good indication.

 

AFAIK it doesn't plot the VAH & VAL on each candle though (I have tried to have I R/T do this and it either doesn't or I am not skilled enough with using it). It doesn't do what you want Darth in combining discretionary with algo execution - probably something you will have to build or contract to build yourself...

 

atto the expanding the width of the price bar is often done to represent the volume on that bar - this is the Equivolume bar, but haven't seen this width-adjustment based on time etc.

 

Interesting direction this thread has taken thanks all.

[atto 20]

Yeah, I'm not sure if I'm aiming for showing the actual volume on the bar (like the Equivolume bar), but how it's distributed. This isn't clear from my rough example. Possibly a percentage of the total volume. I still intend to have volume plotted separately below, as I do usually. If we used volume for the body modifier, it would be a single bar "volume at price", in relation to each other.

 

For example, let's compare a very common candlestick reversal pattern -- the hammer. It involves price heading down, and ending near the open. However, we have no indication how that happened. Did it spend almost all the time at the top, and a very quick run down (and back)? Did it go down, stay there as buyers and sellers battle it out, and then return? POC helps this, which is the reason it's there in my example. Changing the "body" gives this a new dynamic (while showing a lot of the same information).

 

Another direction is correlating time to the thickness. This would really only make sense on a non-time chart (volume, tick, range, etc), but could put the time element on a non-time chart.

 

Anything else important? I'm thinking about possibly highlighting areas that have a high "relative order size", either bigger than a set limit, or in relation to recent volumes. The tick-volume "wall" is too good to pass up (unless I find a better way of identifying it), and is a kind of pseudo-tape reading.

[mister ed 10]

atto, have a look at the "Top Gun" software - while I haven't used it the examples on the site show bars with a horizontal distribution of volume on the vertical price bar. Similar to the Market Delta presentation of the data. It is funny how bits and pieces of ideas can be found spread across numerous products...

 

Sometimes to see how the volume is distributed across a bar I will drop down a frame and look at the distribution of the lower frame bars. Using constant volume bars this can be helpful (though not precisely what you are looking for of course).

 

About representing time on a non-time bar chart, I have thought that a vertical line in the background (like a grid line found on many charts) but spaced every minute, or 30 seconds, or whatever, would serve a purpose in showing how the price changed over time. Most vertical grid lines (that I have seen anyway) are spaced evenly, every 10 bars (or again, whatever), which is fine on a time-based bar/candle chart, but on a non time-based chart spacing the vertical grid lines according to time would impart more information.

[darthtrader2.0 10]

Thoughts?

 

I really like the ideas you have here. One nice thing about that is that its different enough from market delta compared with my ideas that you could post it on here when done. Market delta seems pretty up on defending their intellectual property.

As far as time goes, one thing to keep in mind is that if you remove time from the axis on the chart its still there but its being represented by the speed at which the chart plots. One thing thats also nice about that then is that a counter/timer in a strategy becomes alot more usefull. If x did/didn't happen during y amount of time is alot easier to program than 10:00 to 10:15.

The distribution of the bar to me is the hardest thing to respresent in a way that has meaning. One problem I can see is that if you only have one intrabar POC, then if you have a wide range with 1001 at the top and 1000 at the bottom...it would look exactly the same as if you have 1001 at the top and 1 at the bottom even though that is very different information.

If you really wanted to get crazy, the optimal way to represent things might be something like that mock up posted with the vertical 1 pixel line for the bar range and 2 heat maps on both sides for the bid/ask. I think someone asked about heat maps the other day on the ninja site but I can't remember what the response was.

One thing I would like to stay away from is value areas. While I love the core market profile concepts to me the value area is worse than wrong. We know that the distribution has nothing to do with being normally distributed so to me thats creating something that is intentionally deceptive and simply has nothing to do with reality.

Also, if you want to do this by plotting using the bid/ask it wont be possible to do until next year and the new ninja version comes out.

I'll have to figure out how to get at my old drive. I had stripped down some of the plot override in the multiple timeframe ninja indicator. I'll post the code when i get at it. From what I recall once you figure out the cordinates on the chart its not too bad to override. I never really did figure out though how to store things in an array for each bar like what would be needed though.

[atto 20]

atto, have a look at the "Top Gun" software - while I haven't used it the examples on the site show bars with a horizontal distribution of volume on the vertical price bar.

Thanks for the link. Not sure I'm impressed, though.. I didn't see anything eye catching there, to be honest.

 

 

Time in the axis just allows us to identify when something happened.. I don't care it's specifically at 10:00 or 11:13. I've never used time that way. I made two trades today, and both were very quick (time wise) and direct. The speed at which it moves means something, which I feel is important. Constant volume bars don't get that (they can just notice how fast it's moving forward, but there's no visual reference).

 

Regarding POC.. that was the point of me identifying volume ratios along the bar. The height of the bar shows the range, while the thickness shows the bar's relative volume at each price. I guess another question comes up: Does the "delta" have any tradable advantage, or does net volume basically say the same thing when used in reference to the bar?

[darthtrader2.0 10]

Does the "delta" have any tradable advantage, or does net volume basically say the same thing when used in reference to the bar?

 

I think this is literally the million dollar question for me. If it takes me 10 years and a phd in bayesian inference just to find out I'm wrong then that is what it takes. My suspicion is that because of the nature of double auction markets that how the bid/ask is being transacted is probly the most fundamental information we have. I would suspect that the big guys who move the markets can't hide their footprints there no matter how much fragmention they use. In some sense I'm starting to view the market price as an illusion since everyone has to transact at the bid or offer.

To me something to think about with this plot is if it makes more sense to seperate the macrostructure from the microstructure. I think if you try to include too much microstructure it will obfuscate the macrostructure patterns.

This somewhat raises the question of what are the macrostructure patterns that matter? To me the ideal macrostructure plot would be both visually easy to understand while also being easy as far defining patterns algorithmically.

Like how a triangle is easy to see visually but a nightmere to define algorithmically using candles or OHLC bars.

[darthtrader2.0 10]

To make things clearer what I'm talking about macro/micro wise I would like to return to the box plot, as I really think it could have alot of value for trading.

Say you have 5 minute candle data...now if you try to program a strategy what price do you use for each bar in the strategy? If you just use the close your not even using candles anymore but something like a line on close chart...if you average things like what I've seen in some strategies (O+H+L+C / 4)then it would seem to make more sense to use a boxblot.

 

 

Then you not only have the average price for the bar but also how the prices were distributed around the average. It would also overcome some of the problems with time frames as the time frame is just the sample rate at which your displaying your observations and not weighting the open/close at all. You could still factor in each trade basically without throwing out anything like with candles.

[mea 10]

Instead of candlestick, would it be better to read the price action by looking at the demand and supply trade by trade, that is just following each executed trade?

 

You can answer your own question by testing. Most importantly, build strategies around FACTS, not possibilities and degrees of probability.

[BlowFish 10]

How do you test a way of visualising order flow/supply demand? The only way I can think of is by trying it and seeing if the way of representing the data helps you 'see' the shifts. So empirical study rather than testing, I guess thats what you meant?

[darthtrader2.0 10]

How do you test a way of visualising order flow/supply demand? The only way I can think of is by trying it and seeing if the way of representing the data helps you 'see' the shifts. So empirical study rather than testing, I guess thats what you meant?

 

I just got "An Introduction to High-Frequency Finance"..I don't see anyway around wading into the waters of High-Frequency if you want to be truely empirical about order flow. Financial Markets Tick By Tick

by Pierre Lequeux looks like another cool book on this subject.

The problem I already see though with this stuff is our tools are absolutely not designed for real High-Frequency analysis. It would be simplistic to overwhelm any retail stock softwares database and even if you can get past that our tools/heads don't have the data mining algorithms needed to analyize the data.

In some sense though this is exactly why I'm interested in this stuff..I read a great quote by D.E Shaw that the best place to find an edge is in places its hard for other players to go.

[darthtrader2.0 10]

Most importantly, build strategies around FACTS, not possibilities and degrees of probability.

 

The bayesian part of my brain I've been cultivating can't possibly disagree with that statement more...down with frequentism and its illusory "facts"!

[BlowFish 10]

Not familiar with either of those Darth, the titles sound interesting and potentially relevant.

 

The comment was addressed to Mea who perhaps might have missed the main thrust of this thread.

[mea 10]

The bayesian part of my brain I've been cultivating can't possibly disagree with that statement more...down with frequentism and its illusory "facts"!

 

I never said frequency was a "FACT", you implied it and ASSUMED such.

 

"A TRUE market EDGE is the exploitation of a PROVEN FACT, not an unproven opinion or theory nor possibility or degree of probability". So, what FACTS do know about the market to exploit?

 

If you don't know any facts to exploit, Then, your just a temporary liquidity provider to the market like the majority are, and that's unfortunate for you and them. However, I would to thank you for providing your liquidity.

[mea 10]

Not familiar with either of those Darth, the titles sound interesting and potentially relevant.

 

The comment was addressed to Mea who perhaps might have missed the main thrust of this thread.

 

My quote and comment indicate, I was replying to the original poster's question, not any other comments herein. So, why did you make such a comment? Perhaps you might have misssed the main thrust of my comment?

[BlowFish 10]

My quote and comment indicate, I was replying to the original poster's question, not any other comments herein. So, why did you make such a comment? Perhaps you might have misssed the main thrust of my comment?

 

It appears I must have (missed it). Perhaps you could talk about 'facts' as you know them and how they apply to reading supply and demand on a trade by trade basis. To be honest your original statement seemed to be rhetoric, perhaps you could expand on it?

 

My universe of facts (I prefer to think of 'truths' ) pertaining to the markets is pretty small. I have several fairly strong beliefs that are based on empirical research and observations but those sure ain't facts. In the past few years I have done quite a bit of research on 'the tape', order book analysis, and market delta. I have spotted characteristic's but again not many useful facts.

 

I would have to disagree about an edge being a proof of any fact about the markets. To me it simply shows that you can recognise a tendency in a market and exploit it. If you buy when the 15ma crosses the 50ma you will 'win' x% with a risk of ruin of y% etc. The only fact is the statistics themselves.

 

Do you believe that "reading price action by looking at each trade" can give you an edge? If you do how do you suggest we "look at" (or visualise) that data to exploit that edge? On most instruments it is quite difficult to look at that raw data and make sense of it in real time (though some clearly manage too). This is my understanding of what the thread is about but maybe I have got hold of the wrong end of the stick, it wouldn't be the first time.

 

Cheers.

 

P.S. There are a couple of other threads that might interest you the one about whether markets are predictable and errr... I forgot the second one.

[Kiwi 16]

You can answer your own question by testing. Most importantly, build strategies around FACTS, not possibilities and degrees of probability.

 

I too look forward to your exposition on FACTS.

 

Having lived in the land of probabilities and theories I think that someone who can offer FACTS could well save us all from stochastic despair.

[mea 10]

I too look forward to your exposition on FACTS.

 

Having lived in the land of probabilities and theories I think that someone who can offer FACTS could well save us all from stochastic despair.

 

That's one my goals.

 

Also, my main consideration is to "give back" as well as hopefully, turn the majority into the minority.

 

Everyone has the ability within to be a genius in some aspect, it just has to be brought out.

 

Additionally, everyone knows the old saying regarding something for free. Therefore, I'm left with no other recourse, but to make people earn it, by answering the questions themselves. Thus, it will be priceless to them.

 

Lastly, there is the old trading saying, "those that can trade do and those that cannot teach". Well, I'm not here to teach, just give information. Its the reader's job to teach themselves.

Edited July 3, 2008 by stanlyd

[BlowFish 10]

Mea, as I said elsewhere I look forward to hearing more. The couple of teasers have certainly piqued my interest

 

I am genuinely perplexed by a couple of your statements as I mentioned a few posts back. Hopefully all will become clear in due course. Being a new contributor here I have no idea of your modus operandi, I am sure that will change over time. With some of the regular contributors here you can anticipate what they will say before they say it! Filling in the blanks therefore is usually straightforward.

 

Anyway I don't think you could have picked a better venue for your outing.

 

Cheers.

[mea 10]

It appears I must have (missed it). Perhaps you could talk about 'facts' as you know them and how they apply to reading supply and demand on a trade by trade basis. To be honest your original statement seemed to be rhetoric, perhaps you could expand on it?

 

My universe of facts (I prefer to think of 'truths' ) pertaining to the markets is pretty small. I have several fairly strong beliefs that are based on empirical research and observations but those sure ain't facts. In the past few years I have done quite a bit of research on 'the tape', order book analysis, and market delta. I have spotted characteristic's but again not many useful facts.

 

I would have to disagree about an edge being a proof of any fact about the markets. To me it simply shows that you can recognise a tendency in a market and exploit it. If you buy when the 15ma crosses the 50ma you will 'win' x% with a risk of ruin of y% etc. The only fact is the statistics themselves.

 

Do you believe that "reading price action by looking at each trade" can give you an edge? If you do how do you suggest we "look at" (or visualise) that data to exploit that edge? On most instruments it is quite difficult to look at that raw data and make sense of it in real time (though some clearly manage too). This is my understanding of what the thread is about but maybe I have got hold of the wrong end of the stick, it wouldn't be the first time.

 

Cheers.

 

P.S. There are a couple of other threads that might interest you the one about whether markets are predictable and errr... I forgot the second one.

 

1. You said, Perhaps you could talk about 'facts' as you know them and how they apply to reading supply and demand on a trade by trade basis. To be honest your original statement seemed to be rhetoric, perhaps you could expand on it?"

 

I will create a seperate thread listing the "Top 10 Market Fact's" and how to expoit them.

 

2. You said, My universe of facts (I prefer to think of 'truths' ) pertaining to the markets is pretty small. I have several fairly strong beliefs that are based on empirical research and observations but those sure ain't facts.

 

Imagine how much more CONFINDENCE someone could have when building strategies based upon market "facts", not opinions or "beliefs" as you said, as well as unproven theories, possbilities and degrees of probability. Which are the most SUBJECTIVE and subject to INTERPRETATION, and thereby ALLOWS MANIPULATION by the user. Which is the reason trader's let EMOTIONS interfere with trading decision and LACK DISCIPLINE to follow their plan. As their subjective plan could NEVER allow them to be DISCIPLINED to begin with, no matter how hard they tried! As their mind is in constant conflict.

 

3. You said, I would have to disagree about an edge being a proof of any fact about the markets.

 

I said, a TRUE edge, not edge.

 

The difference between the two are;

 

A. FALSE Edge utilized by MAJORITY of trader's is based upon degrees of probability at best. Now, can this type of edge be successful? YES, as long as the trader has exceptional "trade management" skills, which is a rarity.

 

B. TRUE edge is utilized by MINORITY of trader's and is based upon fact's, which are superior than even the HIGHEST probabilities. Thus, more successful.

 

Also, I believe, that's sufficient evidence to prove why the MINORITY profits at the expense of the MAJORITY.

 

4. You said, The only fact is the statistics themselves.

 

Statistics are NOT a fact. In trading, statistics are merely referencing degrees of probability of a certain outcome. Whereas, Facts DO NOT change, such as the case, where market conditions change, but the FACTS for EACH different market condition remains the SAME.

 

5. You said, Do you believe that "reading price action by looking at each trade" can give you an edge?

 

Yes, but only with a FACTUAL CONFIRMATION.

 

6. You said, there are a couple of other threads that might interest you. There's one about whether markets are predictable.

 

Thank you for the consideration. However, I already know the answer to that question. As the market has PROVEN what the correct answer is.

 

The market in its purest form, will answer any question someone desires. Someone just needs to ask the right questions and the answer will be revealed.

 

People look, but they don't see. They are blinded by their beliefs. However, its really not their fault, as that is how they were taught. They were just taught incorrectly. Hence, its the teacher's who's really at fault. Or they were given false, misleading, incomplete or just plain incorrect information.

Edited July 3, 2008 by mea

[BlowFish 10]

Thanks for taking the time to reply in more detail. The idea of a 'true edge' rather than just exploiting some market inefficiency or tendency is intriguing.

 

It is a long time since I sat down and wrote out facts about the market (it was when I last did a trading plan) maybe its time I did again. I can see how the other points you make flow from these market facts. I wonder what form they (the facts) will take? For example for a market to go down it must make new lows, for that to happen old ones must break. I don't think anyone would dispute that as a fact. If you are a break out trader I guess you have the start of a plan right there. I should let you state your 10 facts but it's rather fun to guess.