Instutional "Shredding"

[DionysusToast 10]

Maybe someone can explain why cum delta is so important.

 

In any trade, one side will always be a market order.

No market order, no trade.

Basically every trade consists of a market order and a limit order.

(It may be possible for 2 market orders to hit at the same microsecond and offset each other, but that is probably rare).

 

If there is more aggression on the ask, price will go up.

If I have a long 1 minute bar that closes near the high and it's not in an area where lots of stops are resting, and the volume is 2x average volume, I have a pretty good sense of the supply/demand dynamic expressed in that bar. I can see it by looking at the range of the price bar, where it closed and the volume.

 

What else does CD tell me then that I do not already know?

 

A market order consumes liquidity. It is by this consumption of liquidity that price moves up and down.

 

With all other things equal, CD should move with price. Then there are times where it doesn't. For example when market buying continues but price stops moving up. If you see a lot of market buying that has no impact, it does not bode well to the upside. Charts will not show you this type of action.

 

I see it as a 'higher timeframe tape'. CD tells us very similar things to tape reading. It is an additional dimension of information not available on a chart.

[JohnBly 10]

I am just guessing here but I think the underlying fundamental point to a delta divergence is that (say for ex. a daily 3min chart) when the sup/demand favors the downside for that day, then there are the larger players (the market movers) that dont want to just dump shares. They push prices down a little and then the limit orders lighten up so that the market can come up (and suck retail in) and then press some more.

 

So my theory is that when you see a short term divergence where prices go up more, relative to the offer differential (negative delta). what you are actually seeing is more like a slight vacuum effect that may pop back in line or diverge further because the limit side sees that there is still some up juice.

 

That would explain the effect of a stop run to the upside breakout and then the smart money pushes down harder after the move is exhausted. I used to think that the boxes would push into stopruns, but that would cost to much. its free to just pull offers and suck everyone in.

This is the basis of most of my entries, is to find TRUE exhaustion, then fade.

Now you are trading with them.

I think thats where the old adage down on the floor comes from. "If the market wants to go up, It must go down first".

I could be wrong, but it makes sense.

 

That's interesting JT.

If I read you right, you are saying that if there is a large trader who wants to short, they will nudge price down a bit to give the appearance of a "bargain" and at at the same time lighten up on the ask, as way to lure in retail into that "vacuum", thus raising price for their imminant short entry?

[jtrader500 10]

That's interesting JT.

If I read you right, you are saying that if there is a large trader who wants to short, they will nudge price down a bit to give the appearance of a "bargain" and at at the same time lighten up on the ask, as way to lure in retail into that "vacuum", thus raising price for their imminant short entry?

 

I would make sense to me.

How about on a 5 to 1 volume down day. If it is 5:1 down vol. That tells you right there that the big money wants to get out, but they do it in a way that keeps there slippage to a mininum. Thats why you see a selloff start out with higher bounces and it lessens as the people panic more. I am currently getting the software to track the market depth in relation to each bounce, to see how the limits chase, as prices fall. That should be a clue.

[ehrlich3 10]

This may answer your question in a round about way. Check out Michael Lydick and his system for picking turn points in the futures markets. The software "picks apart" the trading algorythms and time cycles of the large traders.

He gives a free webinar on Thursday and if you contact him by email or phone he will send you the turn point forcast for the next day's market. Pretty spooky stuff ... Besides he is one of the good guys in the business and has made me a bunch of money and saved me many times from entering the market the wrong way at the wrong time. Nothing is foolproof, but I would not trade futurers without Mike's turnpoint predictions and duration of trend probabilities.