Success in the markets is not about instinct, divine inspiration or spontaneous intellectual combustion. It is about intelligent data processing, sound method and the management of risk and resource that is both effective and adaptive to change.
We look at the fact of a transaction as creating a particle of data – the tick. Ticks are the atoms of market information. Each tick carries with it the sub-atomic data particles of time/date, exchange, price, bid/asked and the size of the transaction. It is the sum of these particles of information that represent the price/time/volume continuum that is the essence of every market.
We operate under the premise that it is not price itself or the passage of time that motivates the movement of price, but rather it is the occurrence of trade, more specifically it is an imbalance between buying and selling within that trade that motivates the movement of price.
While some previous individual posts have contained some of what is below, this is an effort to collate ideas and technologies that deal with classic technical analysis in so far as order flow and the balance of trade is concerned.
Order Flow & The Balance of Trade
In the days of open outcry and pit-trading the biggest advantage pit traders held over the public and other off-the-floor traders was that they could see the order flow/balance of trade in real time as it was being created.
In those days the liquidity/order flow either came from orders being received by the phone banks that surrounded the pits (retail trade) or from traders in the pit that represented the large trading houses (commercial trade).
Whether in the pits or on the phone banks, a trader would signal his desire to buy by showing both hands with palms inward and with one hand indicating price and the other indicating his size. Palms out to sell.
New traders quickly learned to know and recognize the traders that executed on behalf of the big trading houses. They learned that when these guys put their hands out that they usually had size to do and that their size was oftentimes enough to create a local if not a session extreme.
A trader could look at the phone banks and see brokers from all the major houses signaling their phone orders to the pit. If the trader saw a sea of palms he knew that the public was selling, if he saw mostly the backs of the traders’ hands he knew the public bias was buying, if it was mixed, then there was not much commitment either way on the behalf of the public.
The same for the house traders, except that today traders that do that kind of size trade from all over the world and the trade that forms those local and session extremes is often executed by computers that issue those orders in a stream separated by milliseconds or even microseconds.
Today no one can see the traders’ hands because the pits are no more, plus the more sophisticated the trader, the greater his efforts to disguise his intentions and his size. The good news for traders is that there is a family of indicators that track, define, report and demonstrate both order flow and the activity of certain aggressive and influential trading entities.
The Velocity of Trade
In the more active and more liquid markets many local and sometimes even session extremes are indicated by spikes in the velocity of buying volume, selling volume or total volume. It appears that much of this trade is machine executed and sometimes in equities seems to be precisely coordinated over more than 1 market.
The size commercial traders of yesterday have been replaced with algorithms that issue and execute orders in the millisecond or even microsecond time frame. Operating in the millisecond time frame this Velocity of Trade indicator is designed to spot just this trade – it is too fast to be conducted by humans.
Of note in the charts below is that tops seem to be associated with blue (buying) and bottoms with red (selling). In those instances which are often seen in the market in real time, our interpretation is that with the blue bars at the top, buying has run into a continuously replenished asked whose size is bigger than the current demand and buying is exhausted, thus creating a local top. A demonstration of the old floor adage of “FILL THEM UP AND IT WILL SHUT THEM UP.”
The chart below shows the spikes in the velocity of trade that formed a strong local high in all 3 major equity index futures. Note that the top is formed on blue (buying) volume so it represents a kind of buying exhaustion. Also note that these spikes occurred within seconds of each other.
The next 4 graphs show highs and lows in ES, Soybeans and 10yr T Notes as formed by the spikes in the velocity of trade.
One definition of simple harmonic motion is simply that the acceleration causing the motion a of the particle or object is proportional and in opposition to its displacement x from its equilibrium position. As buying and selling displace each other in harmony (the graphic) so is price displaced.
!TPS.TVHarmonic4L is an indicator designed to demonstrate a moving window that reflects the surges in certain buying and selling volumes throughout the session. It is applied to volume bar charts only. The volume bar setting that produces the best result varies with the speed of the market.
The solid Blue line represents an approximation of buying volume and the red – selling volume over the width of the moving window. The line is smoothed by the TPS.DX2MA function at the SlowDX2MA Speed.
The red +‘s and the blue +‘s are the same raw value as above but smoothed by the FastDX2MA.
The color changes in the plus signs as shown by the red and blue arrows in the graph above are designed to show a change in bias or the buying and selling in the market at that time. Red +‘s indicate a selling bias and the blue +‘s indicate a buying bias.
The efficacy of this indicator is significantly affected by the symbol choice, the volume bar setting, the WindowWidth setting and the DX2MA speed settings. Often times a very “ugly” chart can be made to resemble the chart above by a change in settings and at other times an “ugly” chart just reflects a disordered market condition.
%Bar Complete & %Bar Bias
!TPS.%BarComplete is a ShowMe indicator that when applied to volume bar charts plots the percentage of completion of last bar on the chart. This figure is plotted in blue opposite the midpoint of the bar. The “7.9%” displayed above shows that the bar is only 7.9% complete and has just opened. If this were an 8k bar and 4k contracts had traded the reading would be 50%.
!TPS.%BarBias is a ShowMe indicator that when applied to volume bar charts plots the percentage of buying and selling volumes so far in that bar. In the bar above the red 52.3% indicates that at that point 52.3% of the volume, so far, in that bar is selling volume and that the remaining 47.7% is buying volume.
This information can sometimes give a bit of a lead when contemplating an entry or on the formation of local or session extremes.
Net New Trade
The Net New Trade indicator, !TPS.NetNewTrade is plotted in the lower sub-graph in the chart above. In the example above one can see that the higher highs and higher lows in NNT confirm the up-trend in price.
!TPS.NetNewTrade calculates an approximation of the cumulative net/balance of buying and selling volumes in the market. NNT can be configured to reset itself to zero at the beginning of each trading sessions.
The small red and blue dots report the raw value of NNT smoothed by our DX2MA series smoothing function. The dashed lines form a channel around the smoothed value of NNT and the width of the channel can be set via an input. The small red and blue + signs note the raw value of a new session high or new session low.
In addition to confirming trends, divergence between price and !TPS.NetNewTrade, as shown in the chart below, can be of some significance.
V94 Window
!TPS.V94Window is an indicator designed to report a moving window of net buying and selling volumes – a moving window of the balance of trade.
The small dots are the raw values smoothed by DX2MA. They are in a channel.
The large fat +’s show extreme levels of buying or selling. In some cases they can signal exhaustion and warn of a reversal as is the case with the selling in the chart above.
In other cases they can signal extreme activity and the likelihood of continuation as with the buying in the chart above.
Price Center Stripe
!TPS.CenterStripe is to be applied to price on volume bar charts.
The small red and blue dots are the midpoints of each price bar smoothed by DX2MA. The channel that contains these price dots can be expanded to channel the bulk of price activity, not just the dots.
The RDots are the round dots posted above and below pivot highs and lows. These are the standard TradeStation pivot points and their strength setting is one of the inputs to this indicator. These dots plot after the fact.
The SDots shown as “fat” + signs in the graph above are special reference dots. These dots reference price, price pivot points and Net New Trade and can be very useful in a strongly trending market as shown above and be very expensive if acted upon in noisy sideways markets. SDots are plotted in real time.
The indicators shown above are but a subset of a family of new technologies that are designed to make available to the trading public the same level of information available to floor traders in days past.
!TPS.5DayHiLo
!TPS.5DayHiLo plots the current day’s open, high and low plus it can also plot both the high and the low for the 4 days previous to today.
It was selling that formed these highs and buying that formed the lows. Sometimes that buying or selling will reappear at the same price and sometimes what was resistance will become support and vice versa.
The user can elect to see these highs and lows from any or all of the most recent 5 days including the current day.
In the chart above the current day’s open is plotted as a blue +, the current day’s high is plotted as a red dot and the low as a blue dot. Previous days’ highs and lows are plotted as the same color, but smaller, dots.
Note: I have uploaded the jpg files to go with this post but they are oversized and I can't see how to attach them as expandable thumbnails
Information = Equity
We look at the fact of a transaction as creating a particle of data – the tick. Ticks are the atoms of market information. Each tick carries with it the sub-atomic data particles of time/date, exchange, price, bid/asked and the size of the transaction. It is the sum of these particles of information that represent the price/time/volume continuum that is the essence of every market.
We operate under the premise that it is not price itself or the passage of time that motivates the movement of price, but rather it is the occurrence of trade, more specifically it is an imbalance between buying and selling within that trade that motivates the movement of price.
While some previous individual posts have contained some of what is below, this is an effort to collate ideas and technologies that deal with classic technical analysis in so far as order flow and the balance of trade is concerned.
Order Flow & The Balance of Trade
In the days of open outcry and pit-trading the biggest advantage pit traders held over the public and other off-the-floor traders was that they could see the order flow/balance of trade in real time as it was being created.
In those days the liquidity/order flow either came from orders being received by the phone banks that surrounded the pits (retail trade) or from traders in the pit that represented the large trading houses (commercial trade).
Whether in the pits or on the phone banks, a trader would signal his desire to buy by showing both hands with palms inward and with one hand indicating price and the other indicating his size. Palms out to sell.
New traders quickly learned to know and recognize the traders that executed on behalf of the big trading houses. They learned that when these guys put their hands out that they usually had size to do and that their size was oftentimes enough to create a local if not a session extreme.
A trader could look at the phone banks and see brokers from all the major houses signaling their phone orders to the pit. If the trader saw a sea of palms he knew that the public was selling, if he saw mostly the backs of the traders’ hands he knew the public bias was buying, if it was mixed, then there was not much commitment either way on the behalf of the public.
The same for the house traders, except that today traders that do that kind of size trade from all over the world and the trade that forms those local and session extremes is often executed by computers that issue those orders in a stream separated by milliseconds or even microseconds.
Today no one can see the traders’ hands because the pits are no more, plus the more sophisticated the trader, the greater his efforts to disguise his intentions and his size. The good news for traders is that there is a family of indicators that track, define, report and demonstrate both order flow and the activity of certain aggressive and influential trading entities.
The Velocity of Trade
In the more active and more liquid markets many local and sometimes even session extremes are indicated by spikes in the velocity of buying volume, selling volume or total volume. It appears that much of this trade is machine executed and sometimes in equities seems to be precisely coordinated over more than 1 market.
The size commercial traders of yesterday have been replaced with algorithms that issue and execute orders in the millisecond or even microsecond time frame. Operating in the millisecond time frame this Velocity of Trade indicator is designed to spot just this trade – it is too fast to be conducted by humans.
Of note in the charts below is that tops seem to be associated with blue (buying) and bottoms with red (selling). In those instances which are often seen in the market in real time, our interpretation is that with the blue bars at the top, buying has run into a continuously replenished asked whose size is bigger than the current demand and buying is exhausted, thus creating a local top. A demonstration of the old floor adage of “FILL THEM UP AND IT WILL SHUT THEM UP.”
The chart below shows the spikes in the velocity of trade that formed a strong local high in all 3 major equity index futures. Note that the top is formed on blue (buying) volume so it represents a kind of buying exhaustion. Also note that these spikes occurred within seconds of each other.
The next 4 graphs show highs and lows in ES, Soybeans and 10yr T Notes as formed by the spikes in the velocity of trade.
One definition of simple harmonic motion is simply that the acceleration causing the motion a of the particle or object is proportional and in opposition to its displacement x from its equilibrium position. As buying and selling displace each other in harmony (the graphic) so is price displaced.
!TPS.TVHarmonic4L is an indicator designed to demonstrate a moving window that reflects the surges in certain buying and selling volumes throughout the session. It is applied to volume bar charts only. The volume bar setting that produces the best result varies with the speed of the market.
The solid Blue line represents an approximation of buying volume and the red – selling volume over the width of the moving window. The line is smoothed by the TPS.DX2MA function at the SlowDX2MA Speed.
The red +‘s and the blue +‘s are the same raw value as above but smoothed by the FastDX2MA.
The color changes in the plus signs as shown by the red and blue arrows in the graph above are designed to show a change in bias or the buying and selling in the market at that time. Red +‘s indicate a selling bias and the blue +‘s indicate a buying bias.
The efficacy of this indicator is significantly affected by the symbol choice, the volume bar setting, the WindowWidth setting and the DX2MA speed settings. Often times a very “ugly” chart can be made to resemble the chart above by a change in settings and at other times an “ugly” chart just reflects a disordered market condition.
%Bar Complete & %Bar Bias
!TPS.%BarComplete is a ShowMe indicator that when applied to volume bar charts plots the percentage of completion of last bar on the chart. This figure is plotted in blue opposite the midpoint of the bar. The “7.9%” displayed above shows that the bar is only 7.9% complete and has just opened. If this were an 8k bar and 4k contracts had traded the reading would be 50%.
!TPS.%BarBias is a ShowMe indicator that when applied to volume bar charts plots the percentage of buying and selling volumes so far in that bar. In the bar above the red 52.3% indicates that at that point 52.3% of the volume, so far, in that bar is selling volume and that the remaining 47.7% is buying volume.
This information can sometimes give a bit of a lead when contemplating an entry or on the formation of local or session extremes.
Net New Trade
The Net New Trade indicator, !TPS.NetNewTrade is plotted in the lower sub-graph in the chart above. In the example above one can see that the higher highs and higher lows in NNT confirm the up-trend in price.
!TPS.NetNewTrade calculates an approximation of the cumulative net/balance of buying and selling volumes in the market. NNT can be configured to reset itself to zero at the beginning of each trading sessions.
The small red and blue dots report the raw value of NNT smoothed by our DX2MA series smoothing function. The dashed lines form a channel around the smoothed value of NNT and the width of the channel can be set via an input. The small red and blue + signs note the raw value of a new session high or new session low.
In addition to confirming trends, divergence between price and !TPS.NetNewTrade, as shown in the chart below, can be of some significance.
V94 Window
!TPS.V94Window is an indicator designed to report a moving window of net buying and selling volumes – a moving window of the balance of trade.
The small dots are the raw values smoothed by DX2MA. They are in a channel.
The large fat +’s show extreme levels of buying or selling. In some cases they can signal exhaustion and warn of a reversal as is the case with the selling in the chart above.
In other cases they can signal extreme activity and the likelihood of continuation as with the buying in the chart above.
Price Center Stripe
!TPS.CenterStripe is to be applied to price on volume bar charts.
The small red and blue dots are the midpoints of each price bar smoothed by DX2MA. The channel that contains these price dots can be expanded to channel the bulk of price activity, not just the dots.
The RDots are the round dots posted above and below pivot highs and lows. These are the standard TradeStation pivot points and their strength setting is one of the inputs to this indicator. These dots plot after the fact.
The SDots shown as “fat” + signs in the graph above are special reference dots. These dots reference price, price pivot points and Net New Trade and can be very useful in a strongly trending market as shown above and be very expensive if acted upon in noisy sideways markets. SDots are plotted in real time.
The indicators shown above are but a subset of a family of new technologies that are designed to make available to the trading public the same level of information available to floor traders in days past.
!TPS.5DayHiLo
!TPS.5DayHiLo plots the current day’s open, high and low plus it can also plot both the high and the low for the 4 days previous to today.
It was selling that formed these highs and buying that formed the lows. Sometimes that buying or selling will reappear at the same price and sometimes what was resistance will become support and vice versa.
The user can elect to see these highs and lows from any or all of the most recent 5 days including the current day.
In the chart above the current day’s open is plotted as a blue +, the current day’s high is plotted as a red dot and the low as a blue dot. Previous days’ highs and lows are plotted as the same color, but smaller, dots.
Note: I have uploaded the jpg files to go with this post but they are oversized and I can't see how to attach them as expandable thumbnails
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