Bid/Ask volume studies

B

bigspeculate

I recently upgraded my data feed from IB's garbage to real time tick by tick, so I'm able to screw around with accurate bid/ask volume data.
Has anyone found any usefulness for studies based on bid/ask volume? Is it predictive at all? I never found use for total volume.

Sierrachart has 3 kinds of cumulative delta studies and several others.
 

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That's pretty awesome. I'm currently trying to do the same using Takion API in VS2010 (C++); was hoping to chart bid-ask volume differential overtime (ideally in realtime). I'm not aware of any concrete studies, however I feel that you have made yourself a tool to help you answer your own questions. I plan to chart the bid-ask volume differential against the price of the stock to see if there are any correlations; then if there are, i'd need to specify conditions under which correlation occurs etc. My background in in Math/Physics (Bachelors) and am fairly new to dealing with empirical data, but this is my 2 cents.
 
Bid/Ask volume for the best-limit only, or the 5 best limits?
Derivatives or underlyings?

The thing is, for some type of instruments, the displayed bid/ask volume represents only a portion of the 'real' bid/ask. The big players (institutionals) don't always want to show their cards.
Nonetheless, I like the idea of studying this.
 
The above studies and others sirrachart provides are the trades transacted on the bid or ask, not the orders in the book. It an historical time and sales summed for each period.
 
In theory, it sounds great. In practice, I haven't yet found any use for it.

Often, you'll see high volume transacted at the offer and 'nothing' happens. So, there was strong buying interest, but also strong supply. Other times, the opposite happens. There is strong buying interest and short supply - prices accelerate.

There's also this assumption that large orders/volume/players initiate directional moves or that they're frequently right. Not necessarily true either. Depending on which market you trade, there's generally a lot of arbitrage and non-directional plays also.

That said, I do keep an eye at the DOM and the T&S. I think it's interesting. And I do keep an open mind.

So I won't trash this as many other ignorant people do on whatever the subject is. It might very well be that I haven't understood it yet (which isn't too odd considering I haven't studied it very extensively). But the above summarizes my current thoughts and skepticism. :)
 
Ok, I'll kick you down the rabbit hole of Bid/Ask Delta..... (which means you are negating stat arb and hedging volume or taking the position that all the cumulative player's trades all even out in the end showing some true intent of direction)

The chart below is the ES making a high on larger volume but the bid/ask delta is slightly negative. If you were looking at delta as a magic indicator you might sell the close of that bar, thinking that the delta reading will over power the price action.

However the fact is simply that there was more volume conducted at the bid than the ask - buyers absorbed the aggressor's selling as confirmed by price action. Those sellers are now trapped in a short position. Some wiggled out and some were squeezed to death by the iron vise of the market.

The low price of the buyer's absorbing the short selling aggressor's trades, marked by the yellow horizontal line remained a great stop loss point for a long trade for quite some time after the battle.


Delta.PNG
 
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bigspeculate,

There is another Delta feature in Sierra Charts that wasn't included in the image you posted. You might want to check it out. Delta Volume Per Bar - builds bars off of delta imbalances.

The chart below shows bars set to 1000 - when there are 1000 more trades at the bid than at the ask a down bar is formed. The second bar with the low comparative volume lasted 8 seconds so you would need to automate to jump in on a directional trade.

NOTE: If you are a candlestick junkie the traditional candlestick patterns show up very nicely on these Delta Volume Bars.


The battle is over.PNG
 
They said:
Those sellers are now trapped in a short position.
More...

Are you assuming that these sellers transacting at the bid were all entering the market and not liquidating existing positions?

Are you assuming that all these sellers transacting at the bid were day traders and need to exit on adverse price movement on that day?
 
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