Market Delta by bolter
- Thread starter bolter
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Just wanted to bring up a small point about index futures and volume.
Volume doesn't directly drive an index future (key word being directly).
This means an index future will rise and fall based on the underlying...not the buying/selling pressure of the instrument itself (as in an equity).
So...as an example say there were 100 contracts at a price of 1370.25 if someone bought all those contracts it would not tick up to 1370.50
The price of an index future is the sum of the underlying plus premium.
Does this nullify the use of volume? Of course not...and we know that buying/selling of the future can cause buying/selling of the underlying which causes the future to move...so basically buying/selling of the instrument can only move the price indirectly.
To sum up...volume directly causes price to move in an equity. However, volume is a follower in an index future.
The reason I bring this up in this particular thread is because MD is a great way to actually see this at work.
If you happen to use MD, you will notice that nearly every single bar has buying at the tops and selling at the bottoms (this is more apparent in some index futures than others)...this shows that volume follows price on an index future. What you are seeing is anticipation of the movement. Another thing you will see sometimes is very positive delta on a down day (this is especially apparent in the YM).
At any rate, food for thought...I personally think I/RT and MD are great and there isn't much better out there if you use market profile and volume analysis in your trading (which I do).
Volume doesn't directly drive an index future (key word being directly).
This means an index future will rise and fall based on the underlying...not the buying/selling pressure of the instrument itself (as in an equity).
So...as an example say there were 100 contracts at a price of 1370.25 if someone bought all those contracts it would not tick up to 1370.50
The price of an index future is the sum of the underlying plus premium.
Does this nullify the use of volume? Of course not...and we know that buying/selling of the future can cause buying/selling of the underlying which causes the future to move...so basically buying/selling of the instrument can only move the price indirectly.
To sum up...volume directly causes price to move in an equity. However, volume is a follower in an index future.
The reason I bring this up in this particular thread is because MD is a great way to actually see this at work.
If you happen to use MD, you will notice that nearly every single bar has buying at the tops and selling at the bottoms (this is more apparent in some index futures than others)...this shows that volume follows price on an index future. What you are seeing is anticipation of the movement. Another thing you will see sometimes is very positive delta on a down day (this is especially apparent in the YM).
At any rate, food for thought...I personally think I/RT and MD are great and there isn't much better out there if you use market profile and volume analysis in your trading (which I do).
Quote from subq:
Just wanted to bring up a small point about index futures and volume.
Volume doesn't directly drive an index future (key word being directly).
This means an index future will rise and fall based on the underlying...not the buying/selling pressure of the instrument itself (as in an equity).
So...as an example say there were 100 contracts at a price of 1370.25 if someone bought all those contracts it would not tick up to 1370.50
The price of an index future is the sum of the underlying plus premium.
Does this nullify the use of volume? Of course not...and we know that buying/selling of the future can cause buying/selling of the underlying which causes the future to move...so basically buying/selling of the instrument can only move the price indirectly.
To sum up...volume directly causes price to move in an equity. However, volume is a follower in an index future.
The reason I bring this up in this particular thread is because MD is a great way to actually see this at work.
If you happen to use MD, you will notice that nearly every single bar has buying at the tops and selling at the bottoms (this is more apparent in some index futures than others)...this shows that volume follows price on an index future. What you are seeing is anticipation of the movement. Another thing you will see sometimes is very positive delta on a down day (this is especially apparent in the YM).
At any rate, food for thought...I personally think I/RT and MD are great and there isn't much better out there if you use market profile and volume analysis in your trading (which I do).
Hi subq,
I see things slightly differently.... for me price is directly driven by volume...
for example... we are at HOD for the ES and the ask moves 1 tick above HOD...
now price will not move to a new HOD 1 tick higher until someone hits that ask price and therefore creating a volume print.... without the volume print you have no price print...
MP theory states that markets exist to FACILITATE trade... and the bid/ask spread will move to try and facilitate trade - ie. create volume prints through transactions.... whether this moves a market up or down or not helps us define the market structure... vertical or horizontal development. This is what Market Delta is designed to do... to provide us a microscope to further analyse this structure that MP provides.
Cheers.
PS. And a big thank you to bolter for starting this thread... should be highly informative...
Subq,
Very astute observations. This is exactly the sort of dialogue I hoped this thread would eilicit. Hereâs an chart example of what you mean:
Thereâs two things to look at here.
Firstly, the footprints. You can the see the market was in an uptrend until 2:27 with significant buying interest, however it started moving lower at 2:28 for no apparent reason. If fact, there was decent net buying interest @ 1373.50-1373.75 â so how could the market turn down?
There are 4 possible explanations.
1. The buyers were exhausted. This chart would strongly suggest otherwise.
2. The underlying cash market had headed south, and the futures markets followed. If the futures market is liquid enough arbing activity will ensure the two never get too far out of line.
3. Somebody with significant size is sitting of the offer.
4. Any combination thereof.
But I guess the key point here is that strong green footprints do not always mean higher prices. Iâm sure this confuses the hell out on newbies who take things very literally.
The second point to note from this chart is the vertical column next to the prices on the left. This is delta for an entire day on the S&P mini. If you look at the high and low of the range youâll notice net selling/buying at these extremes. How can that be â if there was strong net buying at the highs why didnât it go higher? Something to ponder.
Here's the MP thread.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=63202
Thanks for your post.
bolter
Very astute observations. This is exactly the sort of dialogue I hoped this thread would eilicit. Hereâs an chart example of what you mean:
Thereâs two things to look at here.
Firstly, the footprints. You can the see the market was in an uptrend until 2:27 with significant buying interest, however it started moving lower at 2:28 for no apparent reason. If fact, there was decent net buying interest @ 1373.50-1373.75 â so how could the market turn down?
There are 4 possible explanations.
1. The buyers were exhausted. This chart would strongly suggest otherwise.
2. The underlying cash market had headed south, and the futures markets followed. If the futures market is liquid enough arbing activity will ensure the two never get too far out of line.
3. Somebody with significant size is sitting of the offer.
4. Any combination thereof.
But I guess the key point here is that strong green footprints do not always mean higher prices. Iâm sure this confuses the hell out on newbies who take things very literally.
The second point to note from this chart is the vertical column next to the prices on the left. This is delta for an entire day on the S&P mini. If you look at the high and low of the range youâll notice net selling/buying at these extremes. How can that be â if there was strong net buying at the highs why didnât it go higher? Something to ponder.
Here's the MP thread.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=63202
Thanks for your post.
bolter
I'm going to repost something from an older thread which I feel is relevant ....
There are several things that I've observed that impact how useful delta is on a particular market.
1. If the futures market is subordinate to the cash market and there is sufficient liquidty for arbs to be active then market delta is less useful. eg: currencies, some equity indexes (Dow). So for example, if the cash market trades 63 but the future is trading at 60 - the futures market is going to 63 or they will converge at say 62 regardless of what goes across the tape.
2. Order matching system - some markets are less orderly than they should be because of idiosyncracies in their matching software - eg: HSI, DAX. Market delta is less useful is these instances.
3. Liquidity - The more liquid a market the better delta information you get. Thinner markets are more susceptible to the vagaries of the locals and commercials - so delta tends to be of less value, eg: HSI
4. Data - how the data is "packaged" at the exchange/data vendor will impact how it looks on market delta.
On rereading this post I would add one more item to the list.
5. Tick Size - if a market has a relatively small tick size it is likely to be less orderly because the spread will vary according to liquidity and alot more of the trade go off between the current B/A.
bolter
There are several things that I've observed that impact how useful delta is on a particular market.
1. If the futures market is subordinate to the cash market and there is sufficient liquidty for arbs to be active then market delta is less useful. eg: currencies, some equity indexes (Dow). So for example, if the cash market trades 63 but the future is trading at 60 - the futures market is going to 63 or they will converge at say 62 regardless of what goes across the tape.
2. Order matching system - some markets are less orderly than they should be because of idiosyncracies in their matching software - eg: HSI, DAX. Market delta is less useful is these instances.
3. Liquidity - The more liquid a market the better delta information you get. Thinner markets are more susceptible to the vagaries of the locals and commercials - so delta tends to be of less value, eg: HSI
4. Data - how the data is "packaged" at the exchange/data vendor will impact how it looks on market delta.
On rereading this post I would add one more item to the list.
5. Tick Size - if a market has a relatively small tick size it is likely to be less orderly because the spread will vary according to liquidity and alot more of the trade go off between the current B/A.
bolter
Bolter, inteested to know what these idiosyncracies [in their matching software - eg: HSI] are.
When using MD with HSI I was geeting the best cues from bid ask strike profile due to volume being distorted by institutional put through deals - i.e was interested in levels where active players got in and out not a 1 year old hedge position hedge taken off after a morning meeting at a fund. - more interested in retail and the 10-40 lot traders who drive the market and their activity is better represented in thin markets by the now defunct bid ask strike profile.
When using MD with HSI I was geeting the best cues from bid ask strike profile due to volume being distorted by institutional put through deals - i.e was interested in levels where active players got in and out not a 1 year old hedge position hedge taken off after a morning meeting at a fund. - more interested in retail and the 10-40 lot traders who drive the market and their activity is better represented in thin markets by the now defunct bid ask strike profile.
I'm in over my head here, but interested nonetheless. I need clarification on this point and on the earlier post by subq regarding price action on index futures relative to the underlying. My rudimentary understanding of index arbitrage (using the example above, and assuming that prices will converge) arbs would buy the futures and sell cash. How else can a price change unless something prints on the tape? are we just talking about b/a?
Also, Bolter I'm looking forward to a description of your charts posted earlier. I've never seen MD footprints before, but I think I understand what I'm reading...
TIA
Interesting thread...
In context...
1373.50 was the Pivot Point of the day...
The day was marked by very anemic up/down volume difference... as in there was not much difference between the up/down volume... very near neutral all day...
if you go back and look at days like this ... any day like this... the floor, or whoever picks out a significant line in the sand... The Pivot.. or a former important high or low... but in this case The Pivot and pushes the market up and down thru it a number of times creating a number of mini stop runs...
this can be done because there is not a lot of outside paper to continue the market in a trending move... next the market illogically is pushed back up thru the line in the sand... then back down... and back up... illogical movement but logically facilitating trade on an anemic day... and on it goes for days like this...
when the Vol Diff is quite substantial then outside paper comes in more and more and the market trades much more logically since the 'floor players' can not play line in the sand games without getting burned badly in a large trend move against their fade positions...
i think MP & MD & T&Sales are more powerful than Pivot Points to understand the market support/res and structure but on anemic Vol Diff days they are sometimes used to play gotcha with the guppies...
cj...
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