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).
I read this with some interest. Makes sense to me.
It also raises the obvious question of whether anybody has any experience of using market delta with stocks. I had a very brief look but not in sufficient depth to reach worthwhile conclusions.
It seems to me that there might be something to be gained in constructing some sort of "market delta breadth" indicator across the stocks comprising an index, or at least a representative sample of the latter. Such an indicator might have some merit in trading the futures contract for the underlying index.
A couple ways of constructing such an indicator could be:
* ratio of number of stocks with +ve delta to ratio with -ve delta
* a kind of dollar delta - the difference between the dollar value of trades at bid and trades at ask across all the monitored stocks
I'd estimate that this should not be too computationally demanding. It should be possible to handle this for 100 stocks on an ordinary PC - probably substantially more.
