Market Delta by bolter

Discussion in 'Strategy Building' started by bolter, Oct 18, 2006.

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  1. bolter


    I promised to start a thread on how I’m using Market Delta. I’m rather hoping some other competent MD users will pitch in and we can kick around some ideas. Market Delta as a tool hasn’t been around very long, and indeed only several months in the Investor/RT guise, so I think we’re all still discovering what this sexy little tool is capable of. There is no how-to guide for MD – everything that I will present here is based on my own conclusions, hence I’m quite happy to have my views challenged. I’d like to learn something from this exercise also.

    This should be a fun thread because any discussion about MD will invariably lead to the actual nuts and bolts of how markets really work.

    A few qualifying statements:
    1. This thread will primarily be centered around daytrading futures. I don't trade nor am I qualified to discuss trading stocks.
    2. Market Delta fits hand in glove with auction market theory and Market Profile. Having said that you can use MD effectively without a deep understanding of the latter two concepts. However, I don’t want the thread to go off on MP tangents. I have written at length about MP on another thread (which needs updating someday).
    3. Market Delta is (now) fully integrated with Investor/RT. It is not possible to discuss one without the other. So the discussion will necessarily be product specific.

    Right, we need to start with some fundamentals – get the concepts bolted down as it were. I stated in a previous thread MD is in its simplest form a tool for analysing T&S. This is not necessarily incorrect but on reflection it really doesn’t do justice to the product. Here’s a better description:

    Market Delta is tool for measuring and analysing market activity in terms of it’s three dimensions - time, price and volume – utilising the bid/ask spread to infer something about the nature of each transaction.

    What do I mean by this? MD assumes that trades that occur at the bid are a sell transaction (and buying at the offer obviously). The rationale being that the initiating party is motivated enough to pay the spread – ie: he/she really wants to buy/sell at that price at that time. Now is this a valid assumption? – this could be rather contentious. For the most part yes it works fine so the assumption ipso facto is valid …….. but not always. Sometimes MD will show buying taking place but the market keeps heading lower. And let’s not lose sight of the fact that there are two parties to every transaction with potentially different time-frames, objectives and motivations. We’ll talk more about these important points in a later post.

    So what do I actually use MD for?
    1. Assess buying and selling pressure.
    2. Determine support/resistance levels or potentials thereof.
    3. Study trade facilitation.
    4. Analyse the actions of big vs small traders.
    5. Fine tuning entries/exits.
    I’ll go through these in some detail later.

    Now if you had asked me a year ago what I use T&S for I would probably have given you a similar list. However, I'm the first to admit I was never a really good tape reader - but now I am because I have right tool for the job.

    My use of MD is fairly short term – typically 5 mins charts or less. I find MD of limited use over longer timeframes but I’d be interested in other views on this point.

    That’s it for now. In the next instalment I’ll talk about the various MD charts and indicators and how I have my workspace configured.

    All the best,
  2. Glad to see you putting up the MD thread you promised, this should be good. I personally have never used MD but am interested in the use of MP so it will be good to see how you apply MD. Look forward to the thread and consider me subscribed!
  3. Thank you-- your willingness to share your time and research is greatly appreciated !!

    I look forward to this "discussion"
  4. OK.....hold on then....I have about 52 new charts I will post up.........
  5. JK :D
  6. Bolter,
    I do agree with all facts you stated and I am looking forward to watch this thread closely and participate (if I have something useful to say).

    But let me ask you something, why you tie up the market delta concept with the market delta product ?

    As you said analyzing T&S goes hand by hand with the auction market theory so we can talk about MD as a corollary to the Auction market theory.

    I don't disagree if you want to highlight how you use the product, but I wanted to clarify to others that they can use the same concept without the product.
  7. Hi bolter. Thanks for sharing your insights. I am looking forward to this.
  8. Bolter
    Thanks for taking the time to do this. I found your MP thread very informative and have recently combined an idea from that with MD to play the first move off the open. Don't have the means to backtest it at this time so will have to test it as days go by.
    I owe a lot to 5P for all the powerful information he has shared and look forward to continuing the education thru this thread.
  9. Thanks for your sharing Bolter. Looking forward to it!
  10. bolter


    You raise a good point. Given that so many people struggled with making sense of T&S all these years you'd have to ask yourself the question why didn't somebody think of this sooner. It's such a no-brainer. I think the answer to that question is - they did but it has only recently become commercially available.

    I'm sure that many large trading houses (banks, funds etc) who employ short term quant strategies will be utilising delta information in the same we now can. I'm thinking funds like those run by David Shaw, James Simmons, Ken Griffin and others who essentially are making markets and/or providing liquidity. Their algorithms will analyse market depth information and volume at the bid/ask (delta), amongst other things, in some sort of black box.

    Additionally, I'm sure there are enterprising individual traders who have written their own code to analyse Bid/Ask data in real-time. I always toyed with the idea but never got around to it.

    So I agree with your point that the concepts are not unique to the product. However, the manner in which Trevor and Chad have enabled you to slice and dice the data, and present it visually is incredibly clever and will add alot of value to the discussion.

    Thanks for your comments.

    #10     Oct 18, 2006
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