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Direct MessagesDate/Time: Fri, 19 Apr 2024 19:07:24 +0000
Post From: Trade Intensity/Pace of Tape indicator for SierraChart?
| [2013-04-13 14:22:14] |
| T44 - Posts: 363 |
|
In most markets and certainly in the equity index futures markets there is a small set of very big traders whose entries into the market often have an immediate and very tradeable impact on price. These traders go to great lengths to disquise their trade - they have automated routines to send a series of small transactions to the market at intervals close to 1000th of a second. Because many of these traders operate from price based models they must get their execution within a very narrow price/time range which means they must execute as much of the volume they want as fast as they can while price is in that range. This results in a huge spike in what we call the intensity of trade. These spikes often signal reversals. A lot of assumptions being made here. -that these trades represent "entries" (new positions not closing out existing positions) -that these trades are directional (not a hedge, an arb against an ETF or basket, a basis trade etc) -that you can quantify a "big trade" accurately - a "big trade" is one which creates enough market impact to make it "tradeable" (the amount of size which will halt a market differs according to the market, time of day, condition in force, and other factors which you do not mention and probably cannot calculate) -that these "big traders" transacting at a point of high liquidity to complete some of their business in a certain price/time spread are going to continue to influence price in the direction they have traded, enough for you to profit from The biggest and most obvious examples you are missing is the time slicing of orders and partial covering of large positions. Both of these may trade aggressively at a point of high liquidity where X contracts can be filled quickly and in a tight spread, but neither indicates the market will move up (down) after these buy (sell) orders are filled. If you're off down the wrong path, spending the time to create an indicator (graphical representation of a condition) is a waste of time if you have not proved to your satisfaction that a certain outcome is more likely to occur after this condition is shown. Prove that the assumptions underlying the theory are valid before deploying resources to make a computer implementation, be it a Sierra study or an execution algorithm to be colocated at the exchange. |