In to a greater extent than or less ideal, dispassionate basis all participants inwards fiscal markets would comport similar my friend NRK too entirely purchase at bid prices too sell at offers. It’s a dandy agency to produce good inwards auction markets, too in that location are optimal execution platforms that volition hit that for large marketplace lay participants. The work with optimal execution is that yous oftentimes create got to hold off to snuff it practiced prices, too cost tin snuff it away from yous piece you’re waiting. That tin lead house if you’re looking for a handle inwards a hot existent estate marketplace lay or if yous essay out entering on trammel orders inwards a fast market.
The truth of the thing is that the basis is neither ideal nor dispassionate. People chase cost bubbles too puke out of positions when everyone else is doing the same. Real basis traders–and fifty-fifty those execution systems–recognize this too allow for execution with urgency. When markets are moving with signs of momentum, it’s acceptable to elevator offers too hitting bids to participate inwards the movement. Of course, inwards this less than ideal world, there’s also that modest inconvenience called cognitive bias. We all equally good oftentimes extrapolate instantly lines too squall back that every displace higher or lower is a budding trend. That gets us executing with urgency to a greater extent than oftentimes than genuinely objective signs of momentum would dictate.
The long too brusque of this foray into the vicissitudes of determination making is that fifty-fifty the largest marketplace lay participants travel out footprints equally to their intentions. Yes, they tin chop orders upwardly into pieces too execute inwards baskets too merchandise on dissimilar exchanges. At the cease of the day, however, their transactions occur inside a bid/offer matrix, too they are either executing with urgency or they are not: they are either willing to pay the seller’s cost or they’re willing to permit markets sell downwardly to their desired buying level.
When yous analyze markets transaction past times transaction, yous tin really meet the stream of trades too book hitting bids too lifting offers–and yous tin rails the evolving sentiment/urgency of marketplace lay participants. That is highly useful data that is obscured past times looking at traditional intraday or daily charts. A daily nautical chart is a telescope, revealing a large picture. Viewing markets transaction past times transaction to uncovering the flows of trader conduct requires a microscope. A major mistake that traders brand is attempting to engage inwards microscopic analyses past times changing the magnifying ability of their telescopes.
Above is a nautical chart that tracks a mensurate of “volume flow” that I’ve spent the amend business office of this weekend constructing. It looks at every merchandise for every stock inwards the NYSE universe too identifies where the transacted cost occurred inside the bid/offer matrix existing at that time. If the book of that transaction occurred nearer to the bid price, it is considered “selling volume”. If the book occurred nearer to the offering price, it is considered “buying volume”. The book stream mensurate is a running full of buying vs. selling volume. If yous squall back of it equally a volume-weighted NYSE TICK mensurate or equally a cumulative Market Delta for all stocks, yous wouldn’t endure far off the mark.
Much equally I beloved the TICK measure, it is democratic to the betoken of promiscuity. All upticks too downticks are equal, whether they stalk from the smallest microcaps or the bluest of blueish chips. That is non thence helpful when trading a capitalization-weighted index. You tin create got relative describe or weakness with modest caps equally business office of a sector rotation that volition skew the TICK measure–sometimes considerably. A volume-weighted TICK measure, on the other hand, naturally weights larger, to a greater extent than actively traded issues to a greater extent than highly, providing a potentially amend supply/demand catch for the stocks that thing inwards the index beingness traded.
Note inwards a higher house how selling flows were quite moderate inwards early on merchandise too and then accelerated fifty-fifty equally cost was topping out for SPY. This is potentially useful data for the intraday trader.
As I function with the novel measure, I promise to part farther findings too details. The of import takeaway is non virtually the specific measure–it may or may non add together value over time. Rather, what is of import is looking at markets inwards fresh ways too sustaining a procedure that periodically renews too extends your perspectives. Looking at the same charts too indicators equally everyone else is a dandy agency of replicating the returns of everyone else. If yous wishing distinctive returns, yous demand to catch markets through distinctive lenses that break fresh opportunities. It used to endure that dependent plain meant next a exceptional ready of rules or processes. In crowded, ever-changing markets, however, creativity is the novel discipline.
Further Reading: Why to Keep a Journal