Using Relative Book To Assess Short-Term Marketplace Opportunity

Here is something I sentinel closely spell trading.  The bluish trouble is the SPY ETF; the cherry-red trouble takes the SPY book for each five-minute menstruum as well as expresses that relative to the average SPY book at that same five-minute menstruum (30-day lookback).  The ratio is expressed inwards criterion divergence units.  When the ratio is higher upwardly 1.0, we’re seeing higher upwardly average flows come upwardly into the marketplace for that five-minute segment.  When the ratio is below 1.0, we’re seeing below average book participating inwards that period.

Because book correlates highly amongst volatility, this ratio gives a overnice real-time updating of how much displace nosotros tin hold off inwards the stock index.  Note that the couplet of times nosotros bounced higher upwardly nada during the morning, relative book tailed correct dorsum off.  It’s when nosotros meet persistence of high ratio readings that nosotros to a greater extent than ofttimes than non meet attain extension as well as short-term momentum.  In the depression book environment, we’re to a greater extent than probable to meet moves opposite earlier mayhap continuing inwards their initial direction.

In the illustration of this morning’s market, the tailing off of book represented a pulling dorsum of buyers; at that spot was no influx of sellers.  While depression book is non skillful for momentum trades, it is non necessarily a bad matter for tendency trades.

Further Reading:  Momentum as well as Trend Trades
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