Monday, December 07, 2009

A Look at the Cumulative Delta Indicator


As readers are aware, the Market Delta program tracks the volume transacted at the market's offer price vs. the volume transacted at the market's bid price to gauge short-term sentiment.

By calculating volume at offer minus volume at bid for each time period in the day and then cumulating those numbers, we have a Cumulative Delta indicator that is similar in theory to the cumulative NYSE TICK.

We can see that, for today's trade, the Cumulative Delta line tracked price quite closely. In trending markets, we will see progressively higher or lower values for Cumulative Delta. In non-trending markets, we see the Cumulative Delta line oscillate around a zero level (blue line above).

It is useful to calculate Cumulative Delta as a function of total volume traded; that ratio tends to move toward zero through the day on range days and stays solidly positive or negative on trending days.

Because Cumulative Delta as calculated above is specific to the ES contract, it provides a different look at intraday sentiment than the cumulative NYSE TICK, which tracks all listed NYSE stocks. When we see the Cumulative Delta line diverge meaningfully from the cumulative TICK line, it tells us that there is relative bullish or bearish sentiment in the S&P 500 Index relative to the broad list of stocks.

When Cumulative Delta and cumulative TICK are moving in the same direction, there is strong sentiment affecting stocks; that is worth following.
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5 comments:

Matt Fahmie said...

"It is useful to calculate Cumulative Delta as a function of total volume traded; that ratio tends to move toward zero through the day on range days and stays solidly positive or negative on trending days."

Would you mind elaborating on this concept?

-Matt

Tony said...

Do you mind sharing the excel sheet and how you get that data from esignal ?

Thank you

Tony

DaveO said...

For tracking divergence in the cumulative delta I have found greater accuracy using smaller timeframe like 1 minute. This is because the bar close is what is reflected on the chart. Thus if you use a 30 or 60 min bar you will not capture the high and low within that time period. Equally a 5 min bar will be less accurate for the extremes than a 1 min bar.

I also run cumulative delta for a continuous 5 day period on 24 hour basis just to track exactly how far from the neutral line the bias can wander. However this is demanding on resources for the amount of tick data required for the indicator x the number of instruments you are tracking. You need to check whether your resources are coping without undue stress.

eSignal will provide the NYSE delta, symbol $TVOL, and I run that mostly in 3 min format for an overview of the day session.It constitutes a very good chop meter versus trend meter for the markets as a whole.

For delta analysis you need either the Market Delta software or if you are not interested in their footprint charts you can subscribe direct to the software developer Investor RT (IRT). The latter provides everything you get in Market Delta except the footprint charts which are wholly licensed to MD. Personally I find the footprint charts overly detailed and potentially distracting. I prefer to see most my stuff on traditional charts but then I am not a scalper, looking more for 5 plus point ES moves for day trading.

David.

DaveO said...

Oops, a correction.

The eSignal symbol for NYSE delta is in fact $VOLD, not as I posted above $TVOL which is the NYSE total volume.

Sorry about the slip.

David.

Vijay said...

DaveO,
what does the NYSE Delta indicator $VOLD measure?
thanks.