A Walk Through the Short Term View

Note: this was written against an older version of Auction Dashboard™: some features have evolved and changed.

Momentum Delta In The Bars

This is the default display for the bars: the market selling and buying volume; and the Momentum Delta on each price in a color behind the volume. Take note that the settings define both an imbalance and volume threshold: you will only see the delta on prices with enough imbalance and volume. Therefore, some volume clusters will be following the colored deltas — because of that volume threshold — yet only prices with imbalance as well will be colored.

You can follow the deltas to understand how the short term auctions are playing out. You can also use them to identify accumulation and patterns. The displayed delta is fundamentally only a delta: and so where you see green, the buyers are simply outweighing the sellers. The auctioning may trace back and forth, and unwind or reverse deltas. They can make one good companion next to the Inside Auction.

The Momentum Delta goes a bit further with some added metrics. Like the Auction Deltas, which measure the "diagonal delta" — that is: the buying above minus the selling below (which matches the offer-over-bid at auction) — the Momentum Delta is also a "diagonal delta"; but you will see a delta on each price. (With the straight Auction Delta, the larger price may land above or below; and so each pair of prices has one delta for each direction, and either may be on the buying above or the selling below. Therefore, a given price may show 0, 1 or 2 Auction Deltas there. The Momentum Delta always has a delta on each price.)

Here is something of what seems to appear in these bars (with the volume display set to the Momentum Delta also):

A short-term boundary seems to be etched out at around 1870.00. The auction has flopped up for a small amount of trading in the flop up; and that trading seems quite balanced off.

These are the volumes:

We see a few thousand accumulated on prices, at 08:40 AM New York time. This flop may not be exhausted. Yet we saw some balance here.

So there is a good amount of the order flow that we can see unwound and traced out for us in the bars.

Volume Profiles In The Bars

The volume profiles in the bars can easily point out the balances and the intermediary volume clusters (short term S&R). There are a few choices for display on the profiles; and with the centered display below, the balance between buying and selling is easy to see. We can look again at what we see with these balances by turning on the True Auction™ Balance, and looking at the profiles for the balance here:

So to us, it appears to be a flop above 1870, with balance in there; and selling finishing ahead as the price ticks down below. We see the stand-out imbalanced price at 1871, so we marked it.

Paint your auction! Mark prices quickly by Shift-Click. Auction Dashboard™ will add a marker on the Marker Strip, and extend a line to the bar where you click. It's easy to add markers (and composite profiles as we'll see below) because you should be able to quickly mark these points of business in the auction as it unfolds; and that is one benefit of having the bars unwinding the tape alongside the order flow, so you can see and keep track of the trading.

Absorption Markers On The Bars

Note: this was written against an older version of Auction Dashboard: the purple markers below no longer appear. But the same information should be found with the new Absorption markers on the bars (which also appears as up and down triangles). Before we continue to see how this develops, let's look at what the added bids and offers seem to trace out for us here as well. The purple markers are generated from the inside auction as heavy bids and offers add in.

Again we see signs of how the order flow has progressed.

So we are at the value area high for the session here (we can see it on the marker strip), and we have a lot of balanced trading, and no buyers have stepped in to see about looking for sellers overhead. In addition, we see what looks like some bids chasing the price up here.

This is how the session ended:

In the immediately following bars, they got one more look at that price, and then they traded all the way down to the bottom of the value area.

Look at what an influence our marked price was! We'll continue to look more closely at that price and see if we can see anything else there.

Composite Volume Profiles

Composite profiles can illuminate the development in great detail.

Create composites by Alt-Click-Click: hold the Alt key, and click on the start and then end bar. Expand the composite to see details by clicking the PopUp button on the display along the bottom of the chart.

We ran a composite profile over the bars trading up:

We also turned on True Auction™ Balance in this expanded display; and indeed we see a lot of balance in the traded volume. We can see the imbalance on the bids; and the very large bids below the flop.

Deltas On The Composite Profiles

Though we see the imbalance in the bids here, the Absorption Delta shows us that the offers were getting facilitated more than the bids. So: the True Auction™ Delta is positive — which is expected because these are mostly up-bars — and, the offers were getting facilitated; and there had been large bids on the way up. So there seems to be some satisfied trading here. But there were a lot of bids left behind below. This buying stopped for the moment, and the traders went looking down: it's possible that some of the absorbed sellers are having an effect, or there had been some accumulation here.

We can also see the influence that the stand-out bid price at 1869 had in the following bars. And, the following bars trade down to the value area on our composite.

We expanded our composite forward a little (just re-click); and then we ran composites over the prior bars trading up, and the following bars trading down:

There are stand-out bids in the bars leading up as well. The following bars greatly even that auction out. We see another stand-out bid price; and that came back into the auction. We also see a stand-out pair of bids and offers below; about 2.5 ticks down; and so our traders seemed to step in at those levels, all of which got covered. Looking back at the long chart above, we see that this 1860 level wound up being where the auction finally rotated, and closed right nearby.

Let's look at what the bar deltas can show us:

Bar Delta Display

We turned on the Bar Absorbed Bids-Offers Delta (open the Bars Popup in the button strip, or Control-Click on the bars; and the Display menu has settings to choose additional bar delta displays):

The absorption can help you while the short term auctions are unfolding; to understand if traders are stepping in to facilitate (and get absorbed in); or if the market orders are consuming more stationary bids and offers.

Let's see what else the composite profiles can show us.

Using The Volume To See Intermediate S&R

Although we do have the benefit of hindsight here, let's see if a trade might make sense. We ran a composite over the bars leading up to our price of interest, and what we have seen is a turnaround at this high. So do we see some opportunity to short this? Here is the composite:

We see that the point of control is at our interesting price. We have seen the offers being facilitated in for this trading up. We have also seen the bids chasing the auction up to this turnaround; and a lot of bidders were left behind. We can also see five bars here with a single 1 volume on the top price: signals that buyers are stopping.

We find 74K volume in the composite: a decent amount of trading has taken place here for 8:30 AM (at this pace, it would amount to 300K in one hour). That is a signal on our side: there seems to be a lot of satisfied trading here. With the unsatisfied bids below, we might lean towards seeing if we can turn back there.

Another signal on our side is the high volume on our prices of interest. These are the highest volume prices here; and also higher than what we have seen in the session so far.

Another thing we see is a tiny bit of double development in the profile. This can also work with us: if the traders decide to trade up, then they need some initiation: there has been satisfied trading here, and the buying stopped. If they want to trade up, they will have to come in buying. If they instead want to trade down, then with this development so satisfied, it might hold as resistance.

One more clue: the large traders. We set the filter to 250, and view the expanded composite:

We can see that a lot of large buyers traded up here. The display shows us that the largest buyer was 874 lots! The buying has also stopped here short term. When large traders go in, they take up a lot of the available liquidity; so we might be looking at an auction that is "asking for sellers" to match these buyers. Of course, there is danger in evacuated liquidity: if large buyers are still here, they might sweep up hard.

At this point we would look to join the auction; and so turn to the Auction Visualizer™.

The Auction Visualizer™

The feedback that the Auction Visualizer™ gives you is unmatched! You should be able to see the traders in the market with you, and follow the value.

We took the replay back to 30 minutes before our location here. We reset the Inside Auction and played to this point. Let's take a look at the recent history that is lingering in the Auction Visualizer™. First, here is a key to the feedback:

The feedback can be configured in the settings. You can adjust it to work they way you prefer. You may also find different markets offer different feedback with the options, and perhaps at different times of day.

The bid and offer deltas update on the current bid and offer. Once the initial bid/offer depth on the price is accepted (by default) the delta begins to accumulate with any traders adding and pulling away.

Now here is where the recent trading lies; take note that we have turned on True Auction™ Balance in the bars:

The recent trading was up; and we left behind a mix of bids (positive and negative deltas), although we do see more positive overall. We're now approaching some stacks on the offers here. The underlined prices on the level-2 book show where large adds were made (this is configured in the filter settings). We can see that we left large added bids below. We are also approaching large added offers above. The offer activity that we left behind below has recently had offers pulling away. This is coincident with our marked price. And, overhead, the bids had mostly been pulling off coming back down here (while the offer deltas were adding in up there).

The lingering accumulated trading up has been pretty even. The one minor imbalance that sticks out at 1870 is coincident with where the offers began to pull off. The trading has exhausted up on two candle tops, and now a third. The forewarned trader, who had been following this auction, might have been ready to trade short here! You can watch this replay on your own to see if you could have had confidence to enter on the highest candle on this re-test of the day's high: this is ES 03-16 on January 21, 2016, 8:30 AM New York time (EST).

The sellers did come in to trade down here. We seemed to have good indications at our setup for a trade short. But we really don't have a full trade plan: we have simply been examining this development to understand.

Using Composites For A Trade Plan

If we did want to get in and go short, here is what we might find to locate our stop loss and target.

Let's look back just one more time again. In terms of us feeling that in some way we have reached some high that might be a place to turn and go short. This is at today's high, and this is the second visit. The first touch was in fact rejected, by about 15 ticks. Then price penetrated by about 10 ticks; and that was rejected about 40 ticks down. Now we have returned and seen one short rejection without actually reaching the high to the tick. So that is something of a signal that we could have been watching for; and a reason for us to join the auction and look for signals possibly short.

Set your alerts! Auction Dashboard™ also allows you to quickly add alerts on the chart. Shift-Click in the Alert Strip (the red strip next to the Marker Strip) to quickly add an alert on a price. Any of your markers can also have an alert added: click the marker, and choose Add Alert. We could have been busy on other things and been alerted in advance of the session high. (Add a "Distance" to the alert so you are forewarned.)

We'll add three composites before our setup to learn more about our current position:

Auction Dashboard™ allows us to create composites across session boundaries, so we took a composite over the price action through today's low. We see positive delta in there. Notice that we also see a positive limit delta; but this is only for the bars that do contain replay data: the prior bars are only TPO BackFill and so did not see any realtime bid/ask data. That limit delta starts somewhere around 6:00 AM in today's session. Before we zoom in, we noted one more thing: there is something of a double development in here, so we measured that. Now zoomed in more:

After consolidation around 1845, we had a run up, to another short-term consolidation around 1860; and then a run up to our setup.

The development at 1853 is consolidation too: it is only covered by a few candles on our chart, so there it simply looks a bit more like a consistent "walk" up. This is one excellent example of why the volume tools are so powerful: you could otherwise miss that obvious development cluster! So we took composites in these two sections as well. We expanded these composites; and have the True Auction™ Balance turned on in them.

We can see in the first run up: after development around 1853, they left a pocket through the 50% fib in the larger pocket that we measured; and, the following consolidation was essentially there in that pocket.

We are identifying these levels so we can be prepared.

We marked the development in the composites; and also again the stand-out bid prices. We can take these additional stand-out bid prices as a good sign for a short, since it may be possible that bidders have been left waiting below, but primarily, they are important prices to be ready for, and watch: the auction is always here and now.

So the earlier larger pocket has development just below that point of control (at our composite here at 1853); and also more development through the top of the pocket (at our next composite at 1860).

And then came the final run up to our setup: we marked two more heavy bid prices.

So the first price we have identified is the bid we marked at 1863. This is just through our recent run up. If we have a hard time getting through this price, we might be finding interest overhead; and we might look to see if we are on the wrong side of trade there. Of course, that is still quite a lot of ticks down, and we cannot predict the future; only be prepared. If we do trade through that bid, then we have traded into the following development, and that is a good sign: if we are willing to accept back into that development, there might be interest to search for buyers at least down to the next marked bid price.

So now that we have been alerted to this re-test of that high, how do we find an entry? Clearly, we should just need to step into the auction and follow the trading. Watch the video, and see. At the start of the video, we have made our second test back up through our marked price and that point of control:

Follow the order flow and get a sense if you can understand that there are traders to trade with short.

So first, large traders traded places at the point of control, and the long candle thrusts down.

Filter volume indications in the bars: prices in underlined font contain filter volume. Bright green and red underlines appear when large trades have penetrated price levels. These can be configured in the settings.

That was our first attack on those marked bid prices; and the traders did come back up through. There is a clear sign here: there are two candles essentially bound by those marked bids: there is clearly some interest about these prices.

The next candle lifts up with light volume; but still manages to get back up to the point of control. And here the large buyer is in again; and yet again, the buying stops! We then get the 1K to develop short on those prices, commensurate with the trading in the prior bars; and the sellers are accepting the adding bids. And on the last two candles above, the volume thins way out, and leaves that blank buy on our marked price. So: volume took it down, and volume thinned out coming back as the buyers stopped! Combine that with what we see in the Auction Visualizer: the offers have added and are sitting heavy, yet the buyers do not accept!

It seems we might be able to go in with the sellers that attack those marked bid prices! We see how the bars unfolded: even if you got in at 1869, you would have taken only 3 ticks of heat through all that trading down!

If we look into the following development, here is what we see:

This auction happened to give you many more chances to get in late on this short. We see six following bars trading at the marked bids, and then another test up through the top bid, and three more candles with trades at the lower bid price before they left it behind.

After they traded down to that development at 1860, there was a re-test of that bid price near 1863. Then a lot more development in that pocket from earlier; and another re-touch and go from the bid price. This is what the volume development looks like: we pulled the fib over so you can see:

The pocket has been well filled in! The trading continued down:

They reached the day's low, and turned around again there to trade all the way back up. Notice what influence all of our marked prices had! These are key points in the auction.

Notice also that the composite we see here has another double development; and the trading at the end of the chart is now filling that pocket in!

This is what the day's session profile looks like at this point in the session:

It is developing a very even curve, with just a bit of a pocket around 1850. Look again at the long-term chart above that ran through the end of the session: that chart is showing the day's session profile. The traders came back to trade into 1850; and the day's profile is a very even curve!