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I keep coming back to this as it ticks so many boxes.. At the risk of bringing logic into this..it brings a focus to key areas of interest. It incorporates features - like risk/overextension away from the volume mean and the moving box using the taper.. I look forward to running it to see it all work together. I think it will really help qualify entries with what I'm already using..
I've scoured the "Integrator" for the lines to replace with your "Code" but would only be guessing if I replaced anything.. Could you please list the line(s) to replace in the editor..? That would help out a lot.. Are you still sure you want to replace it for Raw Volume.. ? Seems to work well..
Chuck
Can you help answer these questions from other members on NexusFi?
I switched off volume compression; leaving "raw" volume when
I needed to form a VWAP, leading to estimate of Risk in "delta
ticks" from VWAP, and ultimately then to estimating the Total Risk
multiplying by the Point Value of the instrument.
I'll try to get back to you on your question; but when cutting 'n
pasting "snippets" of code; that is entirely your risk; as the smallest
detail can completely change an outcome in code; so I'm "supporting"
only a full paste of text body.
However, if you have gained the expertise to take snippets; then
that's great as one of the goals of this whole exercise.
Oh, I was mistaken when I thought you were posting code for us to snip out existing and use instead.
I'm still at a loss to see where I could "turn off" volume compression. I've obviously missed this in properties...
or the place it was put in the code.. Could you please point it out.. (my thanks for your patience with
my oversight)
So, this code shows a value which is "proportional to"
the Total Risk, displayed as a number.
This is only "indicative" but Bigger means More. On the
Top side, the larger the "Short Risk", the more likely
the Price will stop rising; and for the lower Pricings,
the "Long Risk" is more likely to receive "Support",
the Higher/Bigger is the Risk value.
These values are Positive all the time, and hopefully you
will be able to get a feel for how large the values may
become, and the relation to predicting "Resistance" at
the Top and "Support" at the bottom of Price peaks
and troughs...
TAKE THIS CODE AS A WHOLE, and paste into the NinjaScript
Editor. BE SURE YOU BACK UP ANY CODE YOU HAVE THAT
YOU MAY WANT TO KEEP !!!
This Indicator will show as "TradeFlowRisk 1.1", as you can
see from the code.
I struggled for a while on the Draw.Dot and Draw.Text
"tags" which MUST be unique for every drawn object you
wish to be persistent...
Thanks for your interest; and this is about as far as I'll be pushing
this Indicator. It's up to you to customize anything you want;
and I'm not at all sure that I'll support Backfill of Historical data...
[EDIT] So I've attached a crude screenshot during horrible market
conditions; showing the output of the indicator; sorry if numbers write
over the tops of themselves; either Live with it, or change the Code LOL
[edit] Params were:
# comment line an NQ chart
RISK_THRESHOLD=8
RETENTION_SECONDS=180
MULTIPLIER=3.5
BIGLOT_MINIMUM=2
TAPER_SIZE=True
SUPER_SPIKE_THRESHOLD_RATIO=6
IS THIS INDICATOR IMPORTANT AND USEFUL?
HOW CAN IT BE USED?
AND HOW MIGHT IT BE IMPROVED?
So I'm suggesting that these calculations of Market Maker
relative Inventory estimates, against the Retail Population
through Time and Sales Analysis is quite useful and
important.
It's one of those things which might "grow on you" the
more you use it.
I'D SUGGEST RUNNING 2 INSTANCES AT DIFFERENT
TIMEFRAMES, even though at first that might be a bit
confusing.
BUT WHAT'S MORE IMPORTANT is that you try and run
this with timeframes (retention intervals) which more or
less "match up" with your desired Trading period.
If you're looking for lots of quick hits, during congestion;
then maybe you use 3 minutes of retention; but if you're
looking for half an hour, then consider 30 minutes retention.
REMEMBER: ALL PURELY "INTERNAL" TECHNICAL ANALYSES
like this, can be "swamped" or "overpowered" by "EXTERNAL"
factors. If a Market is just determined to RISE, then you
may find that it can seem to "push right through" the Resistance
you would expect from Short Risk. She's got "deep pockets",
your enemy, the Market Maker....
IF WE WERE TO DIG MUCH DEEPER INTO INVENTORY ANALYSIS,
which I'm not gonna do, most likely...
...then we would be able to see how Market Maker "modulates"
her Risk, and be able to calculate an estimate at least, of her
"Profit per Minute" which offsets her Open Risk on a Timeframe.
MARKETS ARE "FRACTAL" and so Inventory Analysis really needs
to be "multi timeframe". I've done all this; but we're not gonna
do it for the forum audience.
IN CASES WHERE MARKET MAKER APPARENTLY keeps pushing
through "ridiculous" levels of Risk, seemingly irrationally...
consider that the Risks and (temporary) Losses incurred by
Market Maker can be recouped LATER, and she's not always
in a big hurry to turn the market; but she will always profit
from her inventory sooner or later...
TYPICALLY, a session will end at the TOP or BOTTOM of a range;
but then in the "after market" under low trade volumes, the
Prices will be corrected; thus taking MM out of her Risk, and
comfortably into Profit.
THE MORE YOU THINK ABOUT THE PROCESSES which are likely
to be going on; the better you'll have a feeling for Market Dynamics
and that's a valuable concept to begin to understand.
BASICALLY, and you can argue with me all you want, but
Market Maker is the Mover of Prices to maximize her own Profit.
And you, as the Retail player, are doomed to Follow (or predict)
where she's going...
WATCH THE MOVIE BLADE RUNNER, where Deckard is forced
to come out of retirement where Bryant threatens him, saying:
"You know the score, if you're not Cop, you're Little People", or
something like that. Well, Market Maker controls everything;
and any ideas that Retail players are "in control" is fiction.
We can discuss these concepts; which seem simple, but the
more you use them, as part of your arsenal, the better your
trading may become.
YES, THIS INDICATOR COULD BE IMPROVED, but the level of
computing to do so, is way beyond anything postable in this
forum. But remember that you and Market Maker are
SIMILAR IN ONE RESPECT ONLY: Both you and MM must Buy
low(er) and Sell high(er); since that's the name of the game.
Understanding how Market Maker does that, helps a bit in
understanding the awesome power the Trader faces.
I have been following your work with interest as i look at volume quite a bit but give equal weight to structure in my analysis. To me, the interaction of volume at key areas is what dictates if a trade is worth taking. In your examples, i only see dots which i suppose represent relatively big trades. You have circled a few areas, i suppose those are areas you would consider to trade, right? What does the purple line indicate in your examples? Could you post some of your trades on any particular day to see how you trade with this tool?
Well, first of all... The Indicator tries to do several things
at once; and arguably, maybe the visual representation needs
some tweaking, but here are the things it represents:
1) Over the retention interval, the Signed Volumes (Sell is
minus, Buy is plus) are summed up. This is what some people,
including me, call the "on balance volume" or the "net volume"
within the retention interval. Often, as we approach pivot
trend-change price points, the bias toward Larger trades
tends to "accelerate", plus perhaps also there are just more
trades occurring near these tops and bottoms, often called
"the battle between Buyers and Sellers".
2) When the Volume Weighted Average price of the inventory
collection (within the moving retention window) represents
a) "short" inventory; and the actual Market Price is HIGHER
than the VWAP, then Market Maker is (temporarily only)
"underwater" or losing money, or "taking Risk", which we
call "Short Risk" then Dots begin to appear to represent the
distance between these two prices (in Ticks). In that case,
there is a predominance of Retail Buyers, against which
Market Maker sells. When prices fall, typically (not always)
most Retail players are Sellers, so Market Maker has an
imbalance or excess of Buying from Retail Sellers, so then
the Market price is actually below the VWAP Buying price
of the collection Market Maker is holding. Call that "Long risk".
3) Then if we know how much Net Inventory (futures contracts)
is being held (or an estimate); and we know the Tick separation
into Risk; then by multiplying that by the Tick (or Point) value
of the Instrument; we get a number proportional to, or
estimating, the Total Amount of Inventory Risk, expressed
in $$Dollars.
4) Also, when we see Trade sizes which are X times the
average trade size, we call them "Super Spikes or Trades"
and we show them overlain on the Price itself, and we know
that Larger individual Trade sizes tend to mark Tops and
Bottoms as well.
SO ALL THESE CONCEPTS are (maybe poorly?) represented
by this Indicator.
THE PURPLE LINE represents the Net Inventory Imbalance, in Contracts, when Buy versus Sell transactions (from Time and
Sales) is summed up.
( Parenthetically, the Integrator which does this summation,
I think, "tapers" the Final 25% of the data in the Retention
Interval linearly down toward zero, so that Volume leaving
the Retention Window "tapers" and does not make the Net
calculations "jump" as much as that Volume expires. )
WHEW !! It does a lot of stuff. However, it does get at the
Heart of Trading, since it analyzes Time and Sales, Buyers
versus Sellers ( Retail guys versus Market Maker ), and
evaluates whether MM's "position" is "in the money" or
"out of the money" (i.e. "at Risk"). Of course Market Maker
not only a) deliberately moves into risk territory, as a
natural and expected consequence of "luring" Retail players
into the Market; but b) She is not really taking any "Risk"
at all, since She (i.e. MM) knows full well that She'll just reverse the Price Trend and will no longer be in "Risk"..
Think about your own trading. If you are Long, and the Price
is above your Buying Price (your VWAP) then you are in
potential Profit, and are feeling OK. But when the market
Price drops below your Buying price, then you start to
panic (maybe) since you're losing money or are "at Risk"
of losing an indeterminate amount of money, and might
be worried about stopping out. (But YOU are not Market
Maker, and She doesn't even break a sweat about that...)
THERE'S A LOT TO CONSIDER IN THESE DYNAMICS...
I'm not that likely to start posting trades; since I've said
elsewhere that I might do many dozens of individual trades
within what I keep calling the "Meta Trade", and because
of that, the usual posting of Entry price versus Exit price
because mind bogglingly difficult to follow... Yes, that is
a different way of thinking about the concept of "a Trade"
HOW DOES THE INDICATOR DIFFER FROM A
"REAL" INVENTORY ANALYSIS ??
I guess at least some of you might be interested in
that. So let me try to take a stab at explaining
without going on too long and detailed.
As you all know, the Market Maker "makes the Spread"
which means that Retail players (by definition) in this
way of thinking, Buy the Ask price; and Sell the Bid
price. This is because most (not all) Retail players
are not able to take advantage of Limit Orders, and
typically, for simplicity, use Market Orders to get into
and out of the market. (Yes, I know...)
But Market Maker's unique feature is that She NEVER
Buys the Asking price (like Retail players mostly do);
but, instead, she always Buys the Bid. And also She
is able to Sell the Ask, unlike the bulk of Retail players.
(I have a semi-automated custom Order Processing
console I wrote, so I am able to Buy the Bid, and
Sell the Ask. Now that does give me significant
advantage over "paying the spread"; and yet that
does not qualify me as getting the Price advantage
which Market Maker enjoys. It helps me a lot,
to resolve small price movements; but Market Maker
does things on a much more awesome scale, and
"crowds out" the competition on the Depth of Market
early on, so She gets the highest Price advantage.)
This means She makes the spread. Let's say we're
trading the Nasdaq contract; and the Bid/Ask spread
is 3 ticks (which happens a lot). Market maker Buys at
Bid 1 contract, say 15966.00 from Sally the Retail Seller; and
virtually simultaneously, Sells 1 contract at ASK/Offer
price 15966.75 from Billy the Retail Buyer.
(Sally and Billy don't know each other; they are just a
part of the vast random Retail trader population.)
Note that nobody cares whether Sally is Selling to
close an open Long position she has, or to open
a new Short position. Same for Billy... Market Maker
DOESN'T CARE.... OF COURSE.
Well, well... There's a case where NQ's value is $20
per Point, but there are 4 0.25 Ticks within each Point,
so the value of Market Maker's "spread profit" is $15 !!!
That's not so much; but multiply it by the thousands
and this "making the spread" thing suddenly looks like
a pretty good Income !! LOL
The 1 contract Inventory Bought and Sold here simply
disappears from Total Inventory, as an "in pocket" profitable
transaction (making the spread) by Market Maker, and
so it would DISAPPEAR from Open Inventory in a REAL
INVENTORY ANALYSIS.
So in REAL complex Inventory Analysis; any Profitable
Transaction Volume by Market Maker is taken as Profit,
and IS TAKEN OUT of the Collection of Transactions
during the Inventory Evaluation snapshot.
So we take out all CLOSED PROFITABLE transactions
out of our pending Inventory collection; and what is
left is (theoretically) only OPEN transactions where
Market Maker has Bought Volume, but has not yet been
able to SELL THAT VOLUME AT A HIGHER PRICE.
Or has Sold Volume, but has not yet been able to
"cover it" at a lower price...
OK, I've done all this stuff and you can see how this would
form a more "accurate" representation of CLOSED VERSUS
OPEN transactions in the Evaluation of Inventory.
It also gives us a good estimate of "The Rate of Income"
which Market Maker makes "across the spread" mostly...
which Offsets Open Inventory..... this gets into more
advanced Inventory Analysis.
THEN ADD TO THAT ONE MORE FACTOR. Which is that
we need to be able to make these calculations over a range of Retention Intervals, Simultaneously... and that
would get us nearer to a Real Inventory Analysis.
(this addresses the observation that Markets are "fractal"
and are executing these "strategies" across multiple
timeframes simultaneously.)
Thanks for the detailed explanation. The idea of seeing an application of your concepts using your tool is to better understand how it can be used. It is like trying to play music, we can talk about the circle of fifths and how to use it in songwriting for hours but unless i see an application of it which i can HEAR then i am afraid it might make the situation more confusing. You could take any day and point where you think MM are moderately at risk here but here they are in a severe situation where considering a trade might offer a low risk for me with a good potential reward. You don't need to show your trades but just pointing where your tool is shinning so to speak.