The Delta of Volume Explained
Updated
This is the first part of a tutorial series I will develop about trading concepts I use that are not well understood. I am using BTCUSD specifically, but the general ideas apply to every tradable asset.
Volume is the amount of force applied to the market in both directions, buy and sell. It is "Ipso Facto" (by the fact itself) that force moves objects, with the object here being price. So, the amount of Buy Volume pushes the price up, Sell Volume pushes it down. But these orders are being executed every second of every day. What happens if 100btc is bought and sold on the same tick? The two forces neutralize each other.
Delta is the "Net Force" being applied to the market. The buying minus the selling. Delta doesn't tell us anything about how thick the order book is. Thus it does not tell us anything about the speed of movement of the price (in fact ignore order book thickness for now). However, The question delta answers is: "Who is DOING what?"
Who = Market Participants
What = Buying or Selling
We know institutions are profitable because otherwise, they would be out of business. We also know they move the most volume. Since they are generally profitable and have the largest volume footprint, we can assume they're betting on the correct future direction of the market and their activity will be visible in the volume. So, what if we just watched what they are doing? That's essentially the delta, the net of all the whales' buying and selling. There are many complicated strategies they will deploy that involve both buying and selling in different ways at different times (using futures and spot, meaning futures and spot are both independently important).
Watching the delta is to pay attention to its direction and rate of change. By doing this we can see what is happening in the and then when there's a strong current, you jump into it like Dude Crush from Nemo into the EAC, the East Australia Current.... duuuuude.
I have found that market orders are, in fact, responsible for price movement. That is to say, I have yet to see a period where the price is dropping and delta is not also dropping. It MAY be positive still, but it drops lower. So, that implies that Delta indicates the current direction and provides information that can predict future direction. (Also, it seems to me that, futures drive direction more than spot at this time)
Feel free to ask any questions about this you have. Thanks for reading.
Volume is the amount of force applied to the market in both directions, buy and sell. It is "Ipso Facto" (by the fact itself) that force moves objects, with the object here being price. So, the amount of Buy Volume pushes the price up, Sell Volume pushes it down. But these orders are being executed every second of every day. What happens if 100btc is bought and sold on the same tick? The two forces neutralize each other.
Delta is the "Net Force" being applied to the market. The buying minus the selling. Delta doesn't tell us anything about how thick the order book is. Thus it does not tell us anything about the speed of movement of the price (in fact ignore order book thickness for now). However, The question delta answers is: "Who is DOING what?"
Who = Market Participants
What = Buying or Selling
We know institutions are profitable because otherwise, they would be out of business. We also know they move the most volume. Since they are generally profitable and have the largest volume footprint, we can assume they're betting on the correct future direction of the market and their activity will be visible in the volume. So, what if we just watched what they are doing? That's essentially the delta, the net of all the whales' buying and selling. There are many complicated strategies they will deploy that involve both buying and selling in different ways at different times (using futures and spot, meaning futures and spot are both independently important).
Watching the delta is to pay attention to its direction and rate of change. By doing this we can see what is happening in the and then when there's a strong current, you jump into it like Dude Crush from Nemo into the EAC, the East Australia Current.... duuuuude.
I have found that market orders are, in fact, responsible for price movement. That is to say, I have yet to see a period where the price is dropping and delta is not also dropping. It MAY be positive still, but it drops lower. So, that implies that Delta indicates the current direction and provides information that can predict future direction. (Also, it seems to me that, futures drive direction more than spot at this time)
Feel free to ask any questions about this you have. Thanks for reading.
Note
Two Important Notes:1. This ONLY applies on an intraday basis. A massive counter-trend trader could show up at any time, so the further you extrapolate, the less likely you are to be accurate. Delta can only tell you what has happened and what is happening NOW. Thus, Price Action (s/r) has to be coupled with this for trading decisions.
2. How Granular? Buys and sells volume can go as high as millions of dollars a minute, so how granular can we go?
On Tradingview we are limited by the 1m candles. We don't have individual order execution data. So, the closest proxy we have for delta on TV is the 1m candles. This means all the volume in a green 1m candle will be designated as buy volume. All the volume in a red 1m candle will be sell volume. I have order execution data on another platform and there are other ways to watch it (like watching the indicator value instead of the graph). But you cannot have perfect accuracy on TV regardless.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.