As an e-mini scalper, I trade the spurts of momentum that are constantly occurring as the market moves in a given direction; it’s important to understand whether the market is moving up, down, or ranging. You won’t see or understand this movement when looking at a daily chart, and generally you can’t be an e-mini scalper looking at an hourly chart. Needless to say, a variety of market variables combine to move the market.
Lots of terms are bandied about when talking about e-mini order flow and it seems to me the term may sometimes intimidate newer traders in the same manner legal jargon sometimes seems incomprehensible when deciding to sign a contract. Market Delta is one of those terms and it requires about a third grade level in math to understand. Okay, here we go with the complicated Delta calculation:
Bid volume- Ask volume=Market Delta
Whew! That was a tough one! Obviously, the bid volume will be 1 tick lower on the price index than the ask price. So you are constantly looking at these charts diagonally one tick higher or lower, depending upon the direction.
Now that we have determined that calculating market Delta is an elementary calculation, we should determine what to do with this information. We are looking at volume here, which is the least taught, least understood variable in e-mini trading. On most order flow charts, which I usually trade with a 6-8 Range bar setting, the price point where the most volume occurs is highlighted in some manner. Where these intra-bar high-volume points occur is important; some occur at the top of the bar, the bottom of the bar, and many occur mid-bar. With practice, understanding where these volume highlights fall, within the context of the overall directionality of the entire chart can provide you with valuable information as to the direction and strength of the majority of market movement.
It is not unusual to employ an oscillator, specific to order flow, or a simple trend line to plot areas of supply and demand at a specific price in a momentum move. Basically, it’s a connect the dots sort of exercise, and can provide an insight in directional movement; directional movement is the bread-and-butter of the e-mini scalper. Looking at your intra-bar volume distribution methodology will give most e-mini scalpers and unprecedented ability to accurately predict the directionality and strength of a given move. Further, you can easily spot when a price point is reached where either bid or ask volume dries up and the market is ready to change directions for a period of time which is sometimes quite short, as in a retracement, and other times extends for
several hours, as in a reversal of market direction.
Oddly enough, most traders have yet to embrace this recent addition to e-mini trading technology. An institutional trade room is loaded with similar type indicators and completely devoid of the average allocation of lagging, out-moded, and profit sapping lagging indicators. I would hazard a guess that most traders look at these charts and simply dismiss them as too much work to understand. I should point out that the previous statement is a guestimate based upon my own conjecture, not a peer-reviewed statement of fact.
In summary, I have given a cursory review of some of the advantages of embracing emerging technology in the e-mini retail sector and pointed out that its use is inexplicably not being used to its true potential. I also gave a brief explanation of market structure, and the determination of overall market structure using order flow analysis.