I thought the cumulative delta chart from today was very interesting. The chart is broken down into 3 lines. The red is small traders. The green are trades between 25-149 contracts. The black line are orders of 150 or more.
Price rose over 45 points in about an hour and a half starting about 1130 hours. I found a couple things interesting, First notice the difference between the red line (the one you shouldn’t be following) and the green and black lines (the ones you should be following).
The cumulative delta with tape reconstruction kept telling you to avoid being short. Not until price was about to top at 1300 hours did any serious selling from large contract traders begin.
At about 1200 hours there was a very obvious consolidation occurring as the market traded in a very tight 3 point range. The green line was rising this entire time.
I realize that after a huge market sell off you probably don’t want to be a buyer. But there was huge trades going off at the low.
The setup we are looking for is a down bar with a positive delta strength, which are circled in red.
The point of this is not to convince you to be a buyer. The point is to cover any short trade and stop shorting until there is a clear short entry.
Seeing Consolidation on the Cumulative Delta Chart
As the market traded in the tight 3 point range, the green and black lines were the buyers. Towards the end of the accumulation they drove price lower in a series of lower lows to trap the sellers.
The red line (1-7 contracts) appears to be the sellers. How did that work out?
Order Flow During Accumulation
There is a couple of things to notice with the order flow chart. The most important is the extension zones being created. The extension zones are pretty one sided, with more green zones being created than red ones, especially at the lows. This means that large numbers of buyers came in as market orders at the lows.
Also at the lows we see seller order flow exhaustion signals each time.
There was also significantly more delta strength buy signals during this period. These delta strength signal are being filtered for using tape reconstruction for trades of 100 or more.
One of the other things to note on this chart are the order flow sell signals. Again the exhaustion signals are at most highs. We are seeing the sellers create order flow signals because there is a fight between the buyers and the sellers.
The market then breaks out for over 10 points. Notice how there are only buy extension zones are being created until the high is reached. Then heavy selling starts.
But the move is not over. During that selling the green cumulative delta line was rising. This rising delta would lead to another breakout taking price to the high of the move.
Interesting to note who the sellers were. (Hint: It wasn’t the large contract traders.)
This is a chart that you can only see with the ZoneTraderPro Order Flow Suite.
The heavy selling in the cumulative delta green line is best seen on the first chart on the page, and that is the next clue that the buying is coming to an end. The cumulative delta green line takes a sharp dip. The market will trade 5 points higher, but the cumulative delta is flat, essentially a divergence as seen in the next picture. That divergence is the last reversal clue.
The 20 Point Sell Off
The Sell Off Order Flow Chart
Again notice at the high that we see strong delta strength selling along with extension zones being created.
Green extension zones are not created until the market bottoms 20 points later.