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Iceberg OrdersWith the availability now of our new trading software called MarketDelta Trader, iceberg orders are much more obvious. This is because the new software combines depth of market (DOM) data with a tightly integrated Footprint. This combination of the pre-trade data with post trade data shows iceberg orders more clearly. For those who do not know much about iceberg orders, the simplest way to describe them is to simply think of a real iceberg. Only a portion of the quantity is shown in the depth of market. As the order is filled, more quantity is automatically refreshed in the order book. A simple example would be an order for 500 contracts. The trader uses an iceberg order to only show a set quantity, say 50. As the 50 are filled, another 50 are automatically, and almost instantaneously, sent into the market at the same price. This will continue to happen until the entire iceberg is filled. The purpose for these orders it to hide the actual intent to buy or sell large quantities. This helps institutions and large traders to not be “front-run” by others who look to jump in front of their larger orders. One benefit of now being able to better track this activity, especially at key support and resistance levels, is have absolute knowledge of how much volume is trading without having to rely on the order book. Obviously the order book will not show this data without the Footprint. A simple example of an iceberg is shown in this video. Better examples present themselves every day, but we happened to be recording the market when this occurred.
Iceberg Order from MarketDelta on Vimeo. For more information on MarketDelta Trader or to demo the software, visit http://www.marketdelta.com/products/trader/brokers. Delta Tracking and MeasuringThis 4 minute video shows how to use the traditional charts and trend line tool to quickly measure the delta of a particular move. You choose the start and stop point by simply drawing the trend line and it will calculate the delta over that start and end point. This would typically be used measure rotations in market or a swing low to swing high level, etc. Those that use this tool want to be able to gauge one move against another and use the delta, along with the total volume, to qualitfy trading opportunities. Two-month Market Profile since August BreakdownFor two months, the market has received much attention for its high volatility, dramatic drops, increased risks and uncertainty. We’ve brushed with “bear territory” as the news media like to often repeat, and have had significant intraday declines reminiscent of 2008. What’s a trader to do? Here is a very simple chart with two useful long-term indicators added to it. This is a daily chart since the August “crash” that shows two trend lines and a volume profile of all trades during the last two months.
The first notable event on this chart is the triangle pattern with lower highs and higher lows over many weeks. Most traders understand that on any timeframe, a contraction of volatility precedes a notable move in one direction or the other. You can clearly see on this chart when the breakout of the triangle occurred, offering strong reasons to expect further declines. In fact, selling the bounce back into the triangle was a good short setup with good risk-to-reward. Now we are at today, October 5. The market has enjoyed a good rebound yesterday and, as of 1:40pm Central, another nice rebound today. But where do we put this in context? One of the immensely powerful and unique features of MarketDelta is the ability to create custom volume profiles over any period you wish. Using the Profile tool, we can build a distribution starting at the August breakdown to the present and clearly see where the value areas lie in today’s market environment. We can clearly see that, at the time of this writing, the market is touching the Value Area Low of this last period of rotation over two months. In fact, in the last few minutes while writing this article, the market sold off 5 points from this level, so anyone shorting this Value Area Low would have enjoyed a decent scalping opportunity. But when looking at the bigger picture, it is easy to see that, despite all the dire predictions among the analysts, the actual market activity is telling us something: The point of control (POC) is at 1157.25, making that a very reasonable and probable trading price, and the top of the Value Area isn’t until around 1200. To demonstrate how successfully Value Areas capture and predict market rotations, here is another graphic of the same chart, but the Profile is drawn to end at an earlier date:
By only showing what the Profile looked like at the time you might have traded it, you can see very clearly how the Value Area Low at that time effectively captured the market reversal that moved from around 1130 back up to 1200. And actually, the distribution has been so normal that the value area did not change much over the course of the following two weeks, showing just how predictable all of this volatility actually is. These are volatile times, but you can often simplify all the uncertainty with some basic views of the greater auction taking place over many days.
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