Liquidity Tracker Initial Research

[TomB]

Hopefully there will be some user/developer examples of uses for this data. I have been watching it and have not seen how I can apply it. It does not lead the market or indicate a potential condition developing. It seems to change value with a slight lag. How can this be applied and what edge might this information provide regarding a changing market condition? Tx

[TomB]

Hi All: I have been reviewing the LT for several days and at this time I have not seen any examples of how to apply it in confluence with BM. This is my initial attempt to make sense of how this tool might be used. I have no idea if this example is meaningful or even a representation of how to use the LT. I am posting it to initiate a dialogue and to get your feedback, insights, examples on how to potentially use this tool. Tx TomB
(On Top of Chart Ex It should say, " Buyers Absorbed - Not Sellers Absorbed.")

[TomB]

I have reversed my colors going forward after the above example for the bid/ask so it is more intuitive. I think some ability to color the LT-Imbalance like the CVD might be useful as well as being able to flip it 180 degrees so it moves along with the market direction vs opposite. It just makes it easier to read, at least for me, since it's behavior reads like most other colored indicators. I am not using it as a cross-over signal but rather as a condition within the overall context. I think it has good potential.

[TomB]

Here is a Screenshot of behavior between the Bid/Ask and the LT-Imbalance. I have switched the colors of the Ask to Green and the Bid to Red. That seems more aligned to me. The White LT-Imbalance is White and moves counter to market direction - hopefully that will be able to be adjusted so it moves in the same direction as the market - more intuitive imho.
The screenshot is self-explanatory. Of course this is not a buy/sell indicator - I would never use it that way but if you put it in context it can be useful. Like all indicators it does not lead the market but with MBO data it is as close as you can get to a very responsive/real-time measurement. The screenshot shows a skew mostly to the sell side for this period and other than counter rotations - which you can see in the change in the White LT-Imbal, it favors the short side - as I see it. Your thoughts, comments will be appreciated as well as any observations you may have to share - TomB

[TomB]

Here is some further research on the ES using LT with some alignment with the SI Detector. I have put some of the variable values/data points in to try to see what is significant, what has alignment and what is noise. Also, I am considering divergences when market returns to an area and the behavior of SI or LT is different. I have also switched the LT to the imbalance setting since having the LT Bid/Ask was just too much for me to process in real-time. I have been studying this and I do see significant potential when it aligns within the time-frame and context traded. I will post more when I get more clarity. As always, your comments or examples would be appreciated. Tx! Tom (The data boxes are color coded to the indicators -where there are question marks it is in reference to how significant the value is on its own or how it compares to a previous price level when there is divergence in the value)

[Bruce]

Hi Tom,

These images and your annotation is excellent. Do you have a Twitter account? If so, please post them. I'd be happy to retweet them and share with our followers so everyone can learn from your insights. Excellent work!

best,

Bruce

[TomB]

Tx Bruce for the encouragement and kind words.

Here is a look at a short term rotation sequence from FOMC Day 7.29.20 One of the things to observe is how the behavior of the book changes in relation to the context of the market. At times the LT will indicate that the market is exhausting in various time-frames and will potentially rotate as the book shifts from Bid to Offer. At other times the book will be absorbed by the aggressor. I think this is an important distinction and is useful insight to the evolving context.
 

[TomB]

This is a illustration of a short term ES Mean Reversion trade using SI/LT Tracker and Volume Profile for Context. The SI/LT provides good insight as to the underlying market dynamics. The profile provides the context and potential location to stalk the trade. Hope it is helpful.

[TomB]

This is an Ex of a Continuation Trade using Vol Profile for Context and Trade Location and fine Tuning Using SI/LT Tracker. Entry was against Liq/LVN of Upper Distribution with Target NVPOC 3248 ish..

[TomB]

Market Exceeded NVPOC target going into the close.