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Liquidity tracker

1,792 bytes added, 11:23, 5 February 2019
Advanced tips and tricks
== Advanced tips and tricks ==
=== Computation complexity ===
The indicator computation takes little CPU resources. The most efficient computation modes are exponential and uniform full depth. In other computation modes (uniform N levels and 'sigmoid'), the CPU time is proportional to number of accounted price levels.
=== Indicator's lag and temporary smoothing ===
By default, there is no lag. At each moment the indicator displays the liquidity and its imbalance based on the state of order book (market depth) at the same moment. To be precise, there are just two causes of temporary lag:
* Computation frequency settings. For instance, if set to 200 milliseconds, then the lag is between 0 to 200 milliseconds, plus the latency from the exchange.
* Smoothing the lines obviously adds a lag. In effect, like any other moving average indicator, it displays the average value for the moment T/2 ago where T is the selected smoothing parameter, i.e. sliding window.
=== Filter by order size ===
TODO === Indicator's lag and temporary smoothing ===TODOThe order size filter allows to define which orders participate in computation. Because this feature requires precise market-by-order (MBO) data, is enabled only with CME data by Rithmic. The computation is applied on actual sizes of orders, but the filter is applied on maximum size of order during its lifetime. See more details here: [[Advanced_CVD#Order_size_of_passive_orders|Order size of passive orders]].
=== Avoiding illusionary imbalance ===
=== Interpretation and trading techniques ===
TODOThe indicator provides true measurements of liquidity, but it isn't a buy / sell signal. Its interpretation is the art of trading. Let's assume a significant imbalance where the bid liquidity is is much higher that ask liquidity. If new aggressive orders are equally distributed between buyers and sellers, the price is likely to move up, i.e. following the least resistance path. But if there are market participants who actually look for high bid liquidity in order to sell, then the price may go down.

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