The Big Trades, Imbalance and Speed of Tape for level trading

It is very characteristic that some price levels at the beginning of the trading session coincide both for the Big Trades and Stacked Imbalance indicators. Significance of coinciding levels is higher.

We again see the entrapped traders, who bought at the local high, in point 1.

These traders, most probably, close loss-making positions in point 2. We marked additional levels, which we didn’t see in the chart using the Big Trades indicator, with red lines in this chart. Both buyers and sellers were active at the bottom level in the second half of the trading session.

We caught two reversals in points 4 and 5 at the upper level with the help of the Stacked Imbalance indicator. The reversal in point 5 could have brought us a big profit because buyers didn’t resist during the price decrease.

We see a fight between buyers and sellers in point 6. In such cases, follow the latest imbalance or stay out of the trade until the picture becomes clearer.

We again see a fight at one level in points 7 and 8. The price tests this level 5 times minimum. And we saw it long ago, that is why we have an advantage, which could be converted into profit trading short-term trades.

Point 9. Either inexperienced traders got into a trap here or the traders who bought in point 8 closed loss-making positions.

We found additional levels and saw 2 significant reversals with the help of the Stacked Imbalance indicator.

Now we will consider the trading session at the angle of the Speed of Tape indicator. We will change settings because we want to see the following separately:

• tape acceleration during sells;
• tape acceleration during buys.

We will add two indicators for this. We will select ‘sells’ + ‘blue colour’ as a filter for the first one and ‘buys’ + ‘yellow colour’ for the second one. The candles, in which only buys or sells will accelerate, would be especially interesting with such settings.

Let’s think in what cases trades in the tape would accelerate – very often during activation of the market entry orders – stops or takes. Especially if these orders are grouped at obvious levels. We even wrote a separate article about cascade stops.

The levels, which the Speed of Tape indicator showed with our settings, coincide with the Big Trades and Stacked Imbalance indicators and this confirms their significance once more.

We marked the candle, in which only sells accelerated, with point 1. These could be both new orders or a partial registration of profit by long positions.

Sells accelerated again in point 2 at the same level, but buys also accelerated. Most probably, absorption takes place in the marked fragment because the price in spite of the sells didn’t fall. Limit buy orders absorbed market sell orders and new market buy orders were posted.

We marked the candles in point 3, where buys accelerated first and only then sells accelerated too. Sellers won and the price went down.

Again, at the beginning of the trading session we marked the levels, which the price tested several times, with the help of the Speed of Tape indicator.

Trading is the work with probabilities. You do not know what happens next. The levels reduce the risk.

Now, let’s look at CME. We will work in the range US 0/2/6 chart with an E-mini S&P 500 futures (ESU9). These charts are not connected with time, but it is more difficult to build them than the tick ones. 

We use Big Trades with the autofilter in the first chart.

It is a very vivid example of the work of limit orders or managed money. We built two levels:

• by the first entry of buyers – the lower red line;
• by the highest activity of buyers and sellers – the upper red line.

We marked activity of sellers, which produced no result, with points 1-4. That is, in spite of the sells, the price didn’t fall but even grew. We wrote in detail why this happens in the article about the order flow. Limit orders do not let the price go down and they absorb all market sell orders. The Big Trades indicator will help you not to fall into the same trap 4 times one after another.

Finally, the traders, who noticed the price growth, woke up in point 5. It is obvious that they didn’t use our indicator. But those who bought significantly earlier already started to register their profits. Perhaps, new sellers also decided that it was a good moment. In this example, we have the levels and also a clear understanding that we shouldn’t open short positions. To get a stable profit we need to go together with the market and not against it. Even the most conservative and unconfident traders could have entered into a long in point 4.

Let’s consider the situation from a different angle using the Stacked Imbalance indicator.

The picture is completely different here. We do not see imbalances of sellers at all, however, we see multiple imbalances of buyers.

We marked imbalances of buyers at one level with points 1 and 2.

We marked the following imbalance with point 3. Here we could have entered into a long position because there are still no sellers. In this case the Stacked Imbalance indicator supplements the Big Trades indicator and helps a trader to feel himself reassured when holding a long position.

Let’s check the Speed of Tape indicator. We add two indicators again to see buys and sells separately.

This indicator shows a very similar picture to the one we saw using the Big Trades indicator.

Sells accelerate in points 1 and 4 but the price doesn’t go down.

Buys accelerate in point 3 very closely to the level we marked. Sellers preliminary win in point 2. But they don’t celebrate long. The level we built holds the price.

The levels which we built with the help of Speed of Tape supplement the previous charts and the market situation is similarly transparent.