Imbalance: why the size matters

Imbalance: why the size matters

Imbalance is a significant difference in the sizes of the asset buy and sell orders, posted by the futures market participants. Perhaps most of you have heard a funny statement that ‘size matters not’ in relation to different types of activity. However, the futures market is definitely not among them since they are governed by ‘monster trucks’ of institutional traders.

When a monster truck (a rebuilt or specially built truck with huge wheels and powerful engine) rides over a wrongly parked motor car, an imbalance is evident and often you cannot do anything about it.

The same is true about the trades of institutional traders in the futures market. Their orders are standing in the wings with the ‘working engine’. They are big and powerful and you’d better not stand on their way when they take off, since ‘monstrous’ trades of institutional players easily ride over small trades of retail traders, parked on the wrong side of the market. Institutional traders care little about what happens under the huge wheels of their big trades, that is why you need to find a way of their early detection so that your trades would avoid the destiny of the motor car from the above example. In this article, you will learn about one powerful instrument of the trading and analytical ATAS platform which will help you to do it.

In this article:

  • What are imbalances and why are they important?
  • How to find them?
  • What is good in being able to see monster orders?
  • How can you benefit from it?

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What are imbalances and why are they important?

Monster trucks are driven by powerful engines of hundreds or even thousands of horsepower. The futures market is driven by ‘horsepowers’ of monstrous volumes of institutional money. The power of this drive is limited only by a degree of the effort applied by institutional players to the accelerator pedal and the fuel comes in the form of big orders.

Strong imbalances can appear between aggressive buyers and sellers when a big interest of institutional players emerges in the market. They could be very significant in volumes and cover a wide range of prices.

There is a question: would you like to stay in a motor car watching how a monster truck, the driver of which floored the accelerator pedal, is rushing in your direction? You would hardly wish your trading capital to be on the wrong side of the market and consequently on the way of movement of big institutional trades, especially when they move simultaneously in one direction.

How to find them?

It’s quite easy to identify when a monster truck starts movement and in what direction it will move. All you need is to watch attentively.

When the capital of institutional players actively acts in one direction, imbalances could be seen if you look inside a candle. It is not difficult to do it but you will need the best technologies collected in the advanced trading and analytical ATAS platform which you can download free of charge using the link at the beginning of the article. As soon as you manage to remove jackets from candles in the candlestick price chart and look inside them, you have access to the imbalance analysis.

15-minute EUR futures (ticker: 6E) chart. Bid x Ask Imbalance footprint chart

15-minute EUR futures (ticker: 6E) chart. Bid x Ask Imbalance footprint chart

What is good in being able to see monster orders?

Perhaps you already noticed that institutional players, before working up a focused movement, work out the same price levels. The chart below shows their consecutive actions on the whole range between the price quotes of 1.23950 and 1.24065. The ATAS platform allows to mark imbalances by bright colour which will help you to assess without much effort who’s got the initiative and, consequently, in what direction the market would, most probably, move.

15-minute EUR futures (ticker: 6E) chart. Bid x Ask Imbalance footprint chart

15-minute EUR futures (ticker: 6E) chart. Bid x Ask Imbalance footprint chart.

Now you can see how easy it is to detect really big imbalances that emerge in the futures market in the real time mode. When several big imbalances appear in the chart in a row they form a stacked imbalance.

You can also see from the above chart that a significant part of aggressive trades are executed by buyers. Their aggressive actions are displayed in detail in the right part of the two lattermost bars. Aggressive buyers practically simultaneously floored the accelerator pedals which resulted in the emergence of the biggest number of stacked imbalances coloured bright green. If you would have watched how these imbalances were formed in the real time mode, you would have several possibilities to open a long position alongside with monster trucks of institutional players.

How can you benefit from it?

It is not simply easy to notice monster trucks, it is simply impossible to miss them due to advanced technologies of the ATAS platform. Monster trucks are huge and are coloured in bright colours which you had an opportunity to see for yourself.

The market imbalances are hidden inside candles. It doesn’t mean that you cannot look inside of them. You can attach bright colours to them in the ATAS platform settings like monster trucks of the futures markets, which they are in reality. After that they will always be within the field of your view.

As we already demonstrated in the first chart, you can do it quickly and easily. You just need to select Bid x Ask Imbalance in the Bid x Ask section in the menu to the left from the chart window. Such a presentation of the futures market data is a very efficient instrument in the hands of a retail trader which helps him to detect such institutional monstrous trades in time.

If you suddenly noticed that imbalances had been formed against your trade, they would most probably ride over it with their huge wheels. However, if a stacked imbalance looks into your direction you just will not be able to avoid losses. Having jumped into the cabin of an institutional monster truck with one of your trades, you will ride over a trading deposit of some retail trader who, unlike yourself, has no idea about imbalances and, consequently, about the majority of advanced instruments of the market analysis of the ATAS platform! As a result, you will most probably need your own real monster truck to take your profit to the bank depository.

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