Nov 182010

I was asked if I used cumulative delta as an entry criteria.  I thought I’d share my answer here.

I do have cumulative delta on my chart but I do not find it useful for divergences. If one looks in hindsight you will often find divergences at turning points. But real time you will find the divergences disappear often. For example yesterday 14 minutes after the open there was a CD Div but a few seconds later sellers pounded it and it dropped several pts. So I have not found it reliable real time. I may be missing something so if anyone is using it successfully then I’m interested.

You can look at your charts to see what happened next. There are way too many holes in the theory of divergence. For one the delta depends on participation which varies by time of day. Another is many pros use both limit & market orders.

I even took the bid/ask off my ladder and just look at the total volume.

So what is the use of CD? Frankly I’m very tempted to take cumulative off and save a lot of screen space. But what I look for is just to see which way the market orders are coming and try not to fade them unless I have a good setup.

The problem with divergences, and this is the main reason I dropped Better Momentum, is they tell you what’s happening NOW in relation to the past. Ok so shorts are less aggressive right NOW (see the chart above). That doesn’t mean they won’t be more aggressive 1 second from now.

As we look at divergences on a chart it seems so obvious in hindsight. That’s because the ones that failed disappear and we don’t see them. If one goes through a day scrolling bar by bar you’ll see what I mean.

If anyone is finding cumulative delta useful, please let me know how you’re using it.

  7 Responses to “A question about cumulative delta”

  1. I use CD and an SMA (9) of the CD. It shows me how aggressiv a move is. Combined with the overall volume it helps me to determine if I should look for a retracement trade after a move. And I never fade a move which indicates a retracement trade – this goes without saying.


  2. Thanks for sharing how you use it. Can you explain “I never fade a move which indicates a retracement trade” ? It’s not clear what you mean.

  3. Hi Michael,

    here’s a chart:
    You see a move with a lot of volume after the news release. The CD SMA is also upswinging. This let me look for a retracement trade. In this case I went long at 2853 and scaled out at 2857 and 2855, reenterd at 2852 and scaled at 2854. Hope this helps.


  4. Ok so what you’re saying is you don’t fade a strong move? That’s how I use delta too. Didn’t know your twitter nick, now I recognize you. 😉

  5. Yes, I am the guy who asks FT71 one question and gets a lot of response – LOL

  6. Hi Mike, Check out back page of today’s Times. Talks about one of the British athletes Jessica Ennis and her magic number for success for the 2012 Olympics. Any guesses on the number ? Yes 10,000 ! Even refers to Gladwell and the Ouliers book.

  7. Jason – very cool thanks for sharing.

    If I had known that it’d require 10k hours when I started trading, I wouldn’t have started. I would have kept my consulting business. I was so naïf back then. But now that I’m over 2/3 the way there, might as well continue.

    I remember an interview I read with Linda Radschke. She said if a trader is still around after 2 years they have a good chance of making it. At 8 hours/day that’s approximately 4k hours.

    I remember when I got my first curve fitted over-optimized system working. Worst thing that could ever happen to me was it made money the first few weeks. I thought it was going to be easy.

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