Bar Delta Has To Be Taken In Context

Posted by on Aug 24, 2015 in Blog

Delta is a term used by order flow traders to define the net buying or selling that took place for a given bar. It is calculated by using tick data and seeing who initiated the trade, either the buyer or seller. If more sellers initiated the trade, then the delta is considered negative. If more buyers initiated the trade, then the delta is considered positive.

The reason delta is important is because you can determine the strength of a trend based on volume. As price trends higher you would want to see positive delta which is a sign of buying driving the price. The opposite would be true for a market trading lower, there should be sellers driving the price which would translate into negative delta.

If a market is consolidating or range trading, the delta number generally will be a low number, depending on the market it could be less than 100 when normally it is over 1000, and will bounce around back and forth between positive and negative.

There will be times when the delta is very close to zero which is a sign that there is an almost equal amount of volume trading on both sides of the market. This is called absorption and is usually a place where supply and demand can shift and a new trend start.

Delta is also relative to the type of chart and what part of the trading day you are looking at. If you have a 1 minute chart up, the delta can be very low just because there might not be much trading going on. The same can be said if you are trading in the evening or early morning sessions, before the old regular trading hours start. Those times of the day generally have little volume trading so delta will be small.

If you are looking at a 10000 volume E-mini SP chart and the bar has a delta of 100, that would be more important than a 5 minutes chart where the total volume traded was 1500 lots and the delta was 100. You have to take the delta in context to what kind of chart you are using.