Posts Tagged ‘tick_chart’

Sponsored Indicator: DaVinci Trade Rate

April 16, 2009

I was commissioned to create an indicator for a donor. After this indicator was developed, the donor generously allowed me to share it with the blog at large.

The sponsor is DaVinci Trading. When they have a website, I will post a link, but for now, they just have a name. 🙂 As this is a sponsored indicator, please include the full name and source code (including the credits) if you share this script with anyone. Thanks!

The DaVinci Trade Rate is designed to track trade speed on tick charts. Here’s a picture of it in action:

2009-04-16-tos_charts_thumb1

This is a 133 tick chart, so each candle is made up of 133 ticks on the tape. The DaVinci Trade Rate is showing a 3 bar exponential average of the speed of each bar, in bars per minute. As an example:

If a bar opened, and then 10 seconds later a new bar opened, the first bar traded at a rate of 6 bars per minute: 60 seconds per minute / 10 seconds per bar = 6 bars per minute.

Then, an exponential average of these speeds is calculated to smooth out the one-off spikes. (Default is 3; If you put in a period of 1, you get the actual calculations with no averaging.) There is also an option in the indicator to watch the volume rate per minute instead of just bar rate. If you want to see both, put the indicator on a chart twice and set each to a different setting. Green and red colors correspond to the candle color (up or down), while yellow indicates speed below the threshold value.

The theory of how to use this (so far) is two fold:

1. In times where the trade rate / volume rate is very slow, trade is likely to be choppy and erratic. If you set the threshold value to what you consider to be the minimum speed for your timeframe, then when the speed is below that value it helps to filter out times when the markets are likely to be dead and drifting.

2. If you set the threshold higher, when a large spike in trade rate / volume rate is seen, this can indicate either the start of a new trend, or the climax of an old trend depending on the context.

Look again at the summary plot above. See where the speed is yellow and getting slower, then POW! Huge green spike. The yellow shows trading slowing down as we approached the (then) high of the day. The spike happened as we plowed through it, and price fell back down. It seems that buy stops got run, and then new shorts piled on. It turns out that this was a great place to initiate a short position–to fade the spike. It was an extremely high rate-of-liquidity point, both in number of trades and volume. It didn’t turn out to be the high of the day, but it was a swing high.

This can be a bit subjective, but I noted 7 spikes in the DaVinci Trade Rate from today, indicated by grey ovals on this chart of the NQ:

2009-04-16-tos_charts

You can see how most spikes indicated a local top or bottom. The spike near 9:45 CT was a bit early, but it was also sloppy, with a gradual increase first rather than an extreme spike. Another near 13:15 CT was not confirmed by the volume, but I don’t know yet if that is important. The last one during casino hour at the end of the day actually indicated a breakdown, at least for a few minutes. This thing probably goes haywire in the first and the last half hour of trade, so I wouldn’t trade from it then anyway. Note that 15:00 CT is the market close, but the futures trade for another 15 minutes–with wild abandon today.

Please try this out and post any feedback or testing results you may have! I think that we all become better traders by sharing insights.

To get started with the DaVinci Trade Rate, you can download the script file at my Google site!