TradeFlow Studies
TradeFlow studies running with the TradeFlow charts provide traders with additional insight into the degree that traders are buying by lifting the offered price or are selling by hitting bids.
Here, we will look at some examples of these two studies: TradeFlow Volume (TFVol) and TradeFlow On Balance Volume (TFOBV).
TradeFlow Volume breaks down the trades into actual volume of trades at the ask price and at the bid price. The study displays green histogram bars for the total volume of trades executed at the ask price (buying) and trades at the bid price (selling) for the TradeFlow bar.
TradeFlow On Balance Volume is a running net sum of volume of trades at the ask price minus the volume of trades at the bid price. This is a superior view to the classic On Balance Volume (OBV) study used with standard price bars built on time (i.e., 5-minute bars).
The classic OBV study uses the total volume from the bar, and if the close is greater than the previous bar, then the volume is added to the OBV line. If the close is less than the previous bar, then the total volume is subtracted from the previous value of the OBV line. You cannot tell just how much volume was buying or selling. It is assumed that if the bar closed up, then it was all buying. However, imagine a market that was knocked down on some negative news, but traders came in and started buying and the price rallied. Let’s say the market was recovering, but the close of the bar occurred before the price rose above the previous close. The classic OBV study would have subtracted all of the volume from the previous OBV value misrepresenting the amount of buying. On the other hand, the T4radeFlow On Balance Volume study use buying minus selling volume, and therefore represents what trader are doing.
Now, let’s look at some examples. All of the examples are using a 5-tick range aggregated TradeFlow chart and studies.
Our first example is the E-mini S&P 500 contract. The market has been trending higher and the TradeFlow On Balance Volume line was trending higher, as well. At points A and B, traders started hitting bids but the buying was still greater as indicated by the TradeFlow On Balance Volume line continued to climb. At point C, the TradeFlow Volume study displays red histograms with consecutive less negative reading. In other words, sellers were hitting less bids and the market continued to advance.
The next TradeFlow chart is the Ten-year T-note traded on the E-CBOT. Comparing the TradeFlow bar action to the TradeFlow On Balance there is an example where the market was able to trade above a previous intraday high and the TradeFlow On Balance line failed to climb. This implies buyers were very aggressive because they pushed the market higher despite the higher number of bids hit relative to the offers being lifted, otherwise the TradeFlow On balance Volume line would have climbed, not moved lower. But, once that buying was finished, the market traded lower.
Our last example is the Crude Oil contract traded on Globex. First, there was a point where traders swept the market. This is a situation where traders lifted all of the offers. When the market is swept, the range aggregation TradeFlow bar will expand beyond the maximum range (here five ticks) to indicate the market was swept.
The right-hand sign of the chart displays taller green TradeFlow histogram bars relative to the red histogram bars. That is a sign of aggressive buying. In addition, the TradeFlow On Balance Volume line was rising, which is another sign of buying pressure.
TradeFlow bars and TradeFlow studies keep traders informed as to which traders are the more aggressive, the sellers or the buyers. This information should help improve your trading decisions over the classic bar and studies available because they only give you the last price, not whether a trader hit a bid or lifted an offer.