Smoothed TradeFlow Aggregation
CQG 7.5 is providing traders with analytics built on the market transparency available from the exchanges electronic order book. TradeFlow was CQG’s start, and Order Ticker, Pre-Trade Analytics, and other features have been added to 7.5 to provide traders ways to use the market information now available.
One challenge active markets are producing a great deal of price information at a very rapid rate. That means if you are looking at single TradeFlow bars, the velocity of information can be very high. An aggregation feature is available to compress the market information. Three forms are available: bars, range and smoothed. The aggregation levels can be set to one out to a maximum of 20. Here, we will look further at the Smoothed TradeFlow aggregation.
This chart shows one-minute open-high-low-close bars of the e-mini S&P 500. As I have said before, the typical bar chart just shows the last price. Not knowing whether a trader hit the bid or paid the offer to generate the last price is trading in an information vacuum.
This chart is a three-bar smoothed TradeFlow chart of the same period as the one-minute OHLC chart. The first thing I notice from this chart is the smoothed TradeFlow bars emphasize the trend. And, there is a tendency for the market trend to reverse, or to move into a sideways trend when the smoothed TradeFlow bars trace out a pivot high or pivot low. Pivot highs and lows are a three bar formation. I labeled one pivot high as an example. I think of smoothed TradeFlow bars as a good indication of the trend, and then look to other TradeFlow setups, such as a three-tick range TradeFlow bars for a entry setup.
Smoothed TradeFlow bars can be used with studies. For example, this chart has the new DOMTracker study (available in 7.5). This study tracks what traders are doing away from the inside market. I have highlighted when the ask order volume line and the bid order volume line cross. The market tends to trend down when traders are increasing bids under the market (the green line is rising) and the market tends to rise when traders are increasing their number of offers (the red line is rising) in the order book.