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What is “Delta”?

April 5, 2018 in

Delta is a term originally coined by MarketDelta back in 2002 when we created the Footprint Chart. We needed a way to describe order flow and nothing existed because it was new territory for everyone at the time.

Delta is the net difference between the buying and selling at each price (footprint delta), each bar (bar delta), or the the entire day (cumulative delta).

Delta is calculated by subtracting the volume transacted at the bid price from the volume transacted at the ask price. MarketDelta considers trades that occur at the ask price to be trades initiated by aggressive buyers. Trades that occur at the bid price are considered to be initiated by aggressive sellers.

Thus a positive delta would reflect more aggressive buying as the result of motivated buyers trading more at the ask. A negative delta would reflect more aggressive selling as the result of motivated sellers trading more at the bid.

Calculation: Ask Traded Volume – Bid Traded Volume = Delta.

The components required to calculate delta are: bid price, ask price, last trade price, last trade volume, time.

Example: If the bid price for WTI Crude Oil is 63.50 and the ask price is 63.51 and 25 contracts trade at 63.51, then the delta would be counted as +25. If a second trade occurred but this time the trade occurs at the bid price of 63.50 for 10 contracts the delta for that trade would be -10 and the total bar delta would now be +15.

Footprint Delta

This is a close up view of delta because it looks at a single price or group of prices (if the price scale is compressed).

The value is positive or negative. A positive delta will have a green background and reflect “positive” order flow as the result of buyers being more aggressive at that price. A negative delta will have a red background and reflect “negative” order flow as the result of sellers being more aggressive at that price.

There is a high correlation between price direction and order flow, therefore having the ability to see the footprint when trading is a valuable tool for the astute trader.

Bar Delta

This is the the sum of delta for each bar. So no matter the time frame or interval of chart you are viewing, the software totals the delta for each bar and displays it at the bottom of the chart as a histogram or numerical value. Below are 2 different ways of displaying the bar delta.

The bar delta is positive or negative. A positive delta will have a green/blue background and reflect “positive” order flow as the result of buyers being more aggressive for a particular bar. A negative delta will have a red background and reflect “negative” order flow as the result of sellers being more aggressive for a particular bar.

One benefit of bar delta is it takes a step back from the the price by price footprint delta and allows you to focus on the order flow for the entire bar. A good way to use it is to compare the bar delta with the price direction of the bar. Is there a divergence? Another way is to look at a series of bars and look for patterns.

Volume Study

This shows the bar delta as a histogram.

Footprint Bar Statistics Study

This shows the bar delta as a numerical value in the row labeled “Delta”.

 Cumulative Delta

This provides the biggest picture of delta because it spans the entire session or day. So no matter the time frame or interval of chart you are viewing, the software totals the ALL the delta’s and displays a running total. Below are 2 different ways of displaying the bar delta. However, it can also be displayed using the Footprint Bar Statistic study and adding the “Delta Day” row.

Cumulative Delta is called Delta Day in the software and is either positive or negative. A positive delta will have a green/blue background and reflect “positive” order flow for the session as the result of buyers being more aggressive for the current day. A negative delta will have a red background and reflect “negative” order flow as the result of sellers being more aggressive for the current day.

One strategy of applying cumulative delta is to use it to help determine which side to trade from. When cumulative delta is positive it reflects buyers have been more aggressive over the course of the session. When cumulative delta is negative it reflects sellers have been more aggressive over the course of the session. It is a very useful tool to confirm price direction.

Delta Bar Study

This shows the Delta Bar study set to accumulate. It is unique because it shows the range cumulative delta had for each bar and provides unique insight.

Volume Study

This shows the cumulative delta as a histogram.

Next Step

Your next step in learning should be to watch the video below. It will introduce you to Footprint charts and explain how they are constructed and help you grasp a better idea of delta.