High Volume Spike Reversal Indicator

[davem1979]

Dear Ninja Traders,

My Idea for this indicator began when I started noticing that when significant volume enters the market, many times this occurs at or near market turning points.

In order to more easily see volume's impact on price, I set out to start developing an indicator that would show greater volume than previous bars and confirmation of a pause and potential reversal by using a price pattern that would show potential weakness when the Volume Spike is at highs and strength when the Volume Spike is at lows.

I'm not trying to design this indicator to be traded solely on it's own without regard to trend, S/R, High and Low Volume areas, but it does many times pinpoint the start of the reversal. As well, I believe that by adding a few other conditions to this indicator that would take into account other volume indications based on Bid/Ask volume, such as the Delta (Buy Volume - Sell Volume) it would be possible to get some very nice trade setups that would work in conjunction with our own understanding of volume's affect on price.

The Parts of the Indicator:

Firstly, I am trying to determine what should signify high volume. I believe that volume is relative, and therefore some days 10,000 contracts in 5 minutes is a lot, and other days 20,000 contracts in 5 minutes is a lot. So, as of now I came up with the condition that if Volume is greater than the previous 6 bars, this should signify great volume. One can use whatever number they like, if one looks back 10 bars, you'll get fewer the signals, and if you look back only 2 bars, you'll get many more signals.

1. My first question to you is: How would you determine that a High Volume Spike is with "High Volume"? Do you have a method that would improve my very basic definition of High Volume that would weed out the high volume bars more reliably?

Secondly, I am trying to show a price pattern that shows rejection of the prices in the direction of the High Volume Spike. For Instance:

For a "buy signal", I'm looking for price on the bar after the High Volume Spike to close at or above the close of the High Volume Spike bar. As well, I am looking for a close on the bar after the High Volume Spike that is higher or equal to the open, and for the bar to close off of the lows. I basically ensure closing off the lows by this function (Close-Open)<(High-Low).

Here's the indicator as I have it now. I programmed it for Pro Real Time Charts, but am currently using a Ninja Trader Demo and have no idea how to program in Ninja Trader. If any of you are interested in helping out, I am sure the Ninja Trader community would really benefit as well...

Here's what I have so far:

--------------------------------------------------------
HIGH VOLUME SPIKE LONG SIGNAL

VolSpike=Low<=Low[1] AND Low<=Low[2] AND Close>=Close[1] AND Close>=Open AND (Close-Open)<(High-Low) AND Volume[1]>Volume[2] AND Volume[1]>Volume[3] AND Volume[1]>Volume[4] AND Volume[1]>Volume[5] AND Volume[1]>Volume[6]

VolSpike2=Low>=Low[1] AND Low<=Low[2] AND Close>=Close[1] AND Close>=Open AND (Close-Open)<(High-Low) AND Volume[1]>Volume[2] AND Volume[1]>Volume[3] AND Volume[1]>Volume[4] AND Volume[1]>Volume[5] AND Volume[1]>Volume[6]

IF VolSpike OR VolSpike2 THEN
structure=1

ELSE
structure=0
ENDIF

RETURN structure AS "VolSpike"

HIGH VOLUME SPIKE SHORT SIGNAL

VolSpike=High>=High[1] AND High>=High[2] AND Close<=Close[1] AND Close<=Open AND (Open-Close)<(High-Low) AND Volume[1]>Volume[2] AND Volume[1]>Volume[3] AND Volume[1]>Volume[4] AND Volume[1]>Volume[5] AND Volume[1]>Volume[6]

VolSpike2=High<=High[1] AND High>=High[2] AND Close<=Close[1] AND Close<=Open AND (Open-Close)<(High-Low) AND Volume[1]>Volume[2] AND Volume[1]>Volume[3] AND Volume[1]>Volume[4] AND Volume[1]>Volume[5] AND Volume[1]>Volume[6]

IF VolSpike OR VolSpike2 THEN
structure=1

ELSE
structure=0
ENDIF

RETURN structure AS "VolSpike"
---------------------------------------------------------

Lastly, I believe this indicator can be improved by including conditions that would show either Delta Divergence, or Delta shift from negative to positive for instance, for Long Trades. If we are looking for Long Signals, Delta Divergence could be added by requiring the Delta to be increasing positively into the signal bar, or a Delta shift would be for the Delta to go from negative to positive in the signal bar.

If any of you are interested in improving this indicator for Ninja Trader, and sharing, I would greatly appreciate it....

Regards,
David

[davem1979]

High Volume Spike Reversal Indicator Ninja Trader Version

Hi All,

A fellow coder (justlurkin) on www.traderslaboratory.com created a nice version of this indicator.

You can find the Ninja Trader indicator attached, as well as the code at the link below.

http://www.traderslaboratory.com/forums/f56/high-volume-spike-reversal-indicator-development-4515.html

Please feel free to add your thoughts on how we can improve this indicator.

Best,
David

[NinjaTrader_Ben]

Hello,

Thanks for posting!

[skynetman]

Hi, i'm trying to figure out a good volume based indicator too for S&P 500 intraday scalping.
What i'm looking for is an entry point based on a volume spike then 1-2 point moving stop loss (so that i can let profits run and cut losses close).

As volume are relative i want to try the condition if VOL>1.5*VMA(14)
I use minutes so it's 14 minutes average.

Does your strategy work on 1 minute charts too or goes crazy?

I need last year historical S&P 500 data for testing any idea where to buy them in NT compatible format?

[skynetman]

Guys i looked at the code.
Or something is wrong or half of the code is duplicated.

Check out the //HIGH VOLUME SPIKE LONG SIGNAL

Look at:

if ( (Low[0]<=Low[1]) && XXXX

and then after few lines the other if:

if ( (Low[0]>=Low[1]) && XXXX

As the rest of the IF condition is the same, the check on [1] bar IS USELESS and you can delete the whole second IF code after removing
(Low[0]<=Low[1]) && from the first if....

Same thing for the SPIKE SHORT signal.

Is it a bug or simply wizard generated bloated code?

[davem1979]

If you are looking for some free data with Ninja Trader you can sign up for the free demo at Mirus Futures. The E-mini S&P is included in the demo feed.

This indicator will work on anytime frame, though I seem to like it on the smaller time frames under 5 minutes, and it even looks nice on a 30 sec chart on the Euro Bund...For longer period time frames, you may find it necessary to decrease the lookback period from 6 bars back to 3 or 2 bars back.

Again, I'd like to say that I use the concepts in this indicator as a guide and use my understanding of support and resistance, VWAP, and high volume and low volume areas of price as well as Bid/Ask Volume/Delta to help me determine my entries.

What this indicator won't tell you is the context. For instance, if price breaks down from a range, this indicator may give a signal long to go back into the range, however, if the context is short, I will look for decreasing volume at the Ask, and for volume to be decreasing, and even better, a bar with more volume at the bid, showing potential continuation for the down move. I'd be more interested in going short on the pullback.

[skynetman]

Thx, davem, but i already have full real time broker data feed.
I need 10 year historical s&p with rollover to extensively test my strategies....

What about your code? is it all right?

I never used bid/ask volume delta....
I suppose it's the same as level II market depth analisys on NT, but how do you use it? Do you look at a fixed number of position in the ladder and sum the volumes to check where is the momentum?

[davem1979]

Alternative Volume Conditions for High Volume Spike Indicator

Skynetman,

I think your idea for trying this condition VOL>1.5*VMA(14) is a good one. And, if someone can program it in to test it out and see if it's a worthwhile addition, I think that would be great.

An idea I got from a Volume Spread Analysis text is to create standard deviations around a moving average of Volume. Say we take a 30 period moving average of Volume and then take 1, 2, 3, and 4 standard deviations around that number.

We could then come up with different conditions based around whatever moving average of volume you want. Say that if volume[1]>Volume(30 Moving average) + 4 Standard Deviations then this could be qualified as high volume.

Attached are two texts that I got the idea from Blu-Ray here: http://www.traderslaboratory.com/for...-and-3455.html

[Operandi]

Hi David

There seems to be some promising aspects to your indicator, so thanks for sharing it.

I trade stocks and when I tried it on a 1 minute chart for RIMM I found that the maroon bars seemed accurate in picking out the reversals at the tops of the trends, whereas the "long" reversals at trend bottoms were not so accurately detected by the algorithm.

I have issues in my automated strategy of detecting trend reversals at the top of the trend, so I'll incorporate your code to see how it works in my strategy.

I agree with you about bid/ask and delta volumes. They seem to be one of the most reliable determinants of automated order entry. In fact I don't use indicators in my automated trading as they don't provide the speed and accuracy of volume and price action.

Chris

[skynetman]

Hi David

I agree with you about bid/ask and delta volumes. They seem to be one of the most reliable determinants of automated order entry. In fact I don't use indicators in my automated trading as they don't provide the speed and accuracy of volume and price action.

Chris

Hi Chris, can you give me some hints about how you use bid/ask delta volumes?

[Operandi]

Hi Chris, can you give me some hints about how you use bid/ask delta volumes?

Sure, though this seems to be an area fraught with misinformation as orders are frequently placed at bid or ask into the order book and then withdrawn before they are executed. Also price can, and does, move even though there is no volume driving it.

The actions and manipulations of MarketMakers becomes apparent at this level of detail.

Things that you can look for are:

Changes to delta progression ie deltas becoming less negative as more volume accumulates at ask for subsequent bars

Changes to cumulative delta - gradually becoming less negative, for example as sentiment favours bulls

Determining overall sentiment by looking at the bid/ask ladder

I'm still trying to code some of these considerations into a coherent strategy, however testing is showing that looking at price, volume and therefore "trader sentiment" far outweighs strategies built around MA crossovers etc etc.

Hope that helps

Chris

[davem1979]

Bid/Ask Volume and Delta

Hi Skynetman,

As for finding decent data to backtest on, I would look into DTN IQ or Esignal for historical data with Bid Ask Volume. Maybe some other traders have some recommendations on this?

The code for this indicator is fine, and I believe it can be improved. At the moment, I am not using it for trade signals as in an automated entry system, though i do notice that many times near s/r areas I am interested in, it may confirm what I may already be seeing. Other times the code may just pick a pause in a trend. Maybe Operandi could share his experience with automation in how he uses bid/ask volume and delta.

Bid/Ask Volume and Delta are some of the most useful indications for scalping that I have found.

In the Indicators forum on Ninja Trader, you can find some nice basic indicators that show Bid/Ask Volume, as well as Delta.

For more info on Bid/Ask Volume and Delta: Have a look at this guys charts.

As for how I use all this volume information, this chart below along with the others posted by a guy on charthub.com should give you a good idea of Delta Divergence and Delta Shift in action and some things I like to look for in trade setup:

http://www.charthub.com/images/2006/11/27/ES_317_VB_3

As well you can find a ton of material on Bid/Ask Volume and Delta on the www.marketdelta.com website which may give you some ideas for some Ninja Trader indicators. There are videos too and many chart shots which will show you why it can be so useful.

[skynetman]

Hi Skynetman,

As for finding decent data to backtest on, I would look into DTN IQ or Esignal for historical data with Bid Ask Volume. Maybe some other traders have some recommendations on this?

Thx david, but i would need to pay the real time data feed to have historical data access.....
Besides NT does not import bid/ask volume data from historical files, only tick data.

Bid/Ask Volume and Delta are some of the most useful indications for scalping that I have found.

I'll study them and get back here asap but if i can't backtest them with NT it's useless.....
thx again

[mrlogik]

skynetman,

I believe the next version of NT will incorporate Ask / Bid volume data.

just FYI for the future.

thanks all for the great information here.

[NinjaTrader_Ben]

Hello,

What will be included in version 7 is not announced yet, but this is on the list of considerations.