Continue reading...Whilst I generally shudder when I recall my first naïve steps in the world of trading and the hoard of indicators I had on my charts, there is one indicator I feel stands apart from the rest. It’s not based on price and so represents an additional dimension on which to make decisions. I also think it is a very close relative of tape reading. In this article, we will look at some of the basics of using Cumulative Delta.
The Delta Theory Simplified
For a trade to occur in the markets, we need two things – a buyer and a seller. Price does not move down because there are more buyers than sellers. This is impossible, for every buyer there must be a seller. Price moves down when sellers are aggressive and buyers believe that sellers are willing to settle for a lower price. After all, why buy for $10 when you think you’ll be able to buy for $9 later?
Not all buyers and sellers are equal. For example, liquidity providers get paid to buy and sell using limit orders. Some...
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