- How to use the delta (cumulative delta) for the price analysis?.
It compares the value of the momentum and correction, that is, the behavior of prices and the delta.
- Two options are possible:
1. The movement of price and the cumulative delta correlated.
2. The movement of price and the cumulative delta do not correlate.
- On the first point everything should be clear. The movement is the trend. No bias there. The situation is developing in the "normal" mode.
In the second case, there are two possible scenarios:
1. Delta falls more than the price. From this we can conclude that consumers may have given up the slack, and sellers are increasing their position. Therefore, buying in this case - a risky event.
2. Here, the delta is almost subsided. The market bulls reign. A strong buy signal and the continuation of the upward movement.
All of the above is relevant to the bearish movements.
Once the delta begins to unfold on the previous motion, we can look for an entry point.
For example, when the price is at a standstill, and the delta continues to go, it is expected further developments. This situation is not entirely clear, either clever gaining position and do not give the price to go up against himself, and then "release price" for the former course or gaining a position in the opposite direction.
- In this aspect, a divergence is understood as classic divergence, which can be easy to find for the price and any derivative of the price indicator. In this case, in addition to the price used delta (delta = ASK - BID). Delta does not depend on the price, and therefore it is self-analysis tool.
- Delta shows the current market sentiment. Of course, for clarity, use the cumulative delta. In most cases the delta curves follow the price. But this does not always happen. Sometimes there are so-called distortions between the price and the delta, when the price rises / falls, but delta decreases / increases at the same time. This situation is called the divergence of price and delta.
- The meaning of the divergence of price and the delta is that the "big money" begin to close their positions or to gain a position in the opposite direction. The cumulative delta due to the divergence of the signal clearly gives us to understand this. As a rule, the divergence of price and the delta indicates the end of a trend. A very strong signal that should not be ignored. Due to the divergence can offer further developments in advance.
Let's examine the current situation on the major currency pairs.
- The last 4 weeks of the Australian forms a kind of a triple top with ressistance zone 0.7650-0.7700, reluctantly moving up. This can be seen more and more negative delta, which indicates the activity of the sellers. There is a divergence between the price and the delta. So waiting for moving down soon.
- The divergence of the signal should look at any support / resistance levels, where price is the chance of a reversal / correction. For example, trading around the level delta can show which side it terminated. When approaching the level of the volume delta will give a tip, will it turn back or breakdown. A good example of that I described in the previous article with the Euro. The price was in the range and volume was accumulated. And while cumulative delta decreased. What gave way out of the flat down.
- -Divergence - an additional signal, which must be confirmed.
- -By the divergences we see fixing in the trend.
- -Sometimes in momentum carries against the price movement.
- -Divergence is not instantaneous signal, it is sometimes several in a row.