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I recently came accross a wonderful educational site call TeachMeFutures.com that has a ton of free content and videos that could keep traders of all levels occupied for hours. Well lucky for me the first one I watched was a video done by Dr. Brett Steenbarger entitled “Assessing Market Psychology”.

I can’t recommend the video highly enough as it is chock full of great information about how to identify transitional structures in the marketplace (aka: Tops & Bottoms). Watch the video for a much more detailed description but in short Dr. Steenbarger identifies 4 major events to keep an eye out for that signify tops & bottoms.

1.) Momentum Extreme: When the bulk of the move and volume pushes price higher
2.) Price Extreme: Often price will continue to move higher but there are quantifiable signs of slowing momentum.
3.) Exhaustion: Marked as price tries to push to new highs but is unable to do so.
4.) Reversal: Bears (in the case of a reversing uptrend) step into the market to take their turn in the other direction.

What was interesting to me was how he quantified & identified each of these stages using a Market Delta chart. I’ll have a little more to say about MD in a second, but first lets get to the play:

The above chart is a 5-minute chart of today’s ER2. After an early rally, price had been falling all morning to this level where it gave off the signals that I interpreted to signify that a reversal was imminent. You can click on the chart to enlarge and see my more detailed annotations of the 4 specific things to look for per Dr. Steenbarger’s methodology.

This play couldn’t have worked out much better. In fact with his particular play, it showed a profit right from the first entry and never looked back.

What it is that Market Delta measures is the difference between the number of contracts being traded at the Bid versus the number being traded at the Offer. It operates under the assumption that aggressive buyers will want in badly enough to take out the offer price and this will eventually propel prices higher. So the numbers at each price level represent how many contracts go of off at Bid/Ask.

The Market Delta Footprint at the bottom of each bar is basically the cumulative difference of these numbers for the entire bar. When put together, this additional info acts like an X-ray into each bar so you can see what’s really going on.

To get Market Delta information, you can go to www.MarketDelta.com and check out a free trial of their software for a month. For those of you who have TradeStation, you can simulate the Market Delta information on a chart with a PaintBar Indicator. Click here to Download the Market Delta Indicator that I use. To donwload the indicator, you may first have to register with Traders Laboratory which only takes a second.

Anyway that’s my schpeel on Market Delta. I hope it may be of some assistance to at least some of you. I know I’ve found in tremendously useful in just the short time I’ve been using it.

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