Hi,
I'm a data scientist by trade, don't work in the quant industry, but nonetheless enjoy exploring market data. I have young children so it's a brief bit of escapism for me.
I've recently purchased a small amount of level 2 data (for ES); circa 3.5GB per day worth of data.
I like the idea of monitoring the balance between volume of bids versus the asks (10 levels each side), to see if this provides any indication about future price movements. I am not trying to anticipate the next tick but rather, perhaps the path of price for the next few minutes or so. My instinct tells me the signals I am hoping to find will be rare (if exist at all), perhaps occurring a handful of times in a month.
With my limited spare time, so far I have been assigning a sliding scale of weights to each level (highest weight for bids or offers closest to the trading price), computing the weighted sum of each side, and then a rolling average of each side (eg rolling 15 second average to smooth the volatility).
From there I've computed an imbalance metric that varies between +100% and -100% (-100% here would indicate ALL of the volume on the inside 20 levels is on the sell (ask) side, 0% would indicate equally balanced bids Vs asks).
Then... I just eyeball the charts, imbalance versus price. Generally my imbalance metric bounces around between -20% and +20% but there are few periods where it may even exceed 40%.
I tend to think the best teacher is the data itself but nevertheless I felt it might be worthwhile posting these thoughts here incase any experienced members would be generous enough to nudge me in the right direction with my explorations.
Many thanks
I'm a data scientist by trade, don't work in the quant industry, but nonetheless enjoy exploring market data. I have young children so it's a brief bit of escapism for me.
I've recently purchased a small amount of level 2 data (for ES); circa 3.5GB per day worth of data.
I like the idea of monitoring the balance between volume of bids versus the asks (10 levels each side), to see if this provides any indication about future price movements. I am not trying to anticipate the next tick but rather, perhaps the path of price for the next few minutes or so. My instinct tells me the signals I am hoping to find will be rare (if exist at all), perhaps occurring a handful of times in a month.
With my limited spare time, so far I have been assigning a sliding scale of weights to each level (highest weight for bids or offers closest to the trading price), computing the weighted sum of each side, and then a rolling average of each side (eg rolling 15 second average to smooth the volatility).
From there I've computed an imbalance metric that varies between +100% and -100% (-100% here would indicate ALL of the volume on the inside 20 levels is on the sell (ask) side, 0% would indicate equally balanced bids Vs asks).
Then... I just eyeball the charts, imbalance versus price. Generally my imbalance metric bounces around between -20% and +20% but there are few periods where it may even exceed 40%.
I tend to think the best teacher is the data itself but nevertheless I felt it might be worthwhile posting these thoughts here incase any experienced members would be generous enough to nudge me in the right direction with my explorations.
Many thanks
