Market Dynamics: On Directional Information Derived From (Time, Execution Price, Shares Traded) Transaction Sequences
Abstract
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our previous work[2], we established that it is the share execution flow ($I=dV/dt$) and not the share trading volume ($V$) that is the driving force of the market, and that asset prices are much more sensitive to the execution flow $I$ (the dynamic impact) than to the traded volume $V$ (the regular impact). In this paper, an important advancement is achieved: we define the "scalp-price" ${\cal P}$ as the sum of only those price moves that are relevant to market dynamics; the criterion of relevance is a high $I$. Thus, only "follow the market" (and not "little bounce") events are included in ${\cal P}$. Changes in the scalp-price defined this way indicate a market trend change - not a bear market rally or a bull market sell-off; the approach can be further extended to non-local price change. The software calculating the scalp--price given market observations triples (time, execution price, shares traded) is available from the authors.
- Publication:
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arXiv e-prints
- Pub Date:
- March 2019
- arXiv:
- arXiv:1903.11530
- Bibcode:
- 2019arXiv190311530G
- Keywords:
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- Quantitative Finance - Trading and Market Microstructure;
- Quantitative Finance - Computational Finance
- E-Print:
- Non--local price change as $p^{[IH]}$ change per tick subject to positive $\lambda_I^{[IH]}$ per tick change is added as an important feature. Conditional optimization cleanup