CISCO Futures
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Email dljones@cisco-futures.com
CISCO Commercial Traders Volume Analysis
Keywords:
True Volume, Market Balance, Value, Member vs Public
Commercials are the businessmen on the floor--they have business
to transact for their companies every day. They have a better understanding
of value than any other class of trader.
Using their superior knowledge of value, commercials buffer balanced
markets by buying bottoms and selling tops. Balanced markets are the best
environment for hedging, the job the commercial does for his firm.
As a trend develops, the commercials go with the price change; they
do not attempt to "buffer". Often a trend's termination is signalled
by the commercials restarting their "buffering".
Liquidity Data Bank (LDB) volume identifies what the commercials are doing and
where they are doing it in the day's price range.
Capping by commercials fits this scenario:
1. Members want balanced market
2. Public drives price out of balance
3. Commercials call the office--cash traders
say nothing is happening in the cash market
4. Commercials wait for public to use up all
their (buying/selling) power
5. Trend stalls
6. Commercials pounce, drive market back to balance
7. Markets recover from commercial pounding in about 4 hours
Sources of Commercial Volume Statistics in CISCO's data
The Liquidity Data Bank data from the CBOT and CME are the source of the raw data.
CISCO uses these data to measure unusual commercial activity at the price extremes
in the Trader Control Package (example of the methodology below). Activity is listed
in the 'CISCO Commercial Traders Volume Analysis' table within the TCP, with a
separate table for the results just below. A quick scan of commercial activity
for the past ten days is found on the Visual Graphic display to the right of the
Overlays (vertical dashed lines with an * at those highs and lows with activity).
Formulas for the capping algorithms are on pages 33 - 37 of the book, Value
Based Power Trading, Probus 1993. (click on "Free Online Text Book" on CISCO
homepage, left sidebar.)
Trader Control Package(TCP) Commercial Analysis
The Trader Control Package(TCP) measures commercial action at the top and bottom
of each day's range. It helps define the market's condition (bracket or trend).
Click here for example of using TCP commercials analysis in trading
Background on Commercial Traders Analysis for TCP
(Pages 33 to 46 of the text (Value Based Power Trading))
The CISCO commercial traders analysis in the Trader Control Package
(TCP) for the latest day consists of:
(a) Calculating 10 days of values:
-- V-AB for the latest day (volume above the Value Area)
-- V-BL for the latest day (volume below the Value Area)
-- %ABV for the latest day, and the 10 day average
-- %BLO for the latest day, and the 10 day average
-- %QD1 for the latest day, and the 10 day average
-- %QD4 for the latest day, and the 10 day average
(b) Deducing if there is commercial action or no action
If V-AB > 70 means upper VOLUME/PRICE action at the high
If V-BL > 70 means lower VOLUME/PRICE action at the low
If %ABV > 1.5*10 day average means upper VALUE-AREA action at the high
If %BLO > 1.5*10 day average means lower VALUE-AREA action at the low
If %QD1 > 1.5*10 day average means upper QUADRANT action at the high
If %QD4 > 1.5*10 day average means lower QUADRANT action at the low
The formualae for these values are:
V-AB= 100% * (commercial volume above upper total value area price)
------------------------------------------------------
(number of prices above upper total value area price)
(commercial volume inside and at total value area prices)
/ ---------------------------------------------------------
(number of prices inside and at total value area prices)
V-BL= 100% * (commercial volume below lower total value area price)
---------------------------------------------------------
(number of prices below lower total value area price)
(commercial volume inside and at total value area prices)
/ --------------------------------------------------------
(number of prices inside and at total value area prices)
%ABV = 100% * (commercial volume above upper total value area price)
------------------------------------------------------
(total contract volume)
%BLO = 100% * (commercial volume below lower total value area price)
------------------------------------------------------
(total contract volume)
%QD1 = 100% * (commercial volume above upper total quadrant price)
----------------------------------------------------
(total commercial volume)
%QD4 = 100% * (commercial volume below lower total quadrant price)
----------------------------------------------------
(total commercial volume)
where total value area = price strip containing 70% of total volume
where total quadrants = total price strip divided by four
Click here for example of using commercials in trading
Example of Commercial Traders Analysis from TCP
The Raw numbers for 20th Jan 1995:
- for the 20th Jan 1995 (latest day) V-AB,V-BL,%ABV,%BLO,%QD1,%QD4
| Vol/Price | Value Area | Quadrant
High Low | V-AB V-BL | %ABV %BLO | %QD1 %QD4
--------------------------------------------------
9931 9906 | 15 42 | 0.2 2.1 | 21.6 20.9
--------------------------------------------------
- for averages for the last 10 days for %ABV,%BLO,%QD1,%QD4
| | Value Area | Quadrant
High Low | | %ABV %BLO | %QD1 %QD4
-------------------------------------------------
9931 9906 | | 0.9 1.4 | 20.4 16.5
-------------------------------------------------
Interpretation of the numbers for 20th Jan 1995
Significant action is:
VOL/PRICE TIC: Values of 70 or more.
VALUE AREA: Fifty percent greater than the average.
QUADRANT: Fifty percent greater than the average.
V-AB equals 15 is less than 70 so no upper Vol/Price action
V-BL equlas 42 is less than 70 so no lower Vol/Price action
%ABV equals 0.2 is less than .9*1.5 so no upper value area action
%BLO equals 2.1 is equal to 1.4*1.5 so is lower value area action
%QD1 equals 21.6 is less than 20.4*1.5 so no upper quadrant action
%QD4 equals 20.9 is less than 16.5*1.5 so no lower quadrant action
Summary:
20th Jan 1995 has Lower Comml Action at 9906 from VALUE AREA numbers
Finally we need to determine if the action is capping/sealing or supporting.
If upper action is established early in the day and closes the day lower
chances are the action is capping. If the upper action was established late
in the day it is not clear if the action is capping or supporting.
Book
A detailed explanation of the formulae and interpretaton used is given
in the textbook:
Title: "Value-Based Power Trading" by Donald L. Jones
Published: Probus Books
The text is available for browsing on the home page. Go to 'Trading Books'
near the bottom. Or click on 'Free Text Book Browsing' at the top.
For more information phone 1-800-800-7227 or 1-303-306-1521
Send e-mail to CISCO <dljones@cisco-futures.com>
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