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Using Delta to Enhance Trading Conviction on Buying Dips

DAX 30 April 2018

Delta shows how participants are transacting by illustrating the net buying vs selling at market. By going to market rather than waiting passively to be filled, can be seen to show a greater level of conviction. For that reason, a market will typically move in the same direction as the delta on the day.

As such, delta can provide a sense of the likelihood of a move continuing or failing, though it will not provide an entry point for a trade. When a market is falling but delta is diverging and beginning to rise, a reversal trade can be considered which can take different forms – either a technical set up can provide a breakout type entry, or the rising delta against the falling market can be used to enhance the strength of levels. This is due to sellers not aggressively pushing the market lower and only selling passively on bounces so they will not push through strong levels; when the term comes, sellers are overwhelmed and a reversal is then in play.

Playing a delta reversal is discussed in this AXIA daily debrief. Entry points are considered as well as where a target on such a trade would be. Furthermore why certain levels to the downside could be used for a dip buy opportunity are assessed taking in profile structure and activity in EuroStoxx as additional reasons for their strength.

 

 

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