4 February, 2017

Bar Ratio

Rationale & Trading Techniques

The emoji trading Order Flow Suite Bar Ratio display provides insight into the market’s supply and demand conditions by evaluating the volume traded at the extremes of each price bar and determining whether buying or selling are reaching exhaustion or the bid or ask are experiencing absorption from a big buyer or seller . For maximum insight, the indicator is used in Numeric display mode, typically with Numbers Bars. We have also provided a Compact display mode suitable for use on bar and candlestick charts and two conditional modes: Conditional Numeric which only displays significant high and low ratios; Conditional Text which provides an incredibly clear indication of market conditions.

High Ratios: Exhaustion – a lack of supply or demand

When we have a Ratio that is above the Exhaustion Ratio setting, it is a strong indication that buying demand has reduced at the top of an up move and that selling supply has reduced at the bottom of a down move. The only reason prices move is because of supply and demand traded volume. If we have a lack of supply or demand from high volume traders then there is no power in the market for the previous move to continue so a pause or reversal becomes likely.

The Single Print at Extreme indicator works well in conjunction with Ratio Display to highlight when the last buyer has bought or the last seller has sold.

Low Ratios: Absorption – arrival of strong supply or demand

When we have a Ratio that is below the Absorption Ratio setting, it is a strong indication that high volume traders are either building or liquidating a position. This high volume may be sufficient to pause or reverse the direction that price has been moving in. To consider this in very simple terms, in any market which has rising prices, the arrival of a seller with a massive amount of inventory will cause prices to stop rising or even fall as other sellers try to compete with the large seller. Likewise, in a market with falling prices, the arrival of a buyer willing to purchase a large amount of inventory at prices they regard as low will cause prices to rise in line with the increased demand.

We see this situation through high volume at the extreme of the price bar combined with a Ratio that is below the Ratio Bounds Low.

In some cases, the high volume will be sufficient for the bar’s Point Of Control (POC) to occur at this price. By combining Ratio Display with the POC at Extreme indicator, we can see clearly when high volume traders have traded sufficient volume within the market to cause a price move to stop or change direction.

Both high and low ratios may indicate a pause or a reversal of a prior move but it can be seen that different trading contexts apply from high and low ratios. It is the breaching of the Exhaustion and Absorption Ratio values that holds significance rather than the absolute value of the ratio. The emoji trading Order Flow Suite Bar Ratio  default values have been found to yield good trading results but you may find that the specific markets you trade have their own volume characteristics which are suited to alternative Exhaustion and Absorption Ratio values.


Examples

As price formed new highs from 8:34:46 note the bars showing ‘No Sellers’ confirming the continuation of the uptrend until the 8:36:19 bar with the arrival of a large seller absorbing 1215 contracts bought at the ask price. After a retest of the day’s high at 8:40 breaching by one tick, note more ‘Big Sellers’ as price fell away.

Bar Ratio 3 - Emoji Trading Order Flow Suite.png

 

The same chart with Bar Ratio configured for Conditional Numeric display:

Bar Ratio 2 - Emoji Trading Order Flow Suite.png

 

The same chart displayed as a Candlestick Chart with Bar Ratio configured for Compact display:

Bar Ratio 4 - Emoji Trading Order Flow Suite.png

 


Bar Ratio Settings


Input Name Description
Symbol Offset (Ticks) Specifies the indicator’s display position above/below the current bar.
Absorption Ratio The ratio used to determine Absorption at the bar extreme.
Bar Ratio Display Type You may select from:

• Numeric: the bar ratio value will be displayed below up bars and above down bars

• Conditional Numeric: the bar ratio will be displayed below up bars and above down bars if it represents Exhaustion or Absorption

• Conditional Text: the text label representing Exhaustion or Absorption (see Subgraph settings below) will be displayed below up bars and above down bars if the bar ratio represents Exhaustion or Absorption

• Compact: Subgraph SG1 will be displayed below up bars and above down bars if the bar ratio represents Exhaustion or Absorption

Calculation Frequency Select whether the Bar Ratio is displayed in real time or only upon bar closure.
Display Position Select whether the Bar Ratio is displayed at Both Ends of the price bar or only supporting the Bar Direction. This applies to the Numeric display only. The Conditional Numeric, Conditional Text and Compact display modes will display at both ends of the price bar subject to the Conditional thresholds being met.

Indicator Subgraphs

 

Subgraph ID Subgraph Description
SG1 Bar Ratio When using Numeric or Conditional Numeric display types (see above), this input should be set to the Custom Value at Y Draw Style. When using the Compact display type, select a Draw Style corresponding to the symbol display you wish to achieve. When using the Conditional Text display type, this input is ignored. 
SG2 Bid Absorption Label Set the Text to Draw to represent the desired display when selling into the bid is being absorbed, e.g. “Big Buyer”
SG3 Bid Exhaustion Label Set the Text to Draw to represent the desired display when selling into the bid is reducing, e.g. “No Sellers”
SG4 Ask Absorption Label Set the Text to Draw to represent the desired display when buying of the ask is being absorbed, e.g. “Big Seller”
SG5 Ask Exhaustion Label Set the Text to Draw to represent the desired display when buying of the ask is reducing, e.g. “No Buyers”