Understanding Delta

There is a valuable relationship between PRICE and Delta. Everyone of us here knows what price is, but delta is a new term for many traders.


DELTA = Aggressive Buys – Aggressive Sells

Remember in my previous post, I highlighted the words “Aggressive Buyers and Sellers“. Take note of these key words. They are aggressive as they buy or sell at market price.

Nonetheless, the easiest ways to understand all this is, is to understand that VOLUME is what fuels the market. Without VOLUME price would not move an inch.

When a trade occurs at a price level a specific amount of volume is attributed. Price discovery is achieved by volume pushing price back and forth to find equilibrium

This equilibrium is what we call (POC – Point of Control) some will call it (COT – Commitment of Traders) but basically what DELTA does is that it gives us a sleek, crisp way to analyse the auction process that took place at where the most VOLUME traded.

In short, DELTA measures the directional force of VOLUME and provides a quantifiable measure to volume’s impact on price.

Note these three key words: Volume, Delta & Price

To sum up; the goal is to identify the direction of delta, note recent highs and lows or key levels so to speak. Then when price gets to these key price levels use delta as a proxy to where price may be headed.

This is just one of the many ways of using DELTA for trade execution. There are about 3 other ways of using DELTA such as delta divergences and convergences. Will share this on subsequent posts.

That said I leave you with a famous quote by one John Ford, quote: ‘Diamonds cut diamonds’. So lets share. I want to also learn from someone out there.


Happy Trading & Stay Sharp!

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