NOTE: What is below is here essentially for historical purposes. Much has changed over the last few years with data feeds and so the phenomenon discussed below is not as present today as it was several years ago.
It’s true that Volume Balance and the Volume Breakdown studies can calculate volume deltas with both up/downticks and bid/ask prices. But why choose one over the other? They generally produce very similar deltas, however there are some differences. Some important points to consider:
- NinjaTrader 7 does not natively store bid and ask data in such a way that volume deltas can be created from historical data. So bid/ask deltas will only be displayed for periods where you are connected to your data feed and pulling live market data from your provider or during market replay. When bid/ask data is not available for an instrument, such as with spot forex, or when historical deltas are needed, up/downtick evaluation can be used instead.
- At times of heavy volume, bid/ask data can lag actual transaction data (more on this topic here). This lag can be a problem as these times are precisely when you want the clearest communication of the message that the volume balance or breakdown is trying to convey. By using up/downticks to calculate volume deltas, not tick or transaction deltas, these times of lag are simply no longer a concern.
- Volume in the futures markets is now overwhelmingly transacted in small lots and at high frequency, mostly by machines. Large transactions executed at the bid or ask are statistically rare and thus less useful than they were even a few years ago for assessing buy/sell aggression. Up/downtick strategies evaluate all volume, not just volume at the bid or ask. Moreover, while the Acme bid/ask delta calculations include volume outside the bid/ask spread, many bid/ask-based delta calculation strategies ignore this so-called outside volume. We think this is ill-advised light of today’s market mechanics.
Want to know even more? Check out this series of posts on price vs. volume.