How to analyze clusters, Time and Sales tape and order book levels

How to analyze clusters, Time and Sales tape and order book levels

If you liked our previous article about a cluster analysis in the EUR/USD futures market, this one will also be useful for you. The goal of the article is to give you an example of a practical analysis of the market behavior using advanced instruments of the trading and analytical ATAS-Crypto platform. We will analyze a cluster chart in order to identify hidden intentions of a major trader.

Let us consider the bitcoin futures market on the BitMEX and Bitfinex cryptocurrency exchanges (how to make money on cryptocurrencies). We will set the following charts and indicators:

  1. Smart Tape of Time and Sales Tape. We will use two tapes and place them in the left part of our working space. Why two? One is required to track big volumes only and filter out “the noise”. The tape is required to understand whether the current movement is supported.
  2. The Cluster Search Indicator. The indicator is set in order to search for aggressive trades of major traders and to show directions of these trades – buying and selling (practical examples of how to set the Cluster Search) – in color. We will set the search for trades on the Bitfinex exchange in two charts with white background in the central part of our working space. The lower one works on 1 minute timeframe and the upper one is a RangeUS range chart (how to analyze a range chart).
  3. A chart with the Market Depth Indicator (red and green horizontal bar chart in the right part) and Dom Levels Indicator (it reflects levels with large volume orders) is shown in the right part. We will use values of these indicators to identify important levels in the order book and assess market positions of passive buyers and sellers.

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Setting the chart for analysis of clusters, smart tape and order book levels

This is how the workspace looks after setting up all the charts and indicators.

Analysis of the current situation

Please, note. We will analyse the market “at the moment” without consideration of older timeframes. In real trading, please, take into consideration the current situation in the context of a bigger scale.

Downward turnaround in the cluster chart and the Time and Sales Tape.

At this moment, the market is in the short-term downward movement (yellow arrow). What is it caused by? Pay attention to the green circles – the Cluster Search Indicator – before this movement started. The green circles reflect buying bursts. However, do they result in the bullish progress – an upward breakdown? No. Failure of the buyers is a bearish sign. Maybe this buying activity reflects a massive (controlled?) entrance of minor retail traders into a trap before the downward movement started.

One way or another, but the buyers, whose activity was registered by the Cluster Search Indicator, experienced negative emotions and losses due to the further movement.

A seller appeared in the market, while the price went down, who wanted to hold the price below the level of his limit order, which can be seen from the Dom Level Indicator values in the following chart.

Holding the resistance level by limit orders
  1. The red line of the indicator says that a major trader posted a limit order for selling and we built the resistance level from it (yellow line)
  2. For the first time, this resistance level kept the price from growing
  3. But then the level was broken

We do not assert, we just dissert. Perhaps, a hypothetical major trader had a short position and wanted to boost the panic of “the crowd” of retail traders with this sell-limit and to fix, partially, the profit from short covering after a downward movement from the previous peak. Having achieved that, he lost his temporary interest in holding the price under resistance. As a result, the market moved up.

Holding the support level by limit orders
  1. While the price is growing, the Cluster Search Indicator fixes emergence of the aggressive selling activity (the red circle), and …
  2. …the Dom Level Indicator marks the level of a major buy limit order.

If this support level testifies to the bullish mode of the market, it should keep the price from falling and confirm the buyer’s strength. However, the price breaks the support level from top downward after some time.

The support level breakdown
  1. The support level from a major buy limit order in the order book – broken from top downward
  2. The buy order grid accelerates reduction of quotes

Why the support level did not hold? Perhaps, there was a manipulation. The major trader showed a buy limit order and motivated a big number of minor traders to bull the market. However, alas and alack, they again experienced negative emotions and losses.

An intraday panic on the Time and Sales Tape

The price accelerates the downward movement and it causes an intraday panic. Pay attention to the Time and Sales Tape. It shows an avalanche of sell orders. It means that the bitcoin rate bullish buyers cannot sustain the ever growing losses any more and liquidate their long positions – manually by the automatic stop loss or forcedly by the margin call.

This massive sell order flow from unlucky buyers is a good moment for a major bear to close (partially or completely) his short line and fix profit from previously opened short positions. He uses the buy limit orders grid for short covering, facing an avalanche of panic and building up his account, while the majority of traders clean out their deposits.

Summary

In this short but practically valuable article we discussed an interaction of clusters, Time and Sales Tape and order book.

We hope that it was useful for you since you learnt about techniques used by major traders. These techniques are used in all markets and you can check it by yourself after analyzing a course of trading with the use of the functions of the trading and analytical ATAS platform.

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