2019/03/27 by Malyshkin, Vladislav Gennadievich · 1 citation
#Computational Finance (q-fin.CP) #FOS: Economics and business #Trading and Market Microstructure (q-fin.TR)
paper · doi:10.48550/arxiv.1903.11530
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our previous work[2], we established that it is the share execution flow (I=dV/dt) and not the share trading volume (V) that is the driving force of the market, and that asset prices are much more sensitive to the execution flow I (the dynamic impact) than to the traded volume V (the regular impact). In this paper, an important advancement is achieved: we define the "scalp-price" \cal P as the sum of only those price moves that are relevant to market dynamics; the criterion of relevance is a high I. Thus, only "follow the market" (and not "little bounce") events are included in \cal P. Changes in the scalp-price defined this way indicate a market trend change - not a bear market rally or a bull market sell-off; the approach can be further extended to non-local price change. The software calculating the scalp--price given market observations triples (time, execution price, shares traded) is available from the authors.