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2018issue C0640-43

Order book heatmaps, VWAP, and flow for execution

On a conventional candlestick chart the reason for a large price move is not visible. Editorial: use heatmap history, the spread path, and buyer-versus-seller volume-weighted prints to judge fillability and implementation cost, rather than inferring them from a candle that only records that a print already happened.

  • On a conventional candlestick chart the reason for a large price move is not visible, and that gap is described as wider on a one-minute timeframe.
  • A heatmap shows the historical limit-order book at each price, so liquidity is seen as it evolved rather than as a single depth-of-market snapshot.
  • Best-bid and best-offer traces, buyer and seller volume-weighted average price, and volume bubbles show the spread path and the mix of aggressive trades.
  • Watching how orders evolve over time, including at 40 frames per second and down to nanoseconds, is presented as a clearer read on intentions than a static depth-of-market ladder.
Entries in this reading3 entries
Order flow analysis3 readingsCurrent trackVolume-weighted average price19 readingsMarket profile23 readings

What a candle does not show

On a conventional candlestick chart, the reason for a large price move is not visible, and that gap is described as wider on a one-minute timeframe. Traded volume is described as typically representing about 5 percent of market data, while an order-book heatmap is described as showing the complete picture and including 100 percent of the market's data.

How the heatmap records the book

A heatmap overlay can show the historical limit-order book at each price, so liquidity is seen as it evolved rather than as a single depth-of-market snapshot. Depth of market is the visible ladder of limit orders at each price. A heatmap is a color-intensity record of resting size at each price as the book evolves. Market profile is a full-book map of how resting size is distributed across prices through time, rather than a single ladder snapshot.

Watching how orders evolve over time is presented as a clearer read on other participants' intentions than a static depth-of-market ladder. The book display is described as updating at 40 frames per second by default so the market can be watched nearly as a continuous video. Stored market events can be inspected at time scales described as down to nanoseconds, rather than only at bar close.

Spread path, volume-weighted prints, and flow

Best-bid and best-offer traces can identify the spread and how the inside market changed over time. Best bid and offer are the highest displayed bid and lowest displayed offer that define the inside spread.

A more detailed candlestick view can display volume-weighted average price for buyers and sellers separately or combined. Volume-weighted average price is a size-weighted average of trade prices that can be shown for buyers, sellers, or both inside a bar.

Traded volume can be clustered as bubbles whose color mix reflects the share of buyers versus sellers and whose area reflects total volume. Volume bubbles are clustered markers of traded size, with area for total volume and color for the mix of buyers and sellers.

Order-flow analysis is reading aggressive trades against resting size to see who is lifting bids or hitting offers as the book changes.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
15 of 18 in the Volume-weighted average price track
201844-45 pp.Next on Volume-weighted average priceConstructing futures rolls ahead of first notice dayFirst notice day is the construction deadline for a physically settled long, because a delivery notice can be assigned from that session through last trading day.
All readings on this track · 18 readings
  1. 2000Volume-weighted average price as a baseline for indicator construction
  2. 2001Constructing VWAP support and resistance from cumulative volume
  3. 2001An elastic volume-weighted moving average from a share-count lookback
  4. 2001Constructing an elastic volume-weighted average and volatility bands
  5. 2004Volume-weighted column averages and crossovers on point-and-figure charts
  6. 2004Session volume-weighted average for limit placement and listed routing
  7. 2008Building MIDAS curves from an anchored volume-weighted average
  8. 2008Construct a launch-point VWAP as support and resistance filters
  9. 2014Workstation order routing, VWAP, and session filters
  10. 2015Constructing price gravity and float turnover filters
  11. 2015Constructing four-stage cycles with anchored VWAP
  12. 2017Constructing a volume-weighted crossover and breakout as one swing rule set
  13. 2017Constructing a volume-weighted moving-average crossover
  14. 2017Constructing anchored volume-weighted average price maps for crowd-visible execution costs
  15. 2018Order book heatmaps, VWAP, and flow for execution
  16. 2018Constructing futures rolls ahead of first notice day
  17. 2019Evaluate a mechanical futures system as one procedure
  18. 2020Every bounce is a falsifiable regime test
By fieldOrder types and routing7 readingsBy year201898 readings
All 19 readings tagged Volume-weighted average price
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