Interpreting Trade Impulse Units and Averaged Book Quantities

Summary

The note clarifies two details in a trade impulse signal used in market microstructure analysis. The price term of −0.25 represents a spread in price units, rather than the security’s tick size or the price gap between the best and second-best bids. This interpretation follows from how the signal combines with book pressure to form a theoretical price: both components must have compatible price units.

The quantity in the denominator is an average bid and offer quantity measured over a lookback window, rather than the book’s current quantity. The note offers a dimensional consistency check and a brief interpretation, but does not specify the averaging window, give the full signal definition, or evaluate the signal’s predictive value. Those details require consulting the underlying discussion.

Key ideas

• The trade impulse price term represents a spread in price units.
• Book pressure and trade impulse must share price units to combine into a theoretical price.
• The denominator uses bid and offer quantities averaged across a lookback window.
• The note clarifies interpretation but does not assess signal performance.

Tags

# Trade Impulse signal


# Trade Impulse signal












https://blog.headlandstech.com/2017/08/03/quantitative-trading-summary/

In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned .

- In the example, the -0.25 that was used - should that be the tick size of the security or the difference between the best bid and 2nd best bid?

- What is this denominator referring to exactly? It mentions "but with the average bid and offer quantity in the denominator instead of the current quantity".

## Answer by databento (score 1, accepted)

https://quant.stackexchange.com/a/77383

- No, this is the spread in price units. You can checksum that this is what the author intended from the later statement, which shows that book pressure and trade impulse are in price units in order for it to match the other side of the equation, i.e. theoretical price is not dimensionless here:

> Theoretical price is = book pressure + trade impulse = (99.001 + 98.755)/(1+5) + -0.25*9/15 = 98.79167 – 0.15 = $98.64167!

- Average here means averaged over a lookback time window.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.