Order Flow Imbalance Alpha for Crypto Market Making

Summary

This introductory order flow factor uses a rolling set of recent trades to estimate whether buying or selling pressure is stronger. It compares buy and sell quantities across the full set and a later portion of the sequence, then applies a hyperbolic tangent transformation to produce a value between negative one and positive one. Positive values indicate buyer dominance; negative values indicate seller dominance. The document suggests using the signal as a reference for quote distance in a market making strategy.

The implementation receives trade data over exchange WebSocket feeds and displays the factor alongside the last trade price and accumulated volume. The only evidence offered is a brief assertion that a plotted example appears useful; no chart details, performance results, or validation method are provided. The factor therefore serves as an exploratory signal, not demonstrated proof of predictive power. Its behavior may also depend on trade classification, the selected rolling window size, and feed quality, none of which are evaluated in the explanation.

Key ideas

• The factor estimates short-term buying versus selling pressure from recent trades.
• It normalizes its directional output to the range from negative one to positive one.
• The signal is proposed as a reference for setting quote distance in market making.
• The implementation plots the factor with recent price and accumulated volume data.
• No quantitative tests or detailed evidence establish the factor's predictive value.

Tags

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