Tick-Level Order Book Imbalance with Linear Depth Weighting

Summary

This tutorial describes a short-term crypto strategy built from replayed tick data and order book depth. It weights each of the 20 bid and ask levels more heavily near the top of the book, computes a bid-to-ask volume ratio, then smooths that ratio across recent ticks with declining weights. A bullish threshold opens a long position; a lower ratio closes it. The author also presents data replay as a way to study market behavior outside exchange hours and inspect historical order flow.

The evidence is visual inspection of a recent month of BTC/USDT data, where the author reports seeing larger bid-side depth during sharp rises and larger ask-side depth during declines. No measured predictive accuracy, profitability, transaction costs, or out-of-sample results are provided. Displayed depth may not represent committed trading intent, and the example uses a virtual position, fixed order size, and simplified execution logic. The proposed relationship should therefore be treated as a hypothesis to test, not an established forecast.

Key ideas

• Replay tick-level market data to study order book behavior across historical periods.
• Weight nearer bid and ask levels more heavily when calculating depth imbalance.
• Smooth the imbalance across recent ticks before applying entry and exit thresholds.
• The observed BTC/USDT pattern is descriptive and lacks reported performance validation.

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