Analysing today’s Microstructure in Weir Group(WEIR LN) highlighted some obvious flaws in order flow strategy from the onset of trading this morning. Identifying others weaknesses makes your trading decisions easier, giving you the upper hand. Weir Group is a prime example of how you could have made/saved significant bps of slippage.
By analysing live tick data it is possible to detect unusual behaviour compared to a stock’s typical characteristics and from this it is easy to determine your execution rate or whether to be active in the market at all.
Let me explain……
Weir Group Microstructure
The return chart above highlights how a stock(white line) is behaving relative to a bespoke basket(green line) of correlated peers. Weir Group has been pushed higher from the open whilst the basket is effectively unchanged. When considering how to react to such a move you have to consider the volume transacting. The second chart shows volume is trending extremely light compared to what would normally be expected at this time whilst the Traded Volume indicates an eagerness to cross the spread and lift offers.
Conclusion – The early buyer of Weir Group has clearly adopted the wrong strategy indicating a potential ‘hollow rally’ in the shares.
Result – Buyers analysing this Microstructure should be thinking of stepping away or at the least adopting a more passive strategy. Sellers on the other hand should be looking to engage. Expectations would be that the shares pare back towards the basket
That is exactly what happened….
As the share price normalises the volume begins to pick up suggesting a greater willingness to get involved by the buyers. Unfortunately, they have already given the game away !!
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