Over ⅓ of stock volume trades in the dark. Most of this volume trades at the midpoint of the NBBO, which obscures the direction of the trade, making dark pools' pre- and post-trade data notoriously tricky to interpret.

What you need to know:

  1. Dark pools are private stock exchanges.
  2. They are "dark" because their liquidity is not displayed to the investing public.
  3. This "dark liquidity" doesn't naturally show us if someone is buying or selling.
  4. We can figure out the direction of the trade by counting up how many dark trades were short sales.
  5. By analyzing dark pool short volume, we find out where there's a potential imbalance in supply and demand.

We've spent years collecting the data and comparing it to transaction level data to see the relationship between NBBO spread-crossing, short sales, and midpoint trading. The important part? Using a single metric, we can derive information from dark pool trades that is otherwise completely obscured.

This is how we did it:

  1. Take total daily volume.
  2. Divide it into dark and lit transactions.
  3. Subdivide the dark pool transactions into buying and selling. "But isn't there a buyer for every seller?"

    We respond to this in the documentation.
  4. Voila.

We believe that data needs to be visualized in order to be understood. The simpler the better. That's why our dark pool indicator (dpi) is just a single line—it's all you need.

So before you make any big decisions to buy, sell, or hedge your portfolio, find out if you're on the right side of the trade first. Get a 72-hour pass for $28.

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