On some properties of stochastic processes that arise from order book imbalance

The article describes a financial order flow generator and gives a special definition for the order book imbalance function. Using the given definition, we offer a simple trading algorithm and show that its quality can be expressed and assessed using a simple criterion based on an intuitive notion of the acceptable risk tolerance; the same criterion can be used to tune the algorithm. The algorithm can be viewed as a filter for the complex order flow process, and its output - a measure of the imbalance signal efficiency.