Reading Depth of Market

[dsalas 10]

HEllo Guys, i wanted to know if someone can help me up understanding how to read the DOM for ES or ZN, mostly ES. I have been trying myself but i cannot keep up with the pace, is too fast... IS there any resource you can recommend me or something you can help me with, I know the basics but not too much

 

thanks

[Tams 20]

HEllo Guys,...

I know the basics but not too much

 

thanks

 

can you tell us the basics you know?

[bathrobe 10]

The dom is heavily manipulated with fake bids/offers but if you can learn to read the prints (actual filled orders) you can pinpoint entries and catch large moves in their infancy. Also the market is moved by limit bid/limit offer orders not orders in the queue.

 

The prints will be somewhere on your dom, on x_trader it is to the right and ninja it is in the middle

[dsalas 10]

Hello guys,I just know that when the total number of the last 5 bid prices in the ladder greater than the last 5 offer prices in the ladder,market could go up,also that a lot of games are played in the ladder,and that the market tends to seek value,not much really reading dom ,that's why I ask.bathrobe can u explain more on how to read the prints ... Please,thanks so much

 

I appreciate your help

 

Daniel

[BlowFish 10]

The dom is heavily manipulated with fake bids/offers but if you can learn to read the prints (actual filled orders) you can pinpoint entries and catch large moves in their infancy. Also the market is moved by limit bid/limit offer orders not orders in the queue.

 

The prints will be somewhere on your dom, on x_trader it is to the right and ninja it is in the middle

 

Limit orders are orders in the queue i guess you mean market orders?

[UrmaBlume 10]

We are among the beta testers of TradeStation 9.0 whose new data providers/objects allow you to access any data stream from any code module/indicator including all 10 bids and asked volumes/DOM programatically in Easy Language.

[bathrobe 10]

blowfish, yes but on my platform if I place a market order it will get filled very far away. I always enter at bid/offer and always get that price, I always give up a tick on entry in the ES.

 

dsalas, I am by no means an expert as it takes some getting used to but it is done by having a level first and then watching the prints as price approaches that level.

 

I countertrend trade the es so I am looking for bids/offers that print to increase dramatically in size at levels or very close to them.

I would recommend you look elsewhere to trade successfully because many orders are filled in 2 lots over a range of prices by algos.

Edited September 7, 2010 by bathrobe

[dsalas 10]

Bathrobe, what do exactly look at? If prints are at te offer and you are looking for support?for example....this is what I need to know exactly ,can u guys help me out a bit

 

Thanks

 

Daniel

[bathrobe 10]

no I have a level ahead of time and watch prints at the level but yes I am looking for prints to confirm the level for me.

[dsalas 10]

Thanks bathrobe,can u explain me more about what do u look at in the prints,I also place my levels before,but I have not been able to get the feel in the Dom with the prints ,would u be kind enough to let me know ,which signs or things do you consider in the prints once price approaches a level u already have

 

Thanks a lot

 

Dan

[BlowFish 10]

Something that was recommended to me and was inexpensive so I got it was no BS trading. I am loath to make recommendations but you might want to check it out, I think it has a money back guarantee fwiw.

[bathrobe 10]

Please delete, sorry

[Trading_Time 10]

BathRobe, Although I am not new to trading the ES, I have never paid attention to DOM and all the extra numbers in there.. I have always been a technical chart guy. Just now getting into DOM and volume.

 

In previous post you mention to watch the prints. Just to be clear you mean this circled area in my attached pic?

 

[bathrobe 10]

yes, you circled the prints. keep in mind many orders are filled by algos imitating small retail traders and can really no longer be read with consistency

[BlowFish 10]

BathRobe, Although I am not new to trading the ES, I have never paid attention to DOM and all the extra numbers in there.. I have always been a technical chart guy. Just now getting into DOM and volume.

 

In previous post you mention to watch the prints. Just to be clear you mean this circled area in my attached pic?

 

 

You must also watch how the order book reacts to the prints. Are resting orders on the side that is being hit pulled or are they standing firm? Perhaps they are even being refreshed? How about on the other side of the book are traders bidding up to support those hitting the 'wall'? What about a level or two outside best bid and best ask? One other thing that is very important is the 'pace' what is it like? Is it changing?

 

It is all as much art as science imho:) As with most aspects of trading one thing can appear to be happening......until it's not. On this sort of scale this change can (and mostly does) happen in a split second. On the plus side a 'failure' (e.g. a level that looked like it was holding breaking) is often an opportunity in the other direction. Actually it seems that the opposite is quite common, a level appears to break, price moves a few ticks beyond only to be offered back down and the 'wall' to firm up again. I should say I am no expert but I always have a DOM on the screen to enter orders so over the years have spent many, many, many, hours watching it.

Edited September 17, 2010 by BlowFish

[bathrobe 10]

You must also watch how the order book reacts to the prints. Are resting orders on the side that is being hit pulled or are they standing firm? Perhaps they are even being refreshed? How about on the other side of the book are traders bidding up to support those hitting the 'wall'? What about a level or two outside best bid and best ask? One other thing that is very important is the 'pace' what is it like? Is it changing?

 

It is all as much art as science imho:) As with most aspects of trading one thing can appear to be happening......until it's not. On this sort of scale this change can (and mostly does) happen in a split second. On the plus side a 'failure' (e.g. a level that looked like it was holding breaking) is often an opportunity in the other direction. Actually it seems that the opposite is quite common, a level appears to break, price moves a few ticks beyond only to be offered back down and the 'wall' to firm up again. I should say I am no expert but I always have a DOM on the screen to enter orders so over the years have spent many, many, many, hours watching it.

 

Well said Blowfish, completely agree that it is as much art as science.

[bathrobe 10]

this chart shows the prints at bid and ask, you can see the buyers run out of steam and sellers come in in force very clearly in the areas I circled, this trade was from a few days ago.

 

dsalas, I would do what blowfish said and watch this along with your normal trading if you really want to trade this way.

 

 

[BlowFish 10]

What are you using for charting bathrobe? Personally I find graphical representations like this much easier to look at than the constant flickering of the DOM.

[bathrobe 10]

What are you using for charting bathrobe? Personally I find graphical representations like this much easier to look at than the constant flickering of the DOM.

 

I agree, I use Market Delta for charting with IQ Feed for data.

[Peterg 10]

What is "Shown" on a DOM display is not as important as what is actually "transacted" on TOS(time of sales) as displayed in a chart or the Vol/Price histogram feature displayed on some DOM modules.

 

This Histogram is essentially a concrete "market profile" history and more characteristic of real support and resistance (supply and demand), and consequently more important than the display of "CIC" limit orders.

 

Some software packages allow relative Volume Weighted candles with buy/sell ratios formulas which display fatter candles and Volume Vectors for an “easy read” graphic representation of distribution/accumulation scenarios.

 

There are a number of "TAT" strategies and tactics for trading the various histogram levels being formed. Some are simple and visual, others more complex and use software routines to calculate what is required volume wise to move price to a new level.

 

Then again what is being traded TOS on an electronic product, does not account for what is traded "open out cry" in the PIT, or other derivative products and thus is not representative of the market as a WHOLE.

[bathrobe 10]

What is "Shown" on a DOM display is not as important as what is actually "transacted" on TOS(time of sales) as displayed in a chart or the Vol/Price histogram feature displayed on some DOM modules.

 

This Histogram is essentially a concrete "market profile" history and more characteristic of real support and resistance (supply and demand), and consequently more important than the display of "CIC" limit orders.

 

Some software packages allow relative Volume Weighted candles with buy/sell ratios formulas which display fatter candles and Volume Vectors for an “easy read” graphic representation of distribution/accumulation scenarios.

 

There are a number of "TAT" strategies and tactics for trading the various histogram levels being formed. Some are simple and visual, others more complex and use software routines to calculate what is required volume wise to move price to a new level.

 

Then again what is being traded TOS on an electronic product, does not account for what is traded "open out cry" in the PIT, or other derivative products and thus is not representative of the market as a WHOLE.

 

If I misunderstood your point, sorry. We were talking only about executed orders and not orders in the queue; that said, there is absolutely no way I can imagine to take into account orders executed above or below market for hedging purposes, etc. The es does not trade in a pit, and every print that made up the market delta chart I posted had a corresponding run in the time and sales.

[Peterg 10]

Actually we ARE talking about reading all the limit orders on the ES book, thats the "depth" in depth of market.

 

My next point was how "time of sales" the actual "tape" of transactions is more important than what is displayed as limit orders; and the histogram gives a better read... a "market profile."

 

My next point was that even the "tape" of the ES, is better than the limit orders, but still does not represent the S&P cash as a whole since there are other associated derivatives SP, SPY and their derivative options contracts.

 

Right the ES does not trade in a pit, but the SP does; and nothing can stop one from buying SP pit and laying off in the ES, or Buying the ES and Laying off electronic SP or the pit or both.

 

Take it a step further and "lay off" off exchange .... across to dark pools.

 

So you dont know the REAL exposure and commitment in the market as a whole...Maybe with the COT report on each Fri. and still its even a week old.

 

So, the depth of market, DOM is best used as an order entry tool ( since some have sophisticated properties), rather than to gain insight as to purposed intent/exposure and direction in the underlying.

 

Finally, one of the best "READ" features of some DOMs are the transaction histograms, but again its just representative of the derivative on the DOM, and not the composite of the underlying.

[bathrobe 10]

Actually we ARE talking about reading all the limit orders on the ES book, thats the "depth" in depth of market.

 

My next point was how "time of sales" the actual "tape" of transactions is more important than what is displayed as limit orders; and the histogram gives a better read... a "market profile."

 

My next point was that even the "tape" of the ES, is better than the limit orders, but still does not represent the S&P cash as a whole since there are other associated derivatives SP, SPY and their derivative options contracts.

 

Right the ES does not trade in a pit, but the SP does; and nothing can stop one from buying SP pit and laying off in the ES, or Buying the ES and Laying off electronic SP or the pit or both.

 

Take it a step further and "lay off" off exchange .... across to dark pools.

 

So you dont know the REAL exposure and commitment in the market as a whole...Maybe with the COT report on each Fri. and still its even a week old.

 

So, the depth of market, DOM is best used as an order entry tool ( since some have sophisticated properties), rather than to gain insight as to purposed intent/exposure and direction in the underlying.

 

Finally, one of the best "READ" features of some DOMs are the transaction histograms, but again its just representative of the derivative on the DOM, and not the composite of the underlying.

 

we use the tools in front of us to make the best decision possible, I only watch es I am unaware of buying/selling in the SP which works for me, the thread was called Dom reading, in my first post inthe thread I said how little I cared about the limit orders waiting inthe book, I am reading essentially the time and sales also, only in a different way, I do agree with you about the histogram.

 

The chart I posted was not of depth or limit orders, but aggressive buyers/sellers at the bid/ask, or the orders that actually move the market.

 

if you have found a way to trade the es taking into account the derivatives SP, SPY and their derivative options contracts good luck,

Edited September 20, 2010 by bathrobe

[86834 10]

Right, time for me to throw my two cents in....

 

 

The resting orders are only half the story and alone are not really going to tell you too much. What you also need on your order book is cumlative volume which shows the total amount of contracts traded at each price, so you can actually see how many contracts are trading.

 

Now typically, price will have a tendency to trade towards large bids and offers, so if we look at ES as an example, a large bid or offer in the that market is normally 2000-3000 resting orders. This is where the so called games people talk about take place... it's nothing new though and has been going on for donkey years. To keep it simple, say ES trades up to a hypothetical resistance level at 1100. When we get to 1100, if the offer is much larger than the bid with blocks of 2000-3000 lots resting, what a lot of people will try to do is lean on these resting orders to get short. What is actually happening is a large trader is putting up them large offers to make the market appear weak, which incourages people to lean on his orders as described above. What this does is cause the market to tick off lower where he can buy a lot more and smash price through the level by running the stops of the people who were leaning on his fake large offers.

 

What you have to do is recongize that this is happening, and as the market ticks off lower, you need to be looking at the cumlative contracts traded to see where that big fish is buying a lot more lower down.

 

So carrying on with the above example, lets say those people have started leaning on his large fake offers and the market has ticked down to 1098.75 where previously, 20,000 contracts have traded. Now as the market ticks off, if another 10,000 contracts trade there bringing the total to 30,000, and price keeps on bouncing on 1098.75 even though 10,000 contracts have just traded there, then you want to be buying there yourself and catching a ride on his tail as he smashes peoples stops....

 

If you're doing it properly, the market shouldn't really ever go more than 2 ticks against you in ES. If it does, just cut it.

 

If anyone has any questions, then feel free to PM me.

[UrmaBlume 10]

86834,

 

Well said and well done.

 

So basic and so few get it.

 

While it is, to some, counter intuitive - oftentimes price does indeed trade towards size and it has been since forever that size and skilled operators have known how to "sell a few to facilitate buying a lot."

 

cheers

 

UB

 

 

Right, time for me to throw my two cents in....

 

The resting orders are only half the story and alone are not really going to tell you too much. What you also need on your order book is cumlative volume which shows the total amount of contracts traded at each price, so you can actually see how many contracts are trading.

 

Now typically, price will have a tendency to trade towards large bids and offers, so if we look at ES as an example, a large bid or offer in the that market is normally 2000-3000 resting orders. This is where the so called games people talk about take place... it's nothing new though and has been going on for donkey years. To keep it simple, say ES trades up to a hypothetical resistance level at 1100. When we get to 1100, if the offer is much larger than the bid with blocks of 2000-3000 lots resting, what a lot of people will try to do is lean on these resting orders to get short. What is actually happening is a large trader is putting up them large offers to make the market appear weak, which incourages people to lean on his orders as described above. What this does is cause the market to tick off lower where he can buy a lot more and smash price through the level by running the stops of the people who were leaning on his fake large offers.

 

What you have to do is recongize that this is happening, and as the market ticks off lower, you need to be looking at the cumlative contracts traded to see where that big fish is buying a lot more lower down.

 

So carrying on with the above example, lets say those people have started leaning on his large fake offers and the market has ticked down to 1098.75 where previously, 20,000 contracts have traded. Now as the market ticks off, if another 10,000 contracts trade there bringing the total to 30,000, and price keeps on bouncing on 1098.75 even though 10,000 contracts have just traded there, then you want to be buying there yourself and catching a ride on his tail as he smashes peoples stops....

 

If you're doing it properly, the market shouldn't really ever go more than 2 ticks against you in ES. If it does, just cut it.

 

If anyone has any questions, then feel free to PM me.