Reading Depth of Market

[86834 10]

No problems, as you say, so basic and so few will get it. I don't think most people will ever really understand what day trading is as there's so much misinformation out there that is out of date or isn't actually relevent to day trading.

 

If you want to be good trader, then you just have to play the game. That's the difference between retail day traders and professional day traders. As the saying goes, don't hate the player, hate the game...

 

 

 

 

 

 

 

 

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

[BlowFish 10]

Good to see you posting again 86834.

 

Observation will quickly show that very very frequently the market trades towards size, counter intuitive perhaps but you have to believe your own eyes. Markets are there to facilitate trade and if you accept that you can think of them as systems that search for liquidity. Maybe then it is not so surprising. The trouble is the order book can flip from top heavy to bottom heavy as quick as the market can go from uptick to downtick.

[MiniFlowTrader 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.

 

A common trick by these larger traders, often the opposing ladder will look weak and continually reload (which can be detected through a footprint or DOM that accumulates the volume).

 

From what I have seen (depending on time of day). The difference in size between the inside bid and offer of all the underlying cash constituents usually tells the real story of where the size is, regardless of what the DOM is doing.

[FulcrumTrader 10]

Other than just tracking the traded "market order" driven order flow with Cumulative Delta, a trader can also look for hints in the trend of the DOM's running ACV Ratio (Order Book Delta). Just remember, a realtime 2:1 or greater ACV Ratio will frequently attract the market to TRADE TO SIZE.

 

Transaction Level Analysis has several moving parts, and if you track the separate components you can find actionable patterns for trade entries.

[zdo 20]

...barely on topic...

 

https://www.tradestation.com/Discussions/Topic.aspx?Topic_ID=104700

[dsalas 10]

THanks a lot for the answers guys !!!....basically if offers are greater than bids market moves up, for what i have seen, but i have also seen that it flips very fast from bid to offers and vice-versa.

 

one question, if you are at a resistance or support level, how can u spot those large orders?

 

thanks

[cunparis 10]

I'm curious which market would be best to learn to read the DOM? I've tried Euro but it's very fast. I'd see an opportunity, join the bid, and the market would move 5 ticks without me. No time to think.

 

ES is faster and a bit more erratic.

 

ZN is very slow. Time to think but also time to get bored.

 

I'm leaning towards ZN but I'm curious what others think.

[2trade 10]

Hi I can assist you with some pointers and if your

after more advanced techniques then can point

you in the right direction my email is alpha2forex@yahoo.com

 

Regards 2trade

[aviat72 10]

Other than just tracking the traded "market order" driven order flow with Cumulative Delta, a trader can also look for hints in the trend of the DOM's running ACV Ratio (Order Book Delta). Just remember, a realtime 2:1 or greater ACV Ratio will frequently attract the market to TRADE TO SIZE.

 

Transaction Level Analysis has several moving parts, and if you track the separate components you can find actionable patterns for trade entries.

 

FT:

I am interested in learning more about transaction level analysis and microstructure. Could you point me towards any resource which defines the terms used. What exactly does ACV Ratio mean?

 

Thanks

[Patuca 13]

Just google nobsdaytrading. Might be helpful to you. cheap enough.

 

 

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

[sdoma 10]

Also the market is moved by limit bid/limit offer orders not orders in the queue.

 

This is not entirely accurate. I've seen markets move and barely any contracts transact due to the fact that the passive orders on one side of the book were very quickly cancelled. In extreme instances, markets can go bidless or offerless.

[Whidbey Island 10]

Reading order flow is where it is at however few will take on the task...... You'll make many mistakes.... You'll need to learn to read the book as well as prints....If they are hitting the bid or lifting the offer great, yeah the book can flip moments notice, yeah size shows up from time to time but remember they always show what THEY want you to see..... Trading order flow isn't learning "1" thing it's learning to READ...order....flow.... understanding how things are unfolding and what is likely to happen next. It's an art one that few take the time to learn & even fewer master. How did you learn to read? I'll bet you learned vowels first or maybe pronouncing a few letters at a time then learned to put words together and little by little THEN you could read.... order flow is the same thing... You'll stare at it and pick something up then little by little you pick up more. Before you know it your seeing what's happening. Every market trades different each with their own personalities depending on who's trading it....

[rocky9281 10]

Some possible price and volume combinations in time and sales window are:

 

1. High volume trading going off-both in bid and ask, with intervening small/medium trades in both bid and ask.I don't think this pattern should be ignored just because it is indeterminate as both bid and ask sides are traded heavily, but should be watched closely because the high volumes indicates professionals are participating.

 

2. High volume trading going off in bid,not a single trade is of small/medium volume.Also, not a single trade going on in the ask. (vice versa)

 

3. High volume trading going off in bid.Along with that,small/medium volume trades going off at ask. (vice versa)

 

4. Large number of small/medium sized trades going off at bid.None of the trades is of high volume.May not seem to be professional activity,but at the end of the day the summation of the volume of trades at bid at that price level comes out to be very high.

 

What does each of the above four combinations indicate, and hence, what the tape reader should do when he sees them in his time and sales?

[sdoma 10]

Some possible price and volume combinations in time and sales window are:

 

1. High volume trading going off-both in bid and ask, with intervening small/medium trades in both bid and ask.I don't think this pattern should be ignored just because it is indeterminate as both bid and ask sides are traded heavily, but should be watched closely because the high volumes indicates professionals are participating.

 

This could be due to many, many factors. This could be spreaders legging into something, missing the leg and getting out, or it could be an algorithm which wants to take a position but trades both sides to disguise which way it is betting. For example, it alternates buys and sells in different amounts, selling 5000 but buying 6000 for a net position of long 1000, but you won't be able to figure that out in time. It could also be an algo hedging another market, or simply scalping for ticks. It could be a combination of all of these.

 

You don't know, you'll never know. Don't worry about trying to figure out WHO is trading, just try to figure out what the volume flows mean for your position.

 

For example, in a sharp drop volumes per bar will often be low, and when you see the market stall on high volume that can be indicative of buying inflow and you should consider either getting out or bringing a stop close to the market. When this happens, markets can reverse and retrace very quickly, you want to be out if that happens, but you're still in if the market drops sharply.

[galya1999 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?

 

 

what platform do you use?

[bathrobe 10]

If you are asking me, for watching prints I use X_Trader, CTS is also good if you want to watch prints, however trading over an internet connection without DMA watching prints is not going to really help.

[Gekko78 10]

Just google nobsdaytrading. Might be helpful to you. cheap enough.

 

This website changed my life.

[galya1999 10]

If you are asking me, for watching prints I use X_Trader, CTS is also good if you want to watch prints, however trading over an internet connection without DMA watching prints is not going to really help.

 

omg, one of the strongest of this forum responded to me, sure i ll take this opportunity to say nice to meet you, Bathrobe; i have spent a lot of time recently reading your informative posts, you are extremely helpful! THANK YOU

[kuokam 10]

Absolutely. Would be difficult to read it this clear directly on the DOM.

 

 

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.

[TheDude 10]

Absolutely. Would be difficult to read it this clear directly on the DOM.

 

 

i suggest you keep looking for easy solutions.difficult may not be your bag.

 

the ta guru's have millions of easy solutions all over the web.

 

we keep forgetting that trading is as easy as identifying a profitable scenario of visual price and volume combinations through back testing. then forward testing. then risking only 1-2%. then relying on the law of large numbers. hey presto, next step a gazzillion dollars.

 

all the top hedge funds do exactly this dont you know.

[kuokam 10]

Can you elaborate a bit in which way?

 

This website changed my life.

[Gekko78 10]

Can you elaborate a bit in which way?

 

Sure ,

 

I was doing research a while ago on something else and happened to come across this site during a webinar I was watching.

 

I learned that Charts, indicators, oscillators , tick counts etc, etc do not work over time because they are always showing the past.......in order for all that stuff to print on a chart it has to have already happened.

 

This guy talks this way. If you think about it , it all makes perfect sense.

 

Most professional day traders DO NOT use indicators and charts to trade off of.... they use DOM , order book and they read tape.

 

They look at charts maybe once a day just a reminder of where the high/low from previous sessions were and a few key levels but thats it.

 

They know where the "dumb money" retail traders like us are going to be in at. They know that many use the indicators I mentioned. So they will be looking to fade your move.

 

 

If you do research you will find that most prop trading firms will not even let new traders look at charts until they can be profitable trading the order book.

 

 

As a day trader the past is irrelevant, you need to know what is happening NOW right at this moment , not 5 minutes ago , not a hour ago .....RIGHT NOW.

 

 

There are a few other sites that are good on this information but this is where I started.

 

John ( owner of the site) is awesome at explaining this and demonstrating this.

[kuokam 10]

So you took the $49 initiation course and a seminar with him, I guess. How long did it take after that for you to be able to see and act from the Dom ?

 

Sure ,

 

I was doing research a while ago on something else and happened to come across this site during a webinar I was watching.

 

I learned that Charts, indicators, oscillators , tick counts etc, etc do not work over time because they are always showing the past.......in order for all that stuff to print on a chart it has to have already happened.

 

This guy talks this way. If you think about it , it all makes perfect sense.

 

Most professional day traders DO NOT use indicators and charts to trade off of.... they use DOM , order book and they read tape.

 

They look at charts maybe once a day just a reminder of where the high/low from previous sessions were and a few key levels but thats it.

 

They know where the "dumb money" retail traders like us are going to be in at. They know that many use the indicators I mentioned. So they will be looking to fade your move.

 

 

If you do research you will find that most prop trading firms will not even let new traders look at charts until they can be profitable trading the order book.

 

 

As a day trader the past is irrelevant, you need to know what is happening NOW right at this moment , not 5 minutes ago , not a hour ago .....RIGHT NOW.

 

 

There are a few other sites that are good on this information but this is where I started.

 

John ( owner of the site) is awesome at explaining this and demonstrating this.

[Gekko78 10]

So you took the $49 initiation course and a seminar with him, I guess. How long did it take after that for you to be able to see and act from the Dom ?

 

I cannot confirm or deny that I ever "bought" anything.......All I can say is that I came across the info.........You can find anything if you know where to look.

 

 

As for being able to interpret the DOM. There is no set time. I am still learning things everyday . Each DOM behaves differently than the next. The ES is way different than the ZN and CL . You have to study each one.

 

I did start noticing things immediately after reading and watching them. But , I by no means know all of it. It is hard at first to watch the flow happen in like the ES because it happens so quick ....but all the info you need is right there to make $.

 

My suggestion is , if you do not want to pay for a good DOM, is to TURN OFF your charts on whatever you trade and watch the DOM on Ninja for a while and see if you can predict where price is going to go based on what you see happening on the DOM.

 

The NJ DOM is lacking but still way better than a chart.

[joshdance 10]

I cannot confirm or deny that I ever "bought" anything.......All I can say is that I came across the info.........You can find anything if you know where to look.

 

So, you pirated/stole it--nice.

 

 

My suggestion is , if you do not want to pay for a good DOM, is to TURN OFF your charts on whatever you trade and watch the DOM on Ninja for a while and see if you can predict where price is going to go based on what you see happening on the DOM.

 

The NJ DOM is lacking but still way better than a chart.

 

You talked about "professional traders" and that they never look at charts. My guess is that you really do not know any, but that you have heard this and it sounds cool. In fact though, I do agree that many do not, but no one who relies on a DOM only would use NinjaTrader either. The reason is simple: NT has no built-in profiling capabilities in the DOM, so all you have is price flicking up and down. Most pros at the floor use XTrader or T4 (in fact that's all you see at the CME), both of which have the ability to see where volume is transacting. This is an integral part of using the DOM, otherwise you have no good idea of the actual prints (a tape that can consolidate volume at price is useful, but a standard 80 to 100 line T&S is useless for prints, because they never show up as they are too fast, and is good for tempo/rhythm only).

 

Pros may not trade off the chart in the sense that a typical retail trader would, but at the CME, NYSE, etc., traders there have access to charts up on screens all day long. You think they don't look at them to get a quick visual of how the day is progressing? I could not trade effectively without the DOM, but this notion that professional traders never look at a chart is silly.