Reading Depth of Market

[kuokam 10]

Of course it sheds some light, thank you for taking time.

I believe you meant Jigsawtrading.

Actually I have not tried foot prints, I only use cum delta. Will try footprints to see the difference if any. They are all representations of what happened on the dom anyway.

 

 

Cumulative delta shows you the delta for the entire session, and while you can obviously see the changes, I like to see the breakdown at the price levels over time. If we're at S/R or high / low, or congestion, then I can see the absorption and or buy or sell vol drying up. So as the market tests say a top over 5 - 30 minutes I'm looking for decreasing orders hitting the ask at the highs. That is hard to see on the DOM. If the reversal is quicker, often you'll see two to three price levels holding or absorbing the buying. Then buying decreases then the move down. So I use 3, 15 and 30 minute footprint bars to get the picture of the volume and watching the DOM to see the resistance of that volume put up by the resting orders. Because what's happening at 1400 (time) is totally different then what happened at 1000. Also I look at higher time frames in regular candles. Just for reference and I try not to allow myself to form a bias, easier said than done though.

 

BTW all of the posts that say watching the tape is worthless. It is the only way to trade. When the order flow changes price will follow in 80%. Now sometimes it reverses again 5 to 20 ticks lower (higher) but the volume has to be there and to the degree that the buying (selling) is taking out the offers (bids). Traders willing to trade higher (lower). Also are the bids (offers) pulling as price gets close. You see a 3,000 offer 3 prices above and buyers takes out the 2 levels and then that level with just 780 contracts. That 3,000 offer got out of the way. That's how I trade. Also watch the average size (I can see the orders hitting the tape so I get a sense that way), you'll see the lack of bigger orders as the market tops or bottoms.

 

There's a whole lot more to it (still learning) but getting the direction right is at least half the battle. I'm doing pretty good at the entries, now I need to work on the exits. I tend to get out too early. Lately I've been improving there, but you know once you have a 8 to 12 tick profit and it comes back half way its hard, I bail, then get back in. Out of a 10 point move if I get 4 to 5 out of it I'm happy for now. That's where the emotion hits me, when I'm 6 to 8 ticks down in a trade I'm calm. They will head fake and sometimes I double up averaging (goes against the rules but not convinced the rules are totally valid). Usually it's those trades where I make my money. So I'm doubling when others are getting their stops hit. We all have had our stops hit to the tick, got to be willing to put $500 to 600 on the line. My question is will I do it once I'm live. That's the question.

 

Goto Zigsawtrading. Excellent explanation of the 4-way auction theory. If you don't understand that the market is a 4-way auction, stick with the day job. And people that think the resting orders are meaningless. Well watch 10 to 20 thousand contracts trade into the bids in 5 price levels, they hold and see what happens. Get long, if moves down another 6 ticks and another 15,000 hit a smaller 2 to 3 levels double it. That's accumulation. Delta from 6,000 to -16,000 it's crashing, your stops are hit, you might get short, and boom up 25 ticks. If you're long and they break the first level and (where you entered) and the sellers are hitting it hard and the bids don't slow it at another 6 ticks, get out take the loss, don't chase, wait for another shot. If it holds (where you enter) I will often add to the position. So bassically I enter with half size then add the other half. Sometimes I don't get the chance sometimes I do. But a 6 to 8 tick winner is a good thing half size or whole size.... Oh yea winners thats the name of the game. No one has ever gone broke taking a winning trade down.

 

Now I'm not great by any means, and I make it sound easy, its not, but as I simulate trade the more I see it the better I understand it. The better I understand it the more confident I get. No confidence no profits, plain and simple. The DOM shows the excitement the footprint shows the volume distribution over time.

 

It's kind of like poker (yet its not), but when you get pocket aces, you feel pretty confident, can you get beat, yep, but if you bet and and take some guys out of the hand you increase your chances. That's kind of what you have to do here, take the jacks or better trades then make your bet and manage the trade, you'll find if you don't let the losers take a lot of your daily limit, take the winners down, have confidence you'll make money. And practice before you go live. I wish I had the technology and the education I have now 10 years ago.

 

I've tried tick bars volume bars and find that time bars are best. I can see price, I'm looking for what the vol is doing to make the price move or not.

 

Sorry about the wind!!! LOL happy trading, and hope this sheds some light.

[kuokam 10]

Agree you should only be in a trade if you are already in profits that might act as cushion. News time is great for trading because all the participants are present. The only problem is the length of time to let the market calm down and a direction emerge before entering. To me it is 30 min generally but at times after ten minutes the direction is set and you can come back.

 

Correction the new effects the market, you may perhaps be able to see it on the DOM first or better. Quite frankly you are gambling when you hold a position at the news, let the big boys play that game, come in after things settle down.

[mickeybh 10]

Agree you should only be in a trade if you are already in profits that might act as cushion. News time is great for trading because all the participants are present. The only problem is the length of time to let the market calm down and a direction emerge before entering. To me it is 30 min generally but at times after ten minutes the direction is set and you can come back.

 

Two quick things, first at the news usually the market head fakes. Don't know if the bigboys can intentionally do this or if it is a natural result of all the pressure. If I try (and I do) I'm a one lotter and you can get singed. Usually better to wait.

 

Second check out orderflowdashpro.com. Found it over the weekend. Cheaper than Market Delta and might have some features they dont. Anyway why I need MD is because I need to see when they are testing a swingpoint if vol is picking up or slowing down at the extreme. You see those 3 min bars hit the same high or low twice and then move the other way, or subsequent trade takes price higher. That 3 6 10 min vol can tell you a lot about what's gonna happen. You need both the sequence of events (DOM) and the total bid ask at price for that stretch of time (MD). And we know that anything can happen. So that is a set up I like to trade because if I'm wrong I'm out with a small loss. On the DOM it's hard to see because of all the vol that might have been traded at those prices earlier.

 

No matter how you slice it they don't give you much, you've got to take it. As Jock Ewing said to Bobby, "Power is something you take, not earn." Love that quote for you old guys like me who's girlfriends got them into Dallas sooooo many years ago. Well I feel profits in this game are something you take, cause they aint handing them out.

[mickeybh 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

 

Let me try to help. Three websites, look them up on google. Jigsaw trading, nobsdaytrading and alpha reveal. I use jigsaw and just started using alpha reveal.

 

Trading is hard, and you have to be willing to risk money without being afraid. I'm still baffled as to how one day I'm in sync and the next I lose. Here are some of my observations. I will assume a certain level of knowledge.

 

When the 5 levels of bis and offers are divergent (one total larger assume offers larger by 2,000). Say offers are 1,500 to 2,000 higher then the bids, look for accumulation on the bids. What they are trying to do is to induce traders to sell by making the market look weak. They buy on the bids (may be up to 6 price levels. When you see this try to get long with a tight stop. When the totals come back to even a move up may follow. I see the moves happen as the bids and offers are in sync. Also sometimes they fail, new sellers come in and push through the accumulation then the longs start covering and you get a great fast move.

 

If market is moving down look for 2,000+ contracts hitting the bids and price having hard time getting past that bid. Strong bid, refreshing orders, bullish sign. If the market builds up vol on both sides you have to wait to see which way it breaks. Most breaks are false, I try to play with half size and get out if it moves back against me. If I have 2 - 5 tick profit and it starts coming back take the profit (you can get back in). Also if vol picks up to the other side it false broke up then moves down big. That's because there are traders on both sides and one side has to cover. The pros are really really good at faking moves, I actually think at times they are playing each other and we ams get caught in the middle. They move quick we let our losses mount. When the action starts we can freeze like a deer while they are trading quick. That's why these 4 to 6 point moves happen in 4 minutes.

 

The moves happen when one side buyers or sellers are wrong, they know it and start covering. You will see this with the tape going crazy with big orders hitting and price moving quick. If you're wrong hit the reverse key.

 

I try to stay flat and wait till I see clearly absorption or one sided volume. It is hard. I reccomend simulating trade for 6 weeks and see how you do before live. You have to put in the hours to start making sense of it, but you will make sense of it.

 

Goto those websites and good luck.

[mickeybh 10]

No one is saying that what you are doing does not work, and I do not think people are really misinformed. Yet, you are saying that other things won't work:

 

 

 

That is an ignorant position to take, and you will be humbled for being so close-minded about what is most important in successful trading. And what's most important in successful trading has nothing to do with order flow.

 

My charts consist of: footprint, 500V, DOM/TS, 3000/10000V, market profile, 30000/50000V, TICK, and then small reference charts of the 10y, spx, ndx, djia, euro, and dax. I don't have any candles, I only use hilo bars (see my thread "The Close of a Bar is Meaningless" to see just how much I hate traditional intraday candle views). Check the "Day Trading the Emini Futures" thread a few months back (one of my last posts there) for a footprint chart I annotated highlighting how I used it to make trading decisions.

 

I say all of this to say that I am far from "traditional" in my approach, and I rely HEAVILY on order flow to make decisions (in fact, I really have no other way to really read the market). But you are saying that price information alone is not enough to form an edge so as to be able to put capital at risk. But large, huge investors do it every day, with more money than you can possibly ever hope to accumulate, and I guarantee you they don't give a rat's ass about order flow. It works great for you, it works great for me, but it doesn't have to work at all for everybody.

 

 

Yea but those big traders you mention here are trading much larger time frames and averaging their positions. They may have 50,000 eminis from multiple months, along with individual stocks. They are the institutional traders that trade the IRAs 401ks of the world. They buy and sell all the time, we on the other hand have to earn our living day by day, and we best be comfortable in whatever method we use to make our decisions. If we have no confidence just don't even bother you will lose.

 

I am also an order flow guy, along with market delta footprint so I can see the accumulation of the bid ask vol. That's why I can confidently get long when I see 15 to 25 thousand contracts hitting the bids in 6 price levels and 10 to 15 thousand on the ask in a 30 minute or so period. I will try to get long at the lower end of that range. If it breaks lower I'm out or reversed, higher I ride. But that's me it may not be you.

[Chartsky 10]

Agree you should only be in a trade if you are already in profits that might act as cushion. News time is great for trading because all the participants are present. The only problem is the length of time to let the market calm down and a direction emerge before entering. To me it is 30 min generally but at times after ten minutes the direction is set and you can come back.

 

This may be a little off-topic as far as how to read the DOM but I agree that you can hardly beat the ES market after major news, like Non-Farm Payroll or tomorrow's (9/18) FOMC Statement. The big boys (Hedge Funds, Retirement Administrators, etc.) have to adjust their positions many times and they don't just dump 50,000 contracts in at market. You can usually see where they're going as they're averaging in and jump on board with whatever volume you can afford to trade. And I don't usually wait more than 3-5 minutes but everyone knows how he/she does it best. Gold moves dramatically and Crude Oil is often hysterical, but trading 2 ES contracts is $25 per tick, 4 is $50 per tick and so on . . . and you can avoid the head-fakes from the more volatile, hysterical markets.

 

But also watch the DOM. Volume basically dries-up to 1500 per side (or less) in ES and you can see the institutions coming in as volume on the DOM increases.

 

Two quick things, first at the news usually the market head fakes. Don't know if the bigboys can intentionally do this or if it is a natural result of all the pressure. If I try (and I do) I'm a one lotter and you can get singed. Usually better to wait. * * *

 

Agreed. The head-fakes are amateurs who guessed (gambled) wrong. The big boys aren't usually interested in head-fakes at major news time. They have to get positions adjusted and buy/sell 50,000 or more contracts at the best prices available. Do they rush? No. They've got deep pockets and time on their side. But they also clearly show where they're going and I've found you can take little bites pretty easily.

 

Good Luck!

Chartsky

www.chartsky.com

[mickeybh 10]

This may be a little off-topic as far as how to read the DOM but I agree that you can hardly beat the ES market after major news, like Non-Farm Payroll or tomorrow's (9/18) FOMC Statement. The big boys (Hedge Funds, Retirement Administrators, etc.) have to adjust their positions many times and they don't just dump 50,000 contracts in at market. You can usually see where they're going as they're averaging in and jump on board with whatever volume you can afford to trade. And I don't usually wait more than 3-5 minutes but everyone knows how he/she does it best. Gold moves dramatically and Crude Oil is often hysterical, but trading 2 ES contracts is $25 per tick, 4 is $50 per tick and so on . . . and you can avoid the head-fakes from the more volatile, hysterical markets.

 

But also watch the DOM. Volume basically dries-up to 1500 per side (or less) in ES and you can see the institutions coming in as volume on the DOM increases.

 

Agreed. The head-fakes are amateurs who guessed (gambled) wrong. The big boys aren't usually interested in head-fakes at major news time. They have to get positions adjusted and buy/sell 50,000 or more contracts at the best prices available. Do they rush? No. They've got deep pockets and time on their side. But they also clearly show where they're going and I've found you can take little bites pretty easily.

 

Good Luck!

Chartsky

www.chartsky.com

 

 

 

Unfortunately for me I had to be in meetings yesterday. Still teed! However the way I play these big news events especially the FMOC is to simply put a stop buy above and stop sell below at the news release time. Worst case it head fakes me down executes the sell then goes and executes the buy. In that case you lose, but you lose the spread usually 5 points or so. I do that with half size then add the other half if the market is going my way (whichever way). Yesterday was a good example of how this would have worked well. Don't know if I would have gotten the other half on or not.

 

I agree the big boys are averaging, but they all don't agree on direction, so there is a lot of two sided trade. Anything done by the little guy at theses events is a pure gamble, even the way I do it. Many times the market moves one way then the other. Most of the time I'll get a little out of it. The only way to be a consistent winner is to trade with whatever works for you and trade with confidence and win.

[Predictor 11]

I've thought about that, and I can see how that strategy could work but seems like a high risk strategy where you don't have much of an edge. I think trading reports is better suited to options/spreads. You could buy an OTM spread or use NADEX binaries or options. I think buying an OTM option would be better way to play reports because your able to cap your risk. If the market doesn't move much, you can just close them out for small loss or break even.

 

Goes without saying, its impossible to read tape during the runs caused by reports. But, sometimes you can wait until the tape turns and take the opposite side. What can work is to wait for the momentum to run out... read the tape and watch for it to turn to take the other side. Even that is a rather high risk trade because any mistake can cause a big loss. Buying a retracement after a report moves strong in one direction can work very well, if offered.

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Home - OrderFlowDashPro

[Predictor 11]

Mitsubishi,

You may notice there is a thread about how traders don't post on these forums anymore because of trolling. As far as our platform, we have traders switching from platforms that are very expensive and switching to our platform from platforms that aren't expensive at all and each says something that is encouraging to me. But our platform won't appeal to everyone, I use a lot of trading platforms in my work. What we built is very specialized because the other platforms didn't meet the specific needs I had.

 

I don't know why you think GS traders are so great. A successful trader must be better then the entire market which is a lot bigger and smarter then GS. Of course, its impossible to better then everyone at everything which is why I was sharing a concept when I made that post regarding something known as Selective Advantage.

 

In fact, I'd wager that any day trader who's profitable is going to be better at what he does then most traders at big hedge funds. I seen another joker trying to compare day trading with a max daily loss limit to a hedge fund performance. They aren't even comparable because most of the hedge fund profits comes from huge diversification, market neutral trading, strategies that aren't available to retailers such as complex yield curve trades, and time value of money. To be clear, if you gave the average trader who makes 30% per year trading 100k and said okay you risk $500 max per day and day trade it then he wouldn't be profitable. They aren't even comparable because the trader who makes 30% year is typically making a lot of that through diversification, holding through drawdowns, etc.

 

I don't see why you would think that a trader who trades complex yield curves would be great at predicting very short term moves in the S&P 500. If you want to talk just dollars then Warren Buffet is probably the best trader of all time. Does that make him better then a trader who makes millions at GS trading curves or building black boxes? No, each has a selective advantage.

Edited September 19, 2013 by Predictor

[Chartsky 10]

@Predictor . . . I think you're saying the Hedge Fund Guy couldn't make much, or anything, being given $100K and limited by a $500/day loss limit? If so, I agree completely. I think we day traders that can make money consistently on such short-term trades could do it almost as well on a longer time frame . . . but I've found I don't enjoy exposure to these modern computer markets for any longer than necessary. I can also buy-sell-buy-sell-buy multiple scalps while a swing trade has a single leg extension.

 

Chartsky

www.chartsky.com

 

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In fact, I'd wager that any day trader who's profitable is going to be better at what he does then most traders at big hedge funds. I seen another joker trying to compare day trading with a max daily loss limit to a hedge fund performance. They aren't even comparable because most of the hedge fund profits comes from huge diversification, market neutral trading, strategies that aren't available to retailers such as complex yield curve trades, and time value of money. To be clear, if you gave the average trader who makes 30% per year trading 100k and said okay you risk $500 max per day and day trade it then he wouldn't be profitable. They aren't even comparable because the trader who makes 30% year is typically making a lot of that through diversification, holding through drawdowns, etc.

 

* * * (Underline added).