Depth Market: is It Useful Information?

[stasbz 10]

Hello!

times and sales is useful information.

But what about depth market? Can we determine buy and sell pressures?

i have watched ES and down trand day were more orders on offer and up trend day were also more orders on offer, but market goes up.

[Do Or Die 10]

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  MightyMouse said:

When the bid is stacked on the DOM one would guess that there are many traders trying to buy at the same time. since there appears to be more buyers than sellers. One could look at it and think the market is poised to go higher. This guess could cause an unsuspecting buyer (either a weak long or a scared short) to buy via market order so as to not be left behind. Those with the large buy orders are actually trying to get buyers to jump ahead of the bid and buy right into their standing sell orders. The buy orders are almost all fakes and are really sellers who have standing sell orders and want to get filled as high as possible. Once sold and presumably ( for this example) short, then they will distribute more contracts or shares into the standing buy orders and attempt to force the weak longs who enter long to sell lower into the sellers standing buy orders.

 

There are multiple variations of how this can unfold. you can get clues by watching the DOM and T&S. So, for example, if the bid is stacked and there are a lot of trades going off at the ask, you can expect a different reaction than if the ask is stacked and there are a lot of trades going off at the ask.

 

You can gain good information by watching both.

[brownsfan019 17]

In this thread from 2007 (thank you TL search) I documented what appeared to me at the time as games on the DOM.

[cjforex 10]

Isn't this similar to the old "tape reading"?

 

-cjforex-

[MightyMouse 12]

The Dom and T&S, in my mind, provide the the most immediate view of the current market conditions that are available You're going to need to become a student of that particular market to effectively use the DOM and T&S. There are a lot of different combinations of what you can see and you need to learn what each of those mean when the market is at the high for the day, the low, with high volume, low volume, no volume, net selling, net buying, inside buying, outside buying, inside selling, outside selling, etc.It takes time to learn what each combination means but it is worth it because when you understand what is going on, then you will be on the right side of the market and have confidence to stay in longer and get bigger gains.

 

You'll also learn how blind you have been and why 90% (or whatever percentage is right) lose. Markets do not move because of a particular pattern exists; instead they move because there are enough traders willing to buy above the bid or sell below the ask. Generally, the opposite of the expectation happens a lot when a popular pattern exists.

.

Edited September 1, 2011 by MightyMouse

[TheNegotiator 13]

In my experience, most depth of market products are designed so poorly that they offer very little use to me as a trader other than order entry. I have hassled companies in the past such as Ninja to see if they might implement some changes, but to no avail. In my opinion currently the only product which allows you to properly 'read' the DOM is Trading Technologies X-Trader. Btw you will need a pretty decent connection if you wish to trade in this way. An alternative method for reading the information the DOM should provide is by using bid x ask style charting which was made popular by Market Delta (I believe). It is available via other platforms now. Sierra I think have it. You can pay for Ninja add-on indicators which use it. I'm sure there are others too.

 

I don't really use the market order book depth much in the sizes queuing, although it can be useful if you watch it a lot to see when the 'game playing' is about to begin.

[brownsfan019 17]

  MightyMouse said:

The Dom and T&S, in my mind, provide the the most immediate view of the current market conditions that are available You're going to need to become a student of that particular market to effectively use the DOM and T&S. There are a lot of different combinations of what you can see and you need to learn what each of those mean when the market is at the high for the day, the low, with high volume, low volume, no volume, net selling, net buying, inside buying, outside buying, inside selling, outside selling, etc.It takes time to learn what each combination means but it is worth it because when you understand what is going on, then you will be on the right side of the market and have confidence to stay in longer and get bigger gains.

 

You'll also learn how blind you have been and why 90% (or whatever percentage is right) lose. Markets do not move because of a particular pattern exists; instead they move because there are enough traders willing to buy above the bid or sell below the ask. Generally, the opposite of the expectation happens a lot when a popular pattern exists.

.

 

I'd love to see some examples of this MM. Sounds great in theory, but care to elaborate?

[gosu 10]

For me, the DOM ranks very low in usefulness, and I no longer monitor it. I look to the bid/ask and t&s when an action is required. Almost 100% of my monitoring is spent on price and volume on the charts.

[MightyMouse 12]

  brownsfan019 said:

I'd love to see some examples of this MM. Sounds great in theory, but care to elaborate?

 

There is nothing exact nor scientific about it.

 

There is an incredible amount of detail needed to describe it, but i will give it a shot

 

Take an example of when price is high in a range (any time frame), volume is low, price range is wide, and the delta is low. If I were long, I would want to see the offer stacked( more orders on the ask side of the dom) and the trades taking place on the offer. You will be able to see the traders occurring on the T&S to determine if the trades are occurring at the offer.

 

The trades that occur at the offer are patient sellers and aggressive buyers. Patient sellers are typically going to be traders who try to sell high and buy back lower or traders who bought below and have standing limit sell orders. The aggressive buyers are either aggressive longs or shorts that are running for cover.

 

If I am already long, I need to determine if I want to exit, stay, or add. If the trades occur at the offer and offer is stacked and the market has been spending a lot of time in a smaller range up at the high, I will take the breakout of that range as my cue for what to do next. If we break out up, then i stay and decide if I am going to add. I stay long, because I can expect the patient sellers will begin to cover which will add to the trades occurring at the offer and prices will rise which is good for my long. You can see this occurring in the T&S. I also want to see the offer remain stacked.

 

If we break out lower, I will exit the trade. I will exit because it appears to me that the aggressive buyers are going to be made to cover lower so I need to be out of my long. This could be the wrong decision if the aggressive buyers were actually just traders covering their shorts. Now you have a potential scenario where there are a lot of patient sellers who are short and they have no one to buy back from. I would get back in long ( at a better or worse price) if the dom was again stacked on the offer and we broke out higher of a smaller range within the larger range.I would not get back in long if the bid was stacked and the trades where occurring at the offer.

 

Given the same original scenario where we are at the high end of a range, but instead the bid is stacked, I would not stay in if the trades where occurring at the offer. In fact I would get out right away instead of waiting for the price to break out of a smaller range.

 

I hope this makes some sense in how to make use of the T&S and the DOM in trading decisions. it is easier and faster to think this than it is to type and describe it.

 

MM

[joshdance 10]

If you want to see a great example of how the DOM can be used to make trading decisions, download some market replay for Wednesday, August 31, for the October CL contract, and watch things around 7:30am to 8:30am. Notice the heavy bids on the DOM on the lows, and notice how despite the best efforts from the sellers in several different tries, how the sellers keep hitting the bids at the low, and simply can't take it lower. I bought .80 (IIRC), low was .67 I think. This is an example of REAL bids, getting eaten up, not spoofing. The sellers were simply relentless, and the bids kept holding. Low risk, good trade location (which is most important IMO).

 

One of the things I have found useful is to watch the tape and DOM after a price reversal at a potential turning point, say after a nice move up at a previous day's high--after sellers have held the prior day's high, and taken it down a bit, buyers will of course (99% of the time) buy back to try one more time after a small retrace. When this happens, sometimes you will see orders at the offer going off very quickly, yet price does not move up. Say the high was 89.10, we've retraced down to 88.90, and buyers buy back up to 89.00. At 89.00, if there are heavy buy orders going at the offer at 89.00, yet 89.00 cannot even go bid, then what you may be seeing is a good confirmation that sellers are convinced that a reversal is in play, and they are wanting to get in before a nice reversal.

[gosu 10]

  joshdance said:

* * *

One of the things I have found useful is to watch the tape and DOM after a price reversal at a potential turning point, say after a nice move up at a previous day's high--after sellers have held the prior day's high, and taken it down a bit, buyers will of course (99% of the time) buy back to try one more time after a small retrace. When this happens, sometimes you will see orders at the offer going off very quickly, yet price does not move up. Say the high was 89.10, we've retraced down to 88.90, and buyers buy back up to 89.00. At 89.00, if there are heavy buy orders going at the offer at 89.00, yet 89.00 cannot even go bid, then what you may be seeing is a good confirmation that sellers are convinced that a reversal is in play, and they are wanting to get in before a nice reversal.

 

A nice description of an actionable event. I monitor for essentially the same data but on the inside bid/ask and t&s.

[MightyMouse 12]

  joshdance said:

If you want to see a great example of how the DOM can be used to make trading decisions, download some market replay for Wednesday, August 31, for the October CL contract, and watch things around 7:30am to 8:30am. Notice the heavy bids on the DOM on the lows, and notice how despite the best efforts from the sellers in several different tries, how the sellers keep hitting the bids at the low, and simply can't take it lower. I bought .80 (IIRC), low was .67 I think. This is an example of REAL bids, getting eaten up, not spoofing. The sellers were simply relentless, and the bids kept holding. Low risk, good trade location (which is most important IMO).

 

One of the things I have found useful is to watch the tape and DOM after a price reversal at a potential turning point, say after a nice move up at a previous day's high--after sellers have held the prior day's high, and taken it down a bit, buyers will of course (99% of the time) buy back to try one more time after a small retrace. When this happens, sometimes you will see orders at the offer going off very quickly, yet price does not move up. Say the high was 89.10, we've retraced down to 88.90, and buyers buy back up to 89.00. At 89.00, if there are heavy buy orders going at the offer at 89.00, yet 89.00 cannot even go bid, then what you may be seeing is a good confirmation that sellers are convinced that a reversal is in play, and they are wanting to get in before a nice reversal.

 

Your are describing almost the perfect opposite of my example at the high.

If I was short in your first scenario, with price at a low, I would want the dom to be stacked on the bid. I would want to see an increase in volume and trades going off at the bid on T&S and I would like the delta to be net higher for the range to stay short. If price stayed in a small range for a relatively decent amount of time and then broke out of that range up, then I would exit my short. I would give up whatever the range was, typically 10-25 ticks, from the low.

I would not enter long until I got a minimal price reversal and solid signs that the result of the trades at the bid was aggressive selling and not just weak longs exiting and I would want to see the bid and offer reverse polarity so that the offer is stacked and trades going off at the offer.

 

The added step to get long is my way of making sure that the trades that occurred at the bids were aggressive sellers and not just weak longs exiting. If they were weak longs, getting stopped out, I wouldn't expect a price move back up. If there were aggressive sellers shorting at the low, they are likely going to be made to cough up their positions higher.

 

I am not suggesting this is the right way. This is not science. I am describing, as in my previous post, what I do to make myself feel confident to remain in a trade or exit a trade using the dom and t&s.

 

Josh, this should look somewhat familiar.

[joshdance 10]

  MightyMouse said:

I am not suggesting this is the right way. This is not science. I am describing, as in my previous post, what I do to make myself feel confident to remain in a trade or exit a trade using the dom and t&s.

 

Josh, this should look somewhat familiar.

 

Thanks MM, good stuff, and from what you have explained to me before, yes it is familiar, only I have a better understanding of it now that I have seen more and more of it!

[pbylina 10]

  brownsfan019 said:

In this thread from 2007 (thank you TL search) I documented what appeared to me at the time as games on the DOM.

 

How the hell did I miss this thread?

[pbylina 10]

  TheNegotiator said:

In my experience, most depth of market products are designed so poorly that they offer very little use to me as a trader other than order entry. I have hassled companies in the past such as Ninja to see if they might implement some changes, but to no avail.

Yep, Ninja doesn't listen. They're probaly happy with the money they are making already and dont care to improve anything. But also TT might have a patent for some of the features like the little box next to the BID/ASK that shows how many orders printed at that price...Not sure.

 

  Quote

In my opinion currently the only product which allows you to properly 'read' the DOM is Trading Technologies X-Trader Btw you will need a pretty decent connection if you wish to trade in this way.

Do you mean someone needs to have a fast internet connection. How fast specifically?

 

  Quote

I don't really use the market order book depth much in the sizes queuing, although it can be useful if you watch it a lot to see when the 'game playing' is about to begin.

Can you explain what this size queuing is?