Trading "THE WALL"

[darklost 10]

Hello, I often notice large orders at key levels, and the price SEAMS to get there more often than not, I always wandered if there is a way to trade this with an edge, so I decided to make videos of the DOM when I see these "WALLS", I'm not trading this and just want to receive the opinion of other people and want to track what I see.

 

I noticed these WALLS in stocks, futures, these last weeks I'm following a cople of italian stocks (I'm from italy) and noticed that they often have "WALLS" at round number or high/low of the day, and I decided to make a video each time I see this.

 

If you want to upload your videos too, this will be very apreciated.

 

I recorded a first video today where I just include the DOM I will add time and sales and charts to the next ones.

 

sorry about my english

 

 

don't know why it posted the video twice

Edited February 17, 2012 by darklost

[bobbakerr 10]

I often notice what you observed. I trade CL and it's 'fun' to watch the price whoosh right through those huge orders. I came to the conclusion years ago that Price tends to move towards the Volume. The larger the Volume the more the Price will move to it, and usually take those orders out. And then keep going.

 

I believe it's the really Big Money seeing many contracts or shares readily available, and these Big Boys will take the price in that direction to accumulate huge Long positions or huge Short positions. It's a legal way to manipulate the market. But you need a TON of money to do it!

[joshdance 10]

These are only orders and are easily added and removed. Some people claim to trade off the DOM but in my opinion it is a waste of time.

[Predictor 11]

I agree with Josh. I do offer some great order flow techniques and there are other professional traders who use the order flow. Dr. Steenbarger wrote a lot about the order flow on his blog for free. I feel I'm offering some of the best instruction on this now. There another trader/vendor here too Urmablume who wrote some interesting stuff on trading order flow.

 

Now having said that... most HFT systems do not look at any past trades. They are ONLY looking at the orders but they are able to "cheat" by placing offers and canceling them. If you want to try to trade off the book then you're attempting to market make. In order to market make, you need quite a few complicated pieces such as an inventory management system, a queue estimation system, and some way to "lay off the risk".

 

Even if you were able to see something in the DOM then its probably going to be worth less then 1 tick which means you'll have to place a LIMIT order and in order to do that you need the ability to estimate your probability of getting filled in queue.

 

All of this means that these sorts of edges -- if they even exist -- are only suitable for those who are building automated HFT systems. I don't doubt there may be something to what you're seeing. For example, it is certainly possible that some arbitrage system was loading orders into the limit to near simultaneously execute in another market.. As soon as that opportunity is gone, perhaps within milliseconds, those trades could be pulled.

 

Obviously, to be able to make sense of such micro edges in real-time, execute, AND get your orders to the exchange is going to be a virtually insurmountable task for the discretionary trader. I think that looking into some of the other routes I've suggested will prove more fruitful.

 

Thanks,

Curtis

The Market Predictor

Edited February 18, 2012 by Predictor

[joshdance 10]

I often notice what you observed. I trade CL and it's 'fun' to watch the price whoosh right through those huge orders. I came to the conclusion years ago that Price tends to move towards the Volume. The larger the Volume the more the Price will move to it, and usually take those orders out. And then keep going.

 

I believe it's the really Big Money seeing many contracts or shares readily available, and these Big Boys will take the price in that direction to accumulate huge Long positions or huge Short positions. It's a legal way to manipulate the market. But you need a TON of money to do it!

 

Sometimes those orders are filled, but sometimes they are pulled and there is a vacuum of liquidity which causes the market to move quickly.

 

Certainly if an entity wants to accumulate long contracts, it can place the orders lower than the market, and then sell towards its own orders (the resting liquidity) in an effort to induce others to sell, thereby achieving price improvement on an existing or new position.

 

Then again, an entity could be very eager to be filled and could be buying at the market towards higher resting liquidity in hopes of the market continuing in that direction (possibly taking the other side of the entity described in the prior paragraph's scenario).

 

Then again, these are just two possible scenarios. There are no doubt many motivations and reasons for things we observe in the market that are simply beyond our ability to make sense of, as different market players may have very different goals (some wanting to secure a tick, others hedging against another position and not really caring or wanting the market to go their way, and so on).

Edited February 19, 2012 by joshdance

[MightyMouse 12]

The wall of sell orders when a price breaks a high, or any perceived key resistance area, are buyers who want sellers to panic and sell lower into their standing limit buy orders, thereby getting a slightly lower price for their long entry or their short exit. Generally, when the offer is stacked, the intentions of those trading is to take price higher.

 

No need to marvel at their brilliance since it frequently backfires. The traders attempting to force price downward to enter lower or exit their short positions at a lower price end up short or shorter which is counter to their intentions. In other words, these traders now have larger short positions to exit at higher prices or are short when they intended to be long. These situations make for awesome moves. The moves are generally stimulated by large fish attempting to eat large fish. As a small fish, you need to decide whether these are waters that you should be swimming in.

 

There is no "smart" money; instead, there are long term well capitalized traders and short term well capitalized traders or long term poorly capitalized traders and short term poorly capitalized traders. Of course there are all the in betweens, but those are the extremes to either expect to get paid from or steer clear of.

[darklost 10]

another one, but it is from last december, I found it in my video folder, this time there is a huge wall at the high of the day, the wall is broken but just one tick and the market reverse

 

minute 2.34 is where the action take place

 

Edited February 20, 2012 by darklost

[joshdance 10]

darklost,

 

1) You should just post a link to the youtube site since the videos are too small to observe in the small window

2) The numbers are very hard to see at this resolution.

3) If you want people to look at something, you need to specify exactly the place in the video to watch (like, say "3:50" for 3 minutes, 50 seconds into the video) -- this way we can jump to it and look at it, instead of having to figure out where it's at.

[darklost 10]

darklost,

 

1) You should just post a link to the youtube site since the videos are too small to observe in the small window

2) The numbers are very hard to see at this resolution.

3) If you want people to look at something, you need to specify exactly the place in the video to watch (like, say "3:50" for 3 minutes, 50 seconds into the video) -- this way we can jump to it and look at it, instead of having to figure out where it's at.

 

hello joshdance, thanks for your inteterst in the thread,

 

I'm going to edit the post and just put just the link, I know that this way you can't see anything but you just have to put the video in full size...

 

I posted all the video because maybe you could be interested on watch all the action, I'll try to put the place too.

[darklost 10]

darklost,

 

1) You should just post a link to the youtube site since the videos are too small to observe in the small window

2) The numbers are very hard to see at this resolution.

3) If you want people to look at something, you need to specify exactly the place in the video to watch (like, say "3:50" for 3 minutes, 50 seconds into the video) -- this way we can jump to it and look at it, instead of having to figure out where it's at.

 

I copied just the link to the page in you tube and this time it shows the preview just one time, you need to click on the full screen mode to see the details, also you should switch to HD resolution.

[Predictor 11]

Okay, I've found one pattern in the DOM that may be worthwhile. But there is no way that I can execute on it. The idea is pretty simple: the volume on the DOM is spoofed and therefore not worth much.

 

So how do we know what is real on the DOM? The only way to know is by watching the inside bid/ask. But, this is going to be spoofed too except when the liquidity providers have to pull out, at which point it will show the real volume. The idea is that whoever is sitting on the LIMIT side has some knowledge and thus when they pull out (offer liquidity drops) then the risk is higher the market will tick higher.

 

So, what you're actually looking for are SMALL PRINTS in the book. This tells you there is more risk to the market moving in that direction because no one is willing to spoof/offer orders there.

 

Again, there is very little opportunity to execute on this manually. It only last for a split second. Likewise, even though it tells you the market is more likely to move, it doesn't help you get in.

 

Best to focus on things we can actually do and leave this to those who have the technology... the market already moves fast enough for me when trading for a few points!

 

Curtis

The Market Predictor

[squishy 10]

(The following description is from Camron School of Trading: Year4 - Term2. The entire site is worth a read if you are interested in DOM. The DOM "games" described are mostly evident on the NQ right now, hard to see on ES and less prevalent on TF and YM)

 

Assume the market is going up. When a large order appears in the queue above the market, one of three responses can occur. (a) The market reverses, (b) comes to a stand still, or © goes straight through it. Usually, the market will trade up to but not touch the order, bouncing off it and retracing slightly. Then it has another look. And another. It will oscillate for some time, through a range of 5 to 6 points. Assume 5 points for the purpose of this discussion. During the oscillation process particular care needs to be exercised, examining the size of orders 5 points below. That's where the sheep dogs work. Sheep dogs are medium sized orders large enough to hold the market up. If the sheep dogs appear then look for a REVERSAL, otherwise look for a BREAKOUT.

 

THE BREAKOUT. If it is going to go through it, once that moment arrives, 1 of 2 things can occur. (a) the order is nibbled away in small chunks like termites, or (b) the large sell order will be pulled out. Once the termites start they don't stop. However whether it is pulled out, or taken out by the termites, the market will continue on through. Until the termites get to work, the market will oscillate, and the sheep dogs will not appear. So what are the sharks doing. They will feed during the oscillation process. If the commercial bid ask count is positive for this time period, they are buying, and, the sheep dogs will not appear. The termites will appear, eventually, after the sharks have had their fill.

 

THE REVERSAL. If it is not going to go through it then the large order will (a) never be touched, or (b) will be taken out entirely in 1 hit. If it is taken out suddenly in 1 hit the market rarely continues on up more than 1 or 2 points. If it is going to reverse (because it is a genuine top) it is likely that medium sized orders will appear 5 points below to keep the sheep penned in while the sharks get their fill. So what are the sharks doing. They will feed during the oscillation process. If the commercial bid ask count is negative for this time period, they are selling, and the sheep dogs will appear, and, will then disappear, after the sharks have had their fill. If the sheep dogs appear, then, the termites won't. And the large order will either (a) stay there, and not get touched or (b) get taken out in 1 hit. It's a probable top.