I have recently been looking at the DOW mini order book to try to get a clue as to market reversals. I have noted a rather strange IMHO phenomenon. The file attached shows that as the sum of bids below the current price increases the market is likely to fall. Surely that is contrary to what we should see whereby it becomes support. Does anyone have an explanation as to why this may occur?
sandpiper
Well-known member
- Messages
- 458
- Likes
- 54
Or perhaps, the other way round..... i.e. as the market falls, the "sum of bids" increases?
The simplest explanation is that as the market moves either way you will generally see more volume. In this instance because the market is moving down it is exposing limit bids. The size on the ask side would increase in proportion except that tha market has just moved down through that level, i.e. the bids may have been there for hours whereas what you see on the ask side is only progs/people responding very quickly to the move down. Any proportionate increase in sellers is effectively reflected in market sell orders.
Lots of people will tell it's the market going to size. Im some markets/instruments that's true. However, in the case of the mini dow it's cods-wallop.
The simplest explanation is that as the market moves either way you will generally see more volume. In this instance because the market is moving down it is exposing limit bids. The size on the ask side would increase in proportion except that tha market has just moved down through that level, i.e. the bids may have been there for hours whereas what you see on the ask side is only progs/people responding very quickly to the move down. Any proportionate increase in sellers is effectively reflected in market sell orders.
Lots of people will tell it's the market going to size. Im some markets/instruments that's true. However, in the case of the mini dow it's cods-wallop.
frugi
1
- Messages
- 1,843
- Likes
- 133
Just my take on it, not necessarily true. There are traders who know far more than I do about this and I hope one of them responds far more adequately than I have. Edit: See above 
Still...
In certain situations the pros like to stack the book with large fake bids a few ticks below the current price, in order to encourage weak retail longs to buy in front of them (and discourage them from selling). This allows the pros to, for instance, quietly exit long positions and/or build short ones by offering small lots out simultaneously. Once a few weak longs have been sucked in (more fuel for the imminent down move) and the pros are in postion, the bids often disappear, indeed may be flipped to size offers.
There is also the principle of the market trading to size. Size means liquidity for large players and the market often moves to these zones to transact large orders, even (or especially) when it seems illogical for it to do so. The smart participants benefit greatly by proving the majority wrong with these "illogical" moves.
Edit: But in the YM it seems this principle may not apply! :cheesy: (Is this cause there simply isn't a sufficient number of large players or some other reason sand?)
The general idea is that tricks are played in the DOM and appearances can be deceptive. Don't worry about the bid/offer as much as what is actually printing on the tape.
Still...
In certain situations the pros like to stack the book with large fake bids a few ticks below the current price, in order to encourage weak retail longs to buy in front of them (and discourage them from selling). This allows the pros to, for instance, quietly exit long positions and/or build short ones by offering small lots out simultaneously. Once a few weak longs have been sucked in (more fuel for the imminent down move) and the pros are in postion, the bids often disappear, indeed may be flipped to size offers.
There is also the principle of the market trading to size. Size means liquidity for large players and the market often moves to these zones to transact large orders, even (or especially) when it seems illogical for it to do so. The smart participants benefit greatly by proving the majority wrong with these "illogical" moves.
Edit: But in the YM it seems this principle may not apply! :cheesy:
(Is this cause there simply isn't a sufficient number of large players or some other reason sand?)The general idea is that tricks are played in the DOM and appearances can be deceptive. Don't worry about the bid/offer as much as what is actually printing on the tape.
Last edited:
Very true Rog. I recently read West of Wall Street. The author describes how pit traders trade. In essence the only way the can get a feel is by who literally is doing the buying and the selling. Face to face. The retailer can never get this -maybe with CTi but even the I think Rog'a comment is valid. Not much hope then!
sandpiper
Well-known member
- Messages
- 458
- Likes
- 54
tubbs,
As frugi says.. you only have to watch the T&S to realise that half the orders on the order book never get left there long enough to get filled. I wouldn't watch the mini dow order book anyway, but, as an exercise.... watch the DOM, work out how much volume would be required to take out either a swing low or high 5 ticks away and then watch how much volume is actually required to take it out.You'll start to get the picture.
Frugi,
Sorry 'bout that. I just don't believe there is enough size in the mini dow to draw any conclusions regarding liquidity, i.e. size. However I think you are correct about the spoofing in the mini dow. With the relative difference in movement and difference in liquidity between the YM and the ES it seems much easier to "flip" in the YM.
As frugi says.. you only have to watch the T&S to realise that half the orders on the order book never get left there long enough to get filled. I wouldn't watch the mini dow order book anyway, but, as an exercise.... watch the DOM, work out how much volume would be required to take out either a swing low or high 5 ticks away and then watch how much volume is actually required to take it out.You'll start to get the picture.
Frugi,
Sorry 'bout that
. I just don't believe there is enough size in the mini dow to draw any conclusions regarding liquidity, i.e. size. However I think you are correct about the spoofing in the mini dow. With the relative difference in movement and difference in liquidity between the YM and the ES it seems much easier to "flip" in the YM.charliechan
Experienced member
- Messages
- 1,008
- Likes
- 119
this is seen in all markets, not just ym.
i was tempted to give some of my thoughts - but due to recent thread deletions caused by the political motivations and bias of the moderators i dont see the point.
however, all is not lost. there were some ideas posted to this question elsewhere - where they dont go round deleting posts and threads.....
http://www.elitetrader.com/vb/showthread.php?s=&threadid=60664
i was tempted to give some of my thoughts - but due to recent thread deletions caused by the political motivations and bias of the moderators i dont see the point.
however, all is not lost. there were some ideas posted to this question elsewhere - where they dont go round deleting posts and threads.....
http://www.elitetrader.com/vb/showthread.php?s=&threadid=60664
sandpiper
Well-known member
- Messages
- 458
- Likes
- 54
charliechan said:
Chuck,
Didn't think the thread was likely to be that controversial...
You might be right about ET. But most of the time I'd rather poke myself in the eye with a cocktail stick than read the stuff on there.
Anyway, you sound as if you need a does of this:
http://www.guardian.co.uk/rickygervais
I nearly pished myself.
Thanks all for contributing to the thread. Good reading. Not sure whether the order book is a red herring or not. I think in the long run the people tryining to spoof the market is actually the best trading indicator there can be. Pit traders seem to allude to this. Once the market shows its true hand is when to get on board. I am trying to develop some kind of method to achieve this on a daily basis. Not sure I'm that close yet!
sandpiper
Well-known member
- Messages
- 458
- Likes
- 54
Tubbs,
I don't believe the order book to be a "red herring" at all. There are a great many things you can learn through watching it. Does the size disappear when a bid/offer gets hit/lifted? Is the size still there when the market trades away and then comes back? I watch the ES DOM rather than YM simply because it's mainly that which I trade and because I find the big numbers easier to follow than the small ones on the YM DOM, e.g. I find it a lot easier to spot the habitual 1000 lot spoofers.
All of the practices that Frugi pointed out can be observed if you watch the DOM with an idea of what you are looking for. However, ss Rog pointed out, you have to get beyond the obvious...... if there is big size on the bid/offer and it's posted by a limited number of market participants, it's there because someone wants you to see it............
I tend to have an different view about the reasons the markets move to size (but that's what makes the markets go round). I believe that the majority of the time the motivation for doing so is so that the size can be leaned on rather than bought or sold.
Hmmm, not so sure that "spoofing" per se, is a valid indicator of anything. Order flow, on the other hand........
I think you need to develop an awareness of "price discovery" through T&S, i.e. why do certain price levels attract more volume that others?, before trying to extract anything of value from the DOM.
I don't believe the order book to be a "red herring" at all. There are a great many things you can learn through watching it. Does the size disappear when a bid/offer gets hit/lifted? Is the size still there when the market trades away and then comes back? I watch the ES DOM rather than YM simply because it's mainly that which I trade and because I find the big numbers easier to follow than the small ones on the YM DOM, e.g. I find it a lot easier to spot the habitual 1000 lot spoofers.
All of the practices that Frugi pointed out can be observed if you watch the DOM with an idea of what you are looking for. However, ss Rog pointed out, you have to get beyond the obvious...... if there is big size on the bid/offer and it's posted by a limited number of market participants, it's there because someone wants you to see it............
I tend to have an different view about the reasons the markets move to size (but that's what makes the markets go round). I believe that the majority of the time the motivation for doing so is so that the size can be leaned on rather than bought or sold.
Hmmm, not so sure that "spoofing" per se, is a valid indicator of anything. Order flow, on the other hand........
I think you need to develop an awareness of "price discovery" through T&S, i.e. why do certain price levels attract more volume that others?, before trying to extract anything of value from the DOM.
