Market Depth based Scalper

Hi,

I'm trying to develop a scalper based on the market depth. I have been capturing the market depth for Dax, Bunds & EuroStoxx since a couple of time now.
Although I know some people using it I didn't get much success up to now. Has anyone worked on this kind of strategy, or trading it manually?

Thx

I read the 'Flipping' thread but I can't really see the point with the market depth strategy. I'm looking at market depth patterns and the way it moves... a little like what you would do manually with a DOM.

Francois,

Are you French? Irrelevant, just curious.

I’ve just started following the DOM and in my limited experience, I’m not sure as to its validity re scalping in isolation but in conjunction with other indicators, it may have value.

Re the bund, I think you also need to watch the bobl and schatz – if schatz is moving, the bobl will move (with greater volatility) and the bund will move with even greater volatility

There is a degree of independence (quite a bit, actually) from the schatz but if the schatz has hit a wall, then caution needs to be exercised if one is expecting the others to maintain direction or momentum. Also watch for any breaks of resistance or support on all three for an indication of strength.

Today, the bund bid/ask ratio was 0.3 or less many times, but this didn’t stop it going higher with little resistance.

This has probably been pointed out elsewhere. THE DOM represents limit orders; we can’t know what is waiting with regards to market orders in size (and they appear now and again). Why would someone want to reveal their hand?

Having said all that, with continual observation I’m sure it will yield an advantage, if only at a basic - but point(s)-saving level. Still looking, still learning.

How are you collecting the data for analysis?

Grant.

Yes, I'm french.

Well I see what you mean but does your ratio include several price levels?
I think the trend of this volatile value might be of better interest than the relative value itself.

grantx said:

. . . I’m not sure as to its validity re scalping in isolation but in conjunction with other indicators, it may have value.

Click to expand...

Agree, been looking at the idea off and on for over a year. Trouble is that you don't know which are "real" bids/offers and which are "spoofs" and which are somewhere in-between.

The only conclusion I've come to is that big size on the bid/offer "may" (sometimes to often, depends on market conditions, act as a "magnet" for the price.

I've noticed that as well. Have done some trend analysis?

Francois,

The ratio is derived from the total volume of 10 levels on the bid, 10 levels of total volume on the offer.

DB,

I’ve seen ‘size as a magnet’ often quoted but, unless I misunderstand (not unusual), why should someone decide to buy or sell simply because the size is there, unless you’re referring to small traders being spoofed by the size? This seems reasonable.

Grant.

But isn't spoofing high risk given that we can't see beyond the (limited view) limit orders?
Regardless of how big you are, there is always someone bigger to teach you lesson.

Grant.

grantx said:

DB,

I’ve seen ‘size as a magnet’ often quoted but, unless I misunderstand (not unusual), why should someone decide to buy or sell simply because the size is there, unless you’re referring to small traders being spoofed by the size? This seems reasonable.

Grant.

Click to expand...

Example, let's say scenario where "normal" market size at any one price is of the order of several hundred.

Lets say someone comes in with an order to buy 2500 lots 5 points below the current bid.

Hmmmmm, scalpers are now going to be thinking "I can put an order in to buy a 5 lot 4 points below the current bid knowing that I should be able to lean on that 2500 lot to support the market ie probable max loss of only 1 point"

So, in this scenario, suddenly the scalpers are looking to buy 4 points below the current bid, liquidity falls off a bit and, hey presto, the price falls away 4 points as if magnetically drawn to that 2500 lot.

BUT . . . lets say the 2500 lot guy was a really nasty bit of work, he'll wait till the scalpers had been filled ie were now long, pull his 2500 lot order, sell, say, 1000 to push the market a couple of points lower, all the scalpers, expecting a max 1 point loss are now looking at 4 or 5 point losses, they panic, liquidate their longs into a falling market, market falls even more, scalper closes off his short 1000 lot and goes down the champagne bar.

So, point is, you simply don't know what are "real" orders.

grantx said:

Francois,

The ratio is derived from the total volume of 10 levels on the bid, 10 levels of total volume on the offer.

DB,

I’ve seen ‘size as a magnet’ often quoted but, unless I misunderstand (not unusual), why should someone decide to buy or sell simply because the size is there, unless you’re referring to small traders being spoofed by the size? This seems reasonable.

Grant.

Click to expand...

Maybe they don't decide to sell beacause size is there - maybe size is there because they've decided to sell. Certainly see it a lot - heavily weighted order book in places where there'll be a predictable flood of market orders. And what happens next? Price rushes off the other way...

Db,

I don't think this could be any clearer. So small traders are "spoofed".

I'm surprised that counter-flipping doesn't occur, ie a big player taking the flippers. All part of the game.

Flippin' flippers flipping.

Thanks, mate.

Grant.

Hi Guys,

Hope you don't mind me joining your thread, I did a T2W search on Eurostoxx this being one of the most recent. I've been a T2W member for a while but haven't really posted until now. To cut a long story short I trade Eurostoxx and just took a bit of a hit on my P&L this week and a bit of panick started to kick in. I've looked far and wide and just can't seem to find any info on the Stoxx or a trading room etc. Does any one know of a big eurostoxx trader on T2W or know a website/trading room/club where I can get any info etc.

I'be been trading upto 4 contracts but all my strategies are purely self taught from studying and am really keen to share ideas and get a bit of confidence back.

Any advise, info would be greatly appreciated.

Many thanks,

Chris

Chris,

Try here:

http://www.eurexchange.com/trading_en.html

and here:

http://deutsche-boerse.com/dbag/dispatch/en/kir/gdb_navigation/home

Grant.

Great, thanks a lot Grant, will have a look at both sites.

Unique Scalping Tool??

Hi Francois

I have tried find the ideal tool for DayTrading on non-USA Stocks (FTSE 100) and I came across this.
http://futurescalper.com/product.shtml

You might want to take a look at the 3 videos...........video # 2 is the most interesting and it appears to be unique...........unless anyone knows different.

Mild_Mannered_Jeff said:

Hi Francois

I have tried find the ideal tool for DayTrading on non-USA Stocks (FTSE 100) and I came across this.
http://futurescalper.com/product.shtml

You might want to take a look at the 3 videos...........video # 2 is the most interesting and it appears to be unique...........unless anyone knows different.

Click to expand...

The chap has an interesting trading style and software. I'm assuming that the size of his red and green bubbles are an analysis of the number of trades going off at bid (red) and ask(green)...at least as far as the data consolidation that IB inflicts on its feed allows for. An alternative picture using the same data would be provided by a BAVT chart (Bid Ask Volume Trend)

I find his constant reference to 'Market Makers' rather odd, he seems to mean anyone who is on the bid or ask, whilst 'retail traders' are apparently those who hit the bid/ask. But the conclusions he draws from this information may well have some validity.

Peto,

I watched the first video and was reasonably impressed. Unfortunately, the charting programme looks as if it was designed for children. Strange he requests cv's as a basis for subscription approval (probably just a marketing ploy). Any idea what he charges?

Grant.

grantx said:

Peto,

I watched the first video and was reasonably impressed. Unfortunately, the charting programme looks as if it was designed for children. Strange he requests cv's as a basis for subscription approval (probably just a marketing ploy). Any idea what he charges?

Grant.

Click to expand...

When watching him in action you can't avoid comparing his actions with playing a video game...Top Gun....or ....Tomb Raider, and anyway, every programmer and his uncle has produced a charting package, so I don't think that detracts from what he has done.

My guess is that this is a work in progress that is not quite ready for prime time, but it is a program that points the way to how this sort of thing should be done.

Jeff,

I was “impressed” ; the charting comment was an aesthetic judgement. There is no detraction.

Re your comparison to a video game and the way forward. So what is unique here?

Grant.

Hi,

I've been tracking L2 futures for some time. One thing I noticed is behavior around large orders. If book order is around 2 times bigger than average medium size order, for that time of the day, than it has significant influence on the market. I'll call those orders "bumps", similar to road bumps we have here in London.

It all depends how that big order is "chewed". If market touches that "bump" and "bump" sits there, and quote goes, for example: 40 - 35 - 32 - 28 - 21 - 15 - 7. In other words, if "bump" doesn't budge, but it is steadily "eaten" by the market, than most likely market is going to break out through that level, and it is going to be a big brake out.

If "bump" disappears as soon as it is touched, in other words it was just "bluff", than I haven't observed any influence on market.

For example, few weeks back, there was 305 contracts order on emini Dow Jones on the ask side, around 11:00am London time. I was watching in awe, because at that time of day emini DJ is less than 10 contracts on average, maxing around 40..50. Well, market shot up to that exact level, but order just set there. Market retreated down, and after about half an hour, I guess, every MM in town phoned every other MM in town, and they went second time for that order. That level was broken, in a second attempt, within one minute, and market went up almost 100 points, by the end of the day.

cheers, dejan