Bid/Ask Analysis

[a0-0b]

Here's the possibly off topic and probably silly question of the day. But it makes sence to me:

Is it possible to compare the volume of trades at bid vs. the volume as ask to get an indication of buying/selling pressure? You don't really get this from price of volume. And if it is possible, do you need Level 2 to get the bid/ask, and what tools would let you do that.

Thanks,

a0-0b

 

[Over the Top]

yes you do need LII. Almost all LII front-ends I have seen automatically provide a balance of Bid/Ask volume - if only at the inside. Many are customisable to depth.

 

[dbphoenix]

Depends on what you want, a0. Looking at what's being made available at the bid or ask may be useful if you're going for ticks, but may be largely (entirely?) irrelevant if going for larger moves.

As to getting indications of B/S pressures from price, this is largely a matter of practice. Look, for example, at how quickly price reaches a certain level, how long it stays there, how much activity there is while it's sitting, while it's moving, how many retracements there are, how deep they are, etc. At some point, you'll know what's being offered or asked for without having a TS window open or LII, just as you'll know what the commonly-used indicators are doing without having to plot them.

--Db

 

[Stockjunkie]

>>Is it possible to compare the volume of trades at bid vs. the volume as ask to get an indication of >>buying/selling pressure? You don't really get this from price of volume.

surely you mean " Is it possible to compare the volume of trades at bid vs. the volume at ask to get an indication of buying/selling pressure? You don't really get this from price or volume. "


If so this is commonly called the depth of market . On the face of it , it may look like you can predict market direction from this . But using this alone is a newbie mistake.

It must be noted that there can be false bids / offers , big orders done by hitting the prices and not placed there , overall market momentum must also be factored in .

If you account for this then at least for the very short term it is a very useful tool .

 

[frugi]

I think ao-ob is interested in the actual transactions at the bid/offer as opposed to (as well as?) what is simply being 'made available' at various levels in the DOM.

Separating transactions into bid and ask gives rise to interesting questions like - Who's hitting the bid really heavily at this late stage in a down trend and why? Why is the market falling despite ask volume being higher? The ask volume is really aggressive, yet the price has stalled a little near this potential resistance level - so who is really selling to whom and what does this mean? People with different motives will choose (or at least try) to transact on one side or the other at certain points in the cycle and it can be useful to try and suss them out.

(The challenge of course is to do this and answer them correctly in every market context. One of my dreams. )

If so, you don't necessarily need level 2 for this. There are a number data providers / software vendors which allow one to separate transactions into bid and ask volume, such as eSignal, Marketdelta and Trademaven. Marketdelta offers some possible ways to analyse the data, but they are rather simplistic.

There are several discussions about this on Elitetrader too, but plenty of misinformation to step through. Here's one to get started.

http://www.elitetrader.com/vb/showt...40&highlight=bid/ask and volume&pagenumber=11

 

[a0-0b]

I think ao-ob is interested in the actual transactions at the bid/offer as opposed to (as well as?) what is simply being 'made available' at various levels in the DOM.

Exactly, Frugi.
And to quality further, i don't scalp or trade from tick data directly, but i think i'd need a tick source to get the info i need.

Thanks for the link.