How do you interpret market orders?

[CallMePaul]

OK, first of all, I am new here and to the trading world, and although I have read a lot and traded a quite a bit, I yet don't feel super comfortable.

The following question will be super basic, I even hesitated asking because it might sound stupid, but I really need to understand the psychological way I should "read" orders in the market.

So here the scenario and question:

Suppose you are following a chart together with a Times & Sales table. The stock is going up (and you are long with it) with orders with an average of 1000 (just as an example). Then suddenly out of nowhere you see selling order for 30000.

And this is the part were my brain gets confused.

Initially when you see such a big selling order you would think "If they are selling that much, the market might be going down, they might now something, why would they sell now if I think exactly the opposite, its time to sell!"...and on the other hand you realize that for someone to sell there must be someone to buy...so, here is the question. How should I look at big orders in any direction. Are they more important that any average order? In case you are long, is a big selling order necessary bad considering that there is someone also buying that big order on the other side?

I am a bit lost, hope to get some light on how should I approach this thinking.

Thanks and I hope to be an active participant here.:clover:

 

[Trader333]

This depends on the liquidity of the stock being traded. Some stocks can have 30K shares transacted and that may be a drop in the ocean and wouldn't move the market at all. I would suggest that if the stock is less liquid that you see what the effect of the trade of 30K shares makes to the price. If selling 30K shares makes the stock decline in price then keep watching and see if it starts to recover. If the price holds then clearly someone thinks the stock is still worth the price before the 30K were sold.

Also, for anyone who is really in the know about a certain stock, they would not try dumping so much in one go in case they are unable to get the best price for it. They would probably do it over a longer time frame and that way are less likely to find that their transaction would cause a sudden drop in price.

 

[lucas_king]

OK, first of all, I am new here and to the trading world, and although I have read a lot and traded a quite a bit, I yet don't feel super comfortable.

The following question will be super basic, I even hesitated asking because it might sound stupid, but I really need to understand the psychological way I should "read" orders in the market.

So here the scenario and question:

Suppose you are following a chart together with a Times & Sales table. The stock is going up (and you are long with it) with orders with an average of 1000 (just as an example). Then suddenly out of nowhere you see selling order for 30000.

And this is the part were my brain gets confused.

Initially when you see such a big selling order you would think "If they are selling that much, the market might be going down, they might now something, why would they sell now if I think exactly the opposite, its time to sell!"...and on the other hand you realize that for someone to sell there must be someone to buy...so, here is the question. How should I look at big orders in any direction. Are they more important that any average order? In case you are long, is a big selling order necessary bad considering that there is someone also buying that big order on the other side?

I am a bit lost, hope to get some light on how should I approach this thinking.

Thanks and I hope to be an active participant here.:clover:

Hi Paul,

I think your approach is correct. A big ‘sell’ order is a tell-tale sign.

However, I would only use this as an indicator. You’re right – a big sell needs a buyer. But if you’re seeing it on the equity order book rather than the ‘time and sales’, it doesn’t necessarily mean the order will be filled (i.e. find a buyer), so it could provide you with a good indication of the ‘next move’ and immediate sentiment.

I would suggest using other indicators in conjunction with this. Will make trading decisions more certain (as far as they can be!).

Hope it helps. Good luck!

 

[wino59]

OK, first of all, I am new here and to the trading world, and although I have read a lot and traded a quite a bit, I yet don't feel super comfortable.

The following question will be super basic, I even hesitated asking because it might sound stupid, but I really need to understand the psychological way I should "read" orders in the market.

So here the scenario and question:

Suppose you are following a chart together with a Times & Sales table. The stock is going up (and you are long with it) with orders with an average of 1000 (just as an example). Then suddenly out of nowhere you see selling order for 30000.

And this is the part were my brain gets confused.

Initially when you see such a big selling order you would think "If they are selling that much, the market might be going down, they might now something, why would they sell now if I think exactly the opposite, its time to sell!"...and on the other hand you realize that for someone to sell there must be someone to buy...so, here is the question. How should I look at big orders in any direction. Are they more important that any average order? In case you are long, is a big selling order necessary bad considering that there is someone also buying that big order on the other side?

I am a bit lost, hope to get some light on how should I approach this thinking.

Thanks and I hope to be an active participant here.:clover:

Unfortunately this is taken out of context and is impossible to answer, because you have to see the bigger picture develop... I trade on daily basis, but the principle is the same as whether it is daily chart, monthly chart etc.

So here's the deal.. You are never going to know why that guy traded 30000 shares there, but If I wanted to dump some real size the best way to do that is to run it up break the highs, and then everyone jumps on board buying and I am selling everything I want to unload without moving the market against me. Get the idea.

The guys that trade size like that need to pick their spots were they can unload that kind of volume, and not move the market against them.

Whether it stops the market or not is a different story...each market is different, and you have to really know the market your trading.

So that doesn't really answer your question but here is what I do... Look at the market profile, if the size is in the middle go with momentum, but if it is at new highs or lows, look for a reversal.

The bottom line is you have to look at the big picture before you can make the call, but I would suspect that it would at least pull back or pause with that kind of volume.

So what happened, did it reverse or blow through it?