TheBramble
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Before anybody suggests you’re asking the wrong question if you’re asking this question:-
If there is a marked imbalance between the two, some might consider going with the ‘weight’, but this is not even half the story unfortunately.
Say you’ve got a Bid-to-Ask ratio of 10:1. You might consider there is 10 times as much interest in Buying at this level than Selling and you could conclude that the price is more likely to rise than fall. If you’re looking at the Inside Bid-Ask that is.
But the MMs play the inside (and the depth too) so you can’t take these values at face value.
A better approach is to look at the depth for Bid and Ask and look at the vertical spread. This is a useful determinant for assessing your ability and your likely cost to get out quickly if you’re wrong.
But Bid-Ask by itself will rarely be useful as a trade setup.
If there is a marked imbalance between the two, some might consider going with the ‘weight’, but this is not even half the story unfortunately.
Say you’ve got a Bid-to-Ask ratio of 10:1. You might consider there is 10 times as much interest in Buying at this level than Selling and you could conclude that the price is more likely to rise than fall. If you’re looking at the Inside Bid-Ask that is.
But the MMs play the inside (and the depth too) so you can’t take these values at face value.
A better approach is to look at the depth for Bid and Ask and look at the vertical spread. This is a useful determinant for assessing your ability and your likely cost to get out quickly if you’re wrong.
But Bid-Ask by itself will rarely be useful as a trade setup.
Bramble,
See pm.
See attached dom.doc (may need to scroll up).
Original question I sent to ET:
I'm trying to get a grip on the significance of price/volume and I need help and advice.
Please look at the attached Word file containing a snapshot Depth of Market of the DAX future (if it isn't visible scroll up or down).
What would be an initial assessment from the information presented?
Which are the most significant elements?
Is it bullish or bearish?
If I was looking to buy, does the information suggest predominantly upward (buying) pressure?
Or, if I was looking to sell, does the information suggest predominantly downward (selling) pressure?
Makosqu (Elite Trader forum):
http://www.elitetrader.com/vb/showthread.php?s=&threadid=84181
http://www.elitetrader.com/vb/showthread.php?s=&threadid=42947&highlight=market+depth
VSTScalper (and Makosqu, again):
http://www.elitetrader.com/vb/showthread.php?s=&threadid=68098&perpage=6&pagenumber=1
Also look (Search) for Dcraig (also posts on T2W(?)).
Grant (141st Airborne, Plumbing section)
See pm.
See attached dom.doc (may need to scroll up).
Original question I sent to ET:
I'm trying to get a grip on the significance of price/volume and I need help and advice.
Please look at the attached Word file containing a snapshot Depth of Market of the DAX future (if it isn't visible scroll up or down).
What would be an initial assessment from the information presented?
Which are the most significant elements?
Is it bullish or bearish?
If I was looking to buy, does the information suggest predominantly upward (buying) pressure?
Or, if I was looking to sell, does the information suggest predominantly downward (selling) pressure?
Makosqu (Elite Trader forum):
http://www.elitetrader.com/vb/showthread.php?s=&threadid=84181
http://www.elitetrader.com/vb/showthread.php?s=&threadid=42947&highlight=market+depth
VSTScalper (and Makosqu, again):
http://www.elitetrader.com/vb/showthread.php?s=&threadid=68098&perpage=6&pagenumber=1
Also look (Search) for Dcraig (also posts on T2W(?)).
Grant (141st Airborne, Plumbing section)
nine
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This was a good recent thread that pulls some of this stuff together:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=103293
http://www.elitetrader.com/vb/showthread.php?s=&threadid=103293
TheBramble
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There is a great deal on ET and also here on t2w (and probably every other trading site) on using DOM for either trade setup, entry, exit or whatever. I’m sure there are proponents for each method doing well with their chosen slant.
The thing is, even on those threads for which links are provided there is a clear segmentation of opinion on the validity and use of the data.
Having traded DOM for a worthwhile period my own take is as outlined to Big John above. It’s a useful tool for estimating your risk on entry and for micro timing your entry and exit (though less opportunities present themselves on exits).
Big John’s question related to using Bid/Ask size as a directional indicator. Without taking momentum, local S&R, overall market and sector and a number of other factors into consideration, I’m still holding to my position that Bid/Ask size alone or even as a major determinant would be a risky method.
Good links and docs as it’s always useful to get a refresher on any topic.
The thing is, even on those threads for which links are provided there is a clear segmentation of opinion on the validity and use of the data.
Having traded DOM for a worthwhile period my own take is as outlined to Big John above. It’s a useful tool for estimating your risk on entry and for micro timing your entry and exit (though less opportunities present themselves on exits).
Big John’s question related to using Bid/Ask size as a directional indicator. Without taking momentum, local S&R, overall market and sector and a number of other factors into consideration, I’m still holding to my position that Bid/Ask size alone or even as a major determinant would be a risky method.
Good links and docs as it’s always useful to get a refresher on any topic.
Bramble,
“estimating your risk on entry and for micro timing your entry and exit”. If this saves one or two points/tics then it’s a useful addition to one’s methods.
Could you clarify:
“Inside Bid-Ask”
“MMs play the inside (and the depth too)”
“look at the depth for Bid and Ask and look at the vertical spread”.
Nine,
Thank you for the ET link. I’ll follow this up.
For the majority of time, I consider volume the most significant factor in price movement. DOM should help here, or at least give a clue as to the state of the market at a precise time.
Grant.
“estimating your risk on entry and for micro timing your entry and exit”. If this saves one or two points/tics then it’s a useful addition to one’s methods.
Could you clarify:
“Inside Bid-Ask”
“MMs play the inside (and the depth too)”
“look at the depth for Bid and Ask and look at the vertical spread”.
Nine,
Thank you for the ET link. I’ll follow this up.
For the majority of time, I consider volume the most significant factor in price movement. DOM should help here, or at least give a clue as to the state of the market at a precise time.
Grant.
rols
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TheBramble
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The best bid and ask (lowest ask/highest bid). The values at the top of your DOM display.
There is spoofing at all levels within the DOM. A MM might show size on the Bid a couple of levels down to indicate Buying intent/pressure. As the instrument moves up in anticipation (as others get on board and start buying, thinking they're ahead of size) the MM will switch to Ask, or even just pull their Bid if they've gone through an ECN to sell through the back door.
When you're looking at your planned position size you need to check what level(s) you're likely to get filled at if at market and as importantly, what sort of depth there is on the other side to accomodate your quick exit once you're in if you're wrong. e.g. No point taking on 5000 if you'd need to cover 10 deep to get that many off on the exit with a vertical spread of $1.50 to do it. You're estimating your exit slippage and taking that on as part of your entry risk assessment.
timsk
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'Vets' -of which you are now one - is a politically correct way of saying 'old git'. Welcome to the club!
Tim.
TheBramble
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This simply isn't true. On the most volatile stocks you'll see this switch back and forth a dozen times in minute in heavy trading. Plus, for the reasons I mention above, you have to take into consideration the size you see may be the size 'they' want you to see, or not.
It's true, you should observe it, I have for many years. I should have added I look at ES not stocks!... I don't look at the current bid & offer, I look at cumulative depth volume over the last few ticks
The market always follows the path of the most volume, on the bids or offers in order to make a minority profit from a majority. The really smart market participants know all this, and they hunt for volume. Then they hunt for stops as an extra bonus. Take a look Monday you will see for yourself
TheBramble
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I think you may be confusing volume (i.e. transacted volume) with indications of size off the inside. Very, very different.
Well, Thank you TheBramble, grantx, laptop1 and the others. I appreciate you all taking the time to help this new guy out. Lots of information, fantastic! I will go through all of this and definitely come out the better. I only have a couple a hundred more Questions, so I'll be back. It's good to know there are answers, and people who care. Thanks again, Big John
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