# Market Depth - for dummies



## stock_man (20 September 2006)

Hi all,

Can anyone please help me to understand what the market depth is actually representing?
With comsec, I get 10 lines, and I have worked out that it shows the price, volume, and amount of traders? for each line.

But how does one interpret this data?

I am trying to find a way to identify if a stock will push a little higher before close, or get a rough idea of what it will open at the next day.

This came up as I had stock I wished to sell yesterday afternoon and I wasn't sure if I should sell it at 3:50pm, or wait till next morning. It actually pushed higher in the last few minutes, and then opened a little higher again.

Many thanks.


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## coyotte (20 September 2006)

Market Depth (especially Comsec standard ) is a overated tool in IMHO 

O/K for a rough guide of wether there is Buy or Sell Pressure.

But people who preplace orders either can not watch the prices or don't care , with probably a bit of "bottom fishing" incase of gaps .

A trader would be watching price movements though the day before commiting either way and would not be mucking around waiting for a order to be filled --- you have got to be in/out at the strike price when or if it appears --- hence the ORDER would never appear in the depth.

Moves  near the CLOSE  can simply be traders closing positions , mainly Day Traders -- with relitively large positions (for the trader) they can not take the risk of overnight gaps.

Beware of the " U " order , these have a terrible habit of disappering when in danger of being filled.
Often a clue to trade in the opposing direction 


Cheers


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## DT_Futures (22 September 2006)

market depth means nothing...

ignore it...
to see real interest in somthing look at tape/order flow


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## nizar (22 September 2006)

DT_Futures said:
			
		

> market depth means nothing...
> 
> ignore it...




market depth means nothing and FA is useless... Hmm... okay then!


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## Julia (22 September 2006)

nizar said:
			
		

> market depth means nothing and FA is useless... Hmm... okay then!




Agree, Nizar.  The above comments are less than helpful to an honestly asked question.

Julia


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## coyotte (23 September 2006)

Would have thought it depended on what you are doing ?
Trading or Holding

As Nizar comments " order flow " I find is more usefull , 
But isn't this only in ComSec Pro.?
E-Trade and Westpac used to have it.
St George have it also I think.

IG Markets have a different setup -- a graph showing Volume  for the period in question .

Can not see how Market Depth would be a reliable  Indicater for the next Open    there is to much Setteling of positions (long-short) regardless of price.


F/A is useless to ( Technical ) Short Term and Swing Traders --- F/A may be of use to a  Position Trader --- As far as a Tech/Trader is concerned all the F/A  and news is reflected in PRICE ACTION and besides he/she may only be in the TRADE for a few hours to a week.



Cheers


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## coyotte (23 September 2006)

Footnote:

Presuming this is the type of situation Stockman is reffering to.

Yesterday in  the last hour of trade OXR was making gains off it's daily low to close up reasonably solid ---   buying , but on avg Vol --- would not appear to have been any Insto Buying.

Well as I write 4am Sat , Copper Dn, Rio/BHP Dn -- US markets Dn .


Cheers


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## Porper (23 September 2006)

stock_man said:
			
		

> Hi all,
> 
> Can anyone please help me to understand what the market depth is actually representing?
> With comsec, I get 10 lines, and I have worked out that it shows the price, volume, and amount of traders? for each line.
> ...



\

 When I just started in the markets, I had a few days trying to "day trade" using the market depth screen.Totally unsuccessful and soon realised that most buyers/sellers, especially the big ones never get to the screen.They keep their cards close to their chest.

In the smaller cap companies, you see prop bids all the time, and like has been mentioned, as soon as that bid may come into play it is removed.The reverse is also true (dummy sell orders).


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## IGO4IT (23 September 2006)

I see market depth to be a very tricky tool for a beginner to use "solely" on buy or sell decisions or even to where would they place their order even buy or sell.

its manipulated 100% of  times by putting fake orders on both buys & sells to trap buys & sells into certain area to accumulate or to pump up the same area of liquidity to buy. Not by any chance that I can see depth to give a "real" reflection of reality unless the stock traded has very calm volume & nature, as for active stocks... I don't think it shows what it should really show!

I'm sure what I'm saying is nothing new to most of the readers & I would be guilty myself sometimes of doing same thing of manipulating depth to fulfill my order or to push a sell order thru.

Defenitely if it's useful to some sense, it would give the " minute to minute" trader the feel of where is the liquidy at the point of time NOT 1 minute after, because it all could colapse in a blink of an eye!

Imo, trading the depth is a skill by itself...more like poker, sometimes you bluff when you have nothing or stay cool when you're loaded.   

cheers,


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## It's Snake Pliskin (23 September 2006)

Most things work in bull markets.........


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## barney (24 September 2006)

Snake Pliskin said:
			
		

> Most things work in bull markets.........





As I said on another thread Snake, I like the way you "say a lot" by saying "very little"...........I reckon youd be one of those players who holds the cards "close to the chest!"    Cheers, Barney.


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## michael_selway (24 September 2006)

Snake Pliskin said:
			
		

> Most things work in bull markets.........




Yeah its the same thing i say to "rozella" in regards to "trading the ex dividend"

does that strat work in a bear market?

thx

MS


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## It's Snake Pliskin (25 September 2006)

michael_selway said:
			
		

> Yeah its the same thing i say to "rozella" in regards to "trading the ex dividend"
> 
> does that strat work in a bear market?
> 
> ...




I don`t see how it could.

Rozella can you comment here please?


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## Nick Radge (25 September 2006)

Two questions have been asked here.

With no disrespect intended, let me re-phrase the initial topic: Market depth *IS * for dummies. It can be manipulated with ease and has been done so for many years. I speak from experience, both futures and stocks. By all means look at it, but take it all with a grain of salt. If I have 2000 SPI contracts to sell at 9pm at night, do you think I'll load them into the computer? If a full order is not loaded into the computer, then the market depth is essentially incorrect. I'd be interested to see what market depth looked like if you got charged a percentage fee for placing an unfilled order. It would become like the FTSE where nobody dare leave an order in the market. 

The second question relates to the dividend strategy. I don't know if Don has his real time results going back through 2002, which we could call a bear market of minor proportions. However, I do have a systemised approach that tracks a dividend trading system from 2000 through 2004, therefore including 2002. From my limited knowledge of Don's system, he will track the magenta curve, within reason. Looks ok to me:


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## It's Snake Pliskin (25 September 2006)

Nick Radge said:
			
		

> Two questions have been asked here.
> 
> With no disrespect intended, let me re-phrase the initial topic: Market depth *IS * for dummies. It can be manipulated with ease and has been done so for many years. I speak from experience, both futures and stocks. By all means look at it, but take it all with a grain of salt. If I have 2000 SPI contracts to sell at 9pm at night, do you think I'll load them into the computer? If a full order is not loaded into the computer, then the market depth is essentially incorrect. I'd be interested to see what market depth looked like if you got charged a percentage fee for placing an unfilled order. It would become like the FTSE where nobody dare leave an order in the market.
> 
> The second question relates to the dividend strategy. I don't know if Don has his real time results going back through 2002, which we could call a bear market of minor proportions. However, I do have a systemised approach that tracks a dividend trading system from 2000 through 2004, therefore including 2002. From my limited knowledge of Don's system, he will track the magenta curve, within reason. Looks ok to me:





Thanks for your comments Nick. I hope Don can comment and I mean no disrespect for his ways. If he chooses not to comment then that is ok too.  

I like your comment ..."is for dummies"....

Snake


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## Bobby (25 September 2006)

Nick Radge said:
			
		

> With no disrespect intended, let me re-phrase the initial topic: Market depth *IS * for dummies. It can be manipulated with ease and has been done so for many years. I speak from experience, both futures and stocks. By all means look at it, but take it all with a grain of salt. If I have 2000 SPI contracts to sell at 9pm at night, do you think I'll load them into the computer? If a full order is not loaded into the computer, then the market depth is essentially incorrect. I'd be interested to see what market depth looked like if you got charged a percentage fee for placing an unfilled order. It would become like the FTSE where nobody dare leave an order in the market.




Nick nice to see truth! Good above post   

Cheers
Bob.


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## barney (26 September 2006)

Nick Radge said:
			
		

> Two questions have been asked here.
> 
> With no disrespect intended, let me re-phrase the initial topic: Market depth *IS * for dummies. It can be manipulated with ease and has been done so for many years. I speak from experience, both futures and stocks. By all means look at it, but take it all with a grain of salt. If I have 2000 SPI contracts to sell at 9pm at night, do you think I'll load them into the computer? If a full order is not loaded into the computer, then the market depth is essentially incorrect. I'd be interested to see what market depth looked like if you got charged a percentage fee for placing an unfilled order. It would become like the FTSE where nobody dare leave an order in the market.
> 
> The second question relates to the dividend strategy. I don't know if Don has his real time results going back through 2002, which we could call a bear market of minor proportions. However, I do have a systemised approach that tracks a dividend trading system from 2000 through 2004, therefore including 2002. From my limited knowledge of Don's system, he will track the magenta curve, within reason. Looks ok to me:





This IS interesting stuff from a new kid on the block's perspective.........So basically Nick, you give little creedence to "depth" (volume) of a stock at a given moment in time?        Just curious, but what "insight" can we deduce if there IS massive "depth" on the screen ( I appreciate you are saying there may be many "false" orders out there but when the volume is "BIG", surely not all the buyers/sellers are "in the know"/manipulating the market??.......I'm  confused cause I was starting to understand that volume was a major "player" in the way a stock behaves?............Further enlightenment much appreciated, Barney.


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## cuttlefish (26 September 2006)

Barney if you can get a platform with live market depth (not a web based one that requires refreshing, but one that changes before your eyes as the depth changes) it would be a good exercise to watch a heavily traded stock for a few hours. (pick one of the days top 10 volume stocks).

Its important to view the live trade data alongside this so that you can see where real trades have occurred as opposed to what looks like a trade (one type of depth manipulation can make it look like a large trade just occurred when it didn't - the course of sales data will give the guide as to reality).  

The course of sales data also gives some guide as to what the real volume mix on depth was and what actually went through, also gives a guide as to whether a price run was caused by a series of small buyers or single large buyer, and whether it was filled by small number of larger sellers or large number of small sellers etc.   

You'll see plenty of depth manipulation, like large orders on the buy side or sell side that dissappear just as they're about to get hit etc.  You'll also see how this affects trading action for example you might see a stacked buy queue while a large seller patiently offloads small parcels and vice versa and a whole myriad of other things.  

You'll also see different behaviour demonstrated in the same stock on different days depending whether its a buyers day, sellers day etc. and different stocks will exhibit different trading personalities.

E.g. some stocks exhibit less sophisticated depth manipulation and trading behaviour while in others it will be more sophisticated.  You'll see price drops or spikes deliberately designed to trigger stops or cause runs followed by selldowns or buyups as larger traders clear out or accumulate.  And a whole myriad more.

Of course trying to figure out what it all means or second guess it is possibly a pointless exercise unless you're looking to be a day trader, but as a starting point its worth watching just to get a feel for how it works and also how intraday price and volume action can vary immensely from day to day.   This will also show how two daily OHLC/Candlestick charts that look quite similar can have completely different intraday trading patterns.


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## barney (27 September 2006)

cuttlefish said:
			
		

> Barney if you can get a platform with live market depth (not a web based one that requires refreshing, but one that changes before your eyes as the depth changes) it would be a good exercise to watch a heavily traded stock for a few hours. (pick one of the days top 10 volume stocks).
> 
> Its important to view the live trade data alongside this so that you can see where real trades have occurred as opposed to what looks like a trade (one type of depth manipulation can make it look like a large trade just occurred when it didn't - the course of sales data will give the guide as to reality).
> 
> ...





Hi "fish" (seems like a good nickname for your nickname!!    I use Pro-Trader 2 and do see the depth in action, and am getting a better handle on what is/can go on.  Just curious...Do many of these "day traders"  "work together" to create these "apparent price moves?" ...Unless they each have many millions (probably they do), wouldn't they need to work in unison to achieve the manipulation they are looking to do??...........Interesting stuff this......I guess if we could learn to "read the signs" of manipulation, we would find making profits a lot easier?!............Would there be any logic as to which stock/s the day traders would be targeting on any given day??....I ask this cause I mentiond in another thread that  a friend of mine used to work on the futures exchange a good few years back, and told me that the "boys" would "target" a particular stock/stocks of choice on a given day , so there was no point "trading" stock "X" on that day!! ....Money sure brings out the worst in people :taz: ......then again, if I had millions, I'd probably do the same thing ..............actually I probably wouldn't.......and thats why I'll never make millions :screwy:  Cheers, Barney


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## Nick Radge (27 September 2006)

Barney,
Let me tell you a true story. One of a few just like this and one where no friends were won.

When I worked as a trader on the Sydney Futures Exchange back in the early '90's I was given an order to sell 3000 SPI contracts at my discretion. The order came from a large US hedge fund. They gave no price or time limit. The SPI trades on average approximately 10,000 contracts per day, so here I was with enough fire power to do whatever I so wished. What would you do?

Here is what I did. Every 20 - 30 mins I walked into the pit and sold 100 or so contracts. Turned my back and walked out. 20-minutes later I did it again. Sometimes I walked in and sold just 20 contracts, and walked away. I cannot remember what my average sell price was, but with 2-mins to go in the session I had about 400 contracts to go and I can assure you that the market went one way and hard. The settlement price for the day was the low of the day thanks to yours truely. The average sell price of my 3000 contracts was well above the day's closing price and the client went home with a very nice positive margin. Manipulation? or just doing the best for the client?

Now I agree that "depth" per se as we know it today was not shown, but the principal is the same nonetheless. 

Ask yourself this: have you ever placed an order into the market then cancelled it? If so, then you've essentially manipulated with market depth.


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## barney (27 September 2006)

Nick Radge said:
			
		

> Barney,
> Let me tell you a true story. One of a few just like this and one where no friends were won.
> 
> When I worked as a trader on the Sydney Futures Exchange back in the early '90's I was given an order to sell 3000 SPI contracts at my discretion. The order came from a large US hedge fund. They gave no price or time limit. The SPI trades on average approximately 10,000 contracts per day, so here I was with enough fire power to do whatever I so wished. What would you do?
> ...




Hi Nick, I hope my previous post did not appear to have "undertones" on it, cause I, and I'm sure all others respect you to the N'th degree............I wasn't trying to "judge" day traders at all (I'd love to be smart (and wealthy) enough to be a day trader............I don't have a problem at all if they can "manipulate" the market.......I am just trying to get a grasp of what goes on cause I have a lot of "money" to catch up on/recoupe!!.............Can I make the comment (and this is said with the utmost respect), that the "people" who gave you the "power" to exercise your "position" on the futures floor that day "knew" what they were doing with respect to "unloading" their stock, and you were simply a "pawn" on their chessboard.................doing what they knew you would do..............Please don't take that the  wrong way, cause I'm not even in your league as a trader, but phsycology I know a "little" about, and we are all manipulated by others to some degree at  some point in time. I'm sorry if what i say "offends" you  at all, cause that is the furtherest thing from my intentions..............With total respect, Barney.


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## Nick Radge (28 September 2006)

Barney, I didn't see your post as anything but a question. The client had no intentions of the market. They simply had a long position that they needed to exit. Nothing else than that. They wanted the best price possible.

This discussion is about market depth. If an order can be placed and then removed without getting filled, then the market depth shows a different picture. If I place an order to buy 5 million BMX at 0.28, would you think people would be inclined to bid above me? Yes, because they would figure that my 5 million will offer their position some support because the 3-month average volume is nearer 600k. Let's say you bought 10,000 at 0.285 and then I removed my bid. What are you left with? A hole. The whole premise of your buying was based on my bid. If my bid is removed, then you'd have a position with no basis.


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## stock_man (28 September 2006)

Thanks to all for the great advice regarding this topic.

It has helped me greatly in understanding market depth.


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## barney (28 September 2006)

Nick Radge said:
			
		

> Barney, I didn't see your post as anything but a question. The client had no intentions of the market. They simply had a long position that they needed to exit. Nothing else than that. They wanted the best price possible.
> 
> This discussion is about market depth. If an order can be placed and then removed without getting filled, then the market depth shows a different picture. If I place an order to buy 5 million BMX at 0.28, would you think people would be inclined to bid above me? Yes, because they would figure that my 5 million will offer their position some support because the 3-month average volume is nearer 600k. Let's say you bought 10,000 at 0.285 and then I removed my bid. What are you left with? A hole. The whole premise of your buying was based on my bid. If my bid is removed, then you'd have a position with no basis.




Cheers Nick,  I just didn't want you to think I was having a "personal" dig at you for just "doing your job"  And to be honest I missed the point a bit! ...........Gotta stop drinking so much beer   ...........with respect, Barney.

PS Ditto to Stockman for the info Nick.


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## Ken (28 September 2006)

trading online myself.  at $29.95  a trade can get expensive. playing around with the market depth could be costly if something odd does happen...

my 2   

speaking from a personal opinion, the volume of stock that i hold would have no massive difference on what other people think


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