Why not to use market depth

http://au.youtube.com/watch?v=ltt-yAXHPKE

"When most newbies open an online trading account they find this thing called the market depth and start trading by it. The depth is a trap that the smart money uses to separate the dumb money from their hard earned. An insider speaks."


I came across this guy when looking through different blogs, I know there are some people out there that like to look at market depth when trading (ahem THT), so i wanted to know what they thought of this.

p.s. anyone know how to embed youtube videos, it doesnt seem to be working anymore

It's a trap, because most newbies will see some HUGE size on the bid and go long. Though there can be many many more traps in there than that, but this is what I guess you are alluding too.

This can and the majority of time is, complete BS. As soon as one or two contracts gets clipped, the size disappears. Sometimes not even, the size will run on it's own (people pulling the bids/asks or spoofing). Sometimes the guys who are spoofing (flashing large bids up and pulling them) want their fill and are trying to get traders to attack the spoof (sell into it), so they can then buy into those traders.

Not to mention, who knows who is on the other side, wanting to sell and will clip the size ASAP if they see it pop up.

Size that is placed (on the bid for example), that is hit, but does not pull when it starts to get hit, is size you watch. Sometimes, traders will realise this is legit size and will start frontrunning it, the size still needs to get filled and will then go to market. Other traders will jump in, and it will snowball. These are the moves you have to quickly load up, and then scale out IMO. But fukc you have to be QUICK.

Of course, sometimes someone even BIGGER will then come on the other side and sweep the market back the other way. Taking out the size on the bid that wants it's fill and forcing all those traders who are long to cover quickly or even cut and reverse. This is one case where you get big spikes in the price action.

There can be so much noise and so many games going on inside the market depth, that you really need to stare at it for countless hours to get WTF is happening in there and seperate all the BS, from legitimate selling or buying pressure or even use the games to your advantage (most traders will only watch the depth when price approaches an important support or resistance, and will look for big pressure one way or the other, to get on the breakout before it happens and then cover into the breakout traders). Very tough gig sometimes, especially in times of low volume, high volatility and large spreads (like now) . Other times, it's free money.

Naked shorts said:

so i wanted to know what they thought of this.

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BS!!!

This is just typical of peoples opinion who want something not to work. Because they haven't a friggin clue how to make money. Its easier to discredit a tool rather than doing the work/hours to learn how it works. Its easier to blow off something with a throw away line rather than put some thought into it.

OF COURSE ORDER SITTING IN THE BOOK ARE SPOOFS!!!

And there is the answer to how to use market depth. Everything else is REAL information. When orders are hitting the market thats a clue of people wanting in/out. When orders are being refreshed quicker than they can be eaten at 1 price level that is a clue. When the markets gets extended and there is still high vol thats a clue. When volume is disappearing in the book thats a clue.

If anyone thinks that something can be gained from a snapshot of depth then fine. They are probably the same that make absolute statements like "you can't ..............!!"(insert anything here, daytrading. TA. etc)

Interesting this dude is telling us how he has tried EVERYTHING yet the only info he has to share is what doesn't work. While he sits in what looks like a toilet sized room as an office. Bitter??

Ah TH, still alive, I was hoping you would drop into this thread.

Very little on ASF about the book and reading the tape unfortunately

Trembling Hand said:

Interesting this dude is telling us how he has tried EVERYTHING yet the only info he has to share is what doesn't work. While he sits in what looks like a toilet sized room as an office. Bitter??

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Thanks for clearing this up guys.
Humble money links to his blog (right side of home page). So I kinda thought he had some credibility.

Now THIS is a thread with some useful trading information - thanks guys.

I personally am fascinated by what I have deigned to call "VWAP bots" - irregularly sized bid/ask parcels (eg 176, 312, small odd numbers) appearing in the depth at the top of the spread (ASX shares) - never hitting the other side of the spread, but always quickly closing gaps in the spread at regular intervals (30 seconds, 1 minute) and usually rapidly reappearing when they themselves are hit.

It looks to me like bots waiting for real people to fill them. Price action seems to correlate with the side the bots are putting pressure on.

MichaelD said:

and usually rapidly reappearing when they themselves are hit.

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Not sure what you mean by this, but prices rapidly reappearing when they are hit, usually means an iceberg. Meaning you can only see the top of the stack, but they will keep on coming back, having no idea how big the bid or ask really is.

Sometimes, there will not be enough pressure and you will trade away from the iceberg after testing it for a while. Sometimes you will break through it and price will run, others you will go a couple ticks through it and then someone will squeeze all the marters who hit it. Have to figure out how strong the pressure is going into the iceberg. You can usually take a few ticks just placing an order infront of it and getting flicks as other traders try and frontrun it only for others to push back towards and into the iceberg.

Personally, I don't look at depth for stocks, so got no idea on them. Lot of bots on futs I always gather are simply arbing the futs when they trade away from fair value to the cash or providing spreads (done mainly by banks).

TH, see that order refresh right before 430 today, big volume came in as support, then got tagged and refreshed with another 50 instantly, as soon as it did, a few frontran (including myself), ha ha. A few sneaky ticks there.

"TH, see that order refresh right before 430 today, big volume came in as support, then got tagged and refreshed with another 50 instantly, as soon as it did, a few frontran (including myself), ha ha. A few sneaky ticks there."


jsss!
theres some jargon and knowledge going on here I look forward to understanding one day.

Market depth can at times be a useful thing TO HAVE A LOOK AT. For example, when I want to do a quick trade, I will look at the depth of the market around where I want to sell, just to get a feel. If there's a heck of a lot of sellers there, I will place an order to sell just below them at a lesser price. Certainly trading using market depth alone would be plain stupid. Few years ago there was a spruiker by the name of Joseph Sammon that advocated it in his sales seminars as if it was some holy grail.

kam75 said:

Certainly trading using market depth alone would be plain stupid.

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Really? To think I've been "plain stupid" for years!!!!!!!!


Then again I've never claimed this game to be "easy" like you.



MR C I pretty much always prefer to hit big orders below the first level after the cash close. Mostly you can rely on someone bigger taking out spoof depth to close out their big positions. You can almost feel the tension build when the big orders get placed.

While people think big orders sitting in the book is a positive. I reckon it more likely to attract action rather than push as support/resistance. But you probably have that figured out

Trembling Hand said:

Really? To think I've been "plain stupid" for years!!!!!!!!


I pretty much always prefer to hit big orders below the first level

While people think big orders sitting in the book is a positive. I reckon it more likely to attract action rather than push as support/resistance. But you probably have that figured out

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ha ha ha. Kam is a real thinker!

TH, what do you mean by 'hit big orders below the first level'? As in, if you see a big order up the depth (say a big ask 4 levels away), you will hit the asks infront of it?

As for big orders, I always just try and determine what they are (to take one of your sayings (thx mate), I always say to myself WHO is buying and WHEN). Generally, definately, I think they are more likely to attract attention. But sometimes you get some really stupid institutional traders, who will put their big order out there for all to see right infront of the que, nobody will clip it and the big order will start going to market. When this happens, if your quick, it's a free for all to frontrun it before they all cover into it and take it out in one swipe. Pretty funny to watch I think, though sucks I'm usually too slow to get in on the action, some guys have reflexes like a cat!!!!!! This was happening quite a lot a couple months back. Unfortunately, they now seem to be creating a spread and crossing it with small lots to do all their buying/selling Means you now have to have ballz and cross the spread with no size to lean on. And here I was hoping the easy frontrunning size would continue, ha ha.

But I agree on the tension building when size appears. Everyone is trying to work out what is happening. Accross the floor there is always a big, oooooooooooo, when some size appears, and another one when it is clipped. ha ha ha. A good buzz.

MRC & Co said:

TH, what do you mean by 'hit big orders below the first level'? As in, if you see a big order up the depth (say a big ask 4 levels away), you will hit the asks infront of it?

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Yep. But as always there aint no one rule that you always work on. Its more feel and reflex rather than fact.


Yes and when the big boys bang heads its something to watch!!

Trembling Hand said:

Yep. But as always there aint no one rule that you always work on. Its more feel and reflex rather than fact.


Yes and when the big boys bang heads its something to watch!!

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Yeh, feel is the big one hey (despite many around here mocking it)! I need plenty more hours to develop that better!

The funniest is when you see a spoofer get clipped and squeezed. ha ha, that must really hurt the pockets.

lindsayf said:

theres some jargon and knowledge going on here I look forward to understanding one day.

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Everyone starts out that way, dont worry. Just keep learning and learning and eventually you will reach enlightenment :

MRC & Co said:

I'm usually too slow to get in on the action, some guys have reflexes like a cat!!!!!! This was happening quite a lot a couple months back.

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TH is able to do this not because of the fastest click finger in the west, but his keyboard has special hotkeys he has assigned to buy and sell
:emp:

MRC & Co said:

But I agree on the tension building when size appears. Everyone is trying to work out what is happening. Accross the floor there is always a big, oooooooooooo, when some size appears, and another one when it is clipped. ha ha ha. A good buzz.

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I always enjoy when there has been some big move that, causes the market to go silent. Everyone is just sitting biting their lips wondering what to do
:crap::run:

Naked shorts said:

TH is able to do this not because of the fastest click finger in the west, but his keyboard has special hotkeys he has assigned to buy and sell
:emp:

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lol, it will take more than keyboard trading. More like ingrained price movements into the subconcious. Instant reaction without thinking.......along with fast reflexes. :

Agree in general with not relying blindly on mkt depth, if a big order really wants to get filled he'll do it quietly without showing too much of his hand; A few days ago i was totally schooled on the SPI close by frontrunning a big lot... bit of spoofing and flipping and pulling orders and i was squeezed out to the tick perfectly every way...
Had to admire how well it was executed though, they have made squeezing into an art.

Yep its a long day and lots of transactions so only sometimes do you get a clear pattern of an easy trade, But with that said I reckon that patterns develop in the DOM just the same as in any Chart. There is patterns to it you just need time to recognize them.

One of my fav is the first 5 to 6 min run up above overnight close. You see very little pushing but still very happy to feed any demand while still letting it climb higher then, bugger me, come cash open she takes outs the lows and drops another 30 points. Classic.

Certainly trading using market depth alone would be plain stupid.

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This is exactly what I have been trying to do the last month on Sim:bonk::

Great posts all.

And WB TH.

Yeh, definately, patterns in the DOM are just like patterns in the charts, sometimes they repeat, others not.

One I like (hasn't been working lately though), is about 9:59:30am see who comes in to push the market, then if someone else even bigger comes and pushes it the other way about 10:01-2am it usually goes that way for a while.

You pros at Propex responsible for that nasty buy Iceberg @ 3535???????

showing 4 but I reckon it was up to 300!!!

they are becoming more and more regular.