How can one calculate "true" market depth strength?

[cudderbean]

The figures at the bottom of my broker’s Market Depth list reads

44 buyers for 17,846,338 units 49 sellers for 8,975,212 units

Of course it’s common for buyers and sellers to stack the figures well out of the money to create artificial pressures, so I just concentrate on the first 3 rows nearest to the action.

Buyers Sellers
2,226,056 0.35 ......... 0.37 262,000
1,510,000 0.34 ......... 0.38 550,000
1,600,000 0.32 ......... 0.39 910,000


I grab the first 3 rows and put them into Excel. With the help of a macro I can quickly calculate the value of the first 3 buying rows i.e. 2,226,056 * .35 = $779,119 plus the next 2 rows similarly, and do the same on the selling side.

I reach the conclusion that

Buyers want:
5,336,056 shares
Worth $1,804,519
At an average bid of 0.3382

Sellers are offering:
1,722,000 shares
Worth $ 660,840
At an average offer price of 0.3837

Where do I go from here? I can’t just say 5.3m shares versus 1.7m shares because there is 4.5 cent difference between the bid and offer.

Mathematically, in some sort of ratio perhaps how can I measure true buying and selling pressure in those top 3 rows?

Thank you for your help.

 

[skyQuake]

Re: How can one calculate “true” market depth strength?

Unfortunately it doesnt work that way, real volume HITS the market rather than sit in it.

 

[lasty]

Re: How can one calculate “true” market depth strength?

The figures at the bottom of my broker’s Market Depth list reads

44 buyers for 17,846,338 units 49 sellers for 8,975,212 units

Of course it’s common for buyers and sellers to stack the figures well out of the money to create artificial pressures, so I just concentrate on the first 3 rows nearest to the action.

Buyers Sellers
2,226,056 0.35 ......... 0.37 262,000
1,510,000 0.34 ......... 0.38 550,000
1,600,000 0.32 ......... 0.39 910,000


I grab the first 3 rows and put them into Excel. With the help of a macro I can quickly calculate the value of the first 3 buying rows i.e. 2,226,056 * .35 = $779,119 plus the next 2 rows similarly, and do the same on the selling side.

I reach the conclusion that

Buyers want:
5,336,056 shares
Worth $1,804,519
At an average bid of 0.3382

Sellers are offering:
1,722,000 shares
Worth $ 660,840
At an average offer price of 0.3837

Where do I go from here? I can’t just say 5.3m shares versus 1.7m shares because there is 4.5 cent difference between the bid and offer.

Mathematically, in some sort of ratio perhaps how can I measure true buying and selling pressure in those top 3 rows?

Thank you for your help.

What about an off market transfer?

 

[cudderbean]

Re: How can one calculate “true” market depth strength?

>>What about an off market transfer?

That's true, but I can very quickly use an Excel macro to compare the first 3 rows, first 5 rows and first 10 rows of mkt depth. It gives me a "rough" idea of buyer/seller strength for one of my chart picks. I then go and look more closely at course of trades for one that sparks my interest and "seems' to have some buyer strength behind it.

My mathematical problem is how should I manipulate that limited 10 rows of data to give me the best "rough" idea.

Thanks for your input.

 

[skyQuake]

Re: How can one calculate “true” market depth strength?

>>What about an off market transfer?

That's true, but I can very quickly use an Excel macro to compare the first 3 rows, first 5 rows and first 10 rows of mkt depth. It gives me a "rough" idea of buyer/seller strength for one of my chart picks. I then go and look more closely at course of trades for one that sparks my interest and "seems' to have some buyer strength behind it.

My mathematical problem is how should I manipulate that limited 10 rows of data to give me the best "rough" idea.

Thanks for your input.

The off market transfers really depends. If its a big one at in a speccie, prices will gravitate towards it.

As for the depth, have a look at whats hitting what, and whether the side being hit is getting bigger, smaller, running away! (pulling orders), or refreshing their orders.

 

[nomore4s]

Re: How can one calculate “true” market depth strength?

My mathematical problem is how should I manipulate that limited 10 rows of data to give me the best "rough" idea.

Problem is, that rough idea means nothing, and it certainly doesn't give you anything you can trade off

 

[awg]

As so many orders are placed unconditionally as market orders, or really quickly by autotrades, the visible market depth is of little use imo.

You can prove this by watching different stocks during the day, and find they will have similar buy/sell numerical ratios, but move in very different ways.

 

[cudderbean]

Thank you all for your very useful advice.

And here was I thinking this might give me a small edge. It's certainly shark infested waters in the market place eh.

So do you suggest the first thing I should look at if I fancy a particular stock is "Course of Trades" to see what is actually happening rather than the games being played on the market depth?

:bier:

 

[joea]

Thank you all for your very useful advice.

And here was I thinking this might give me a small edge. It's certainly shark infested waters in the market place eh.

So do you suggest the first thing I should look at if I fancy a particular stock is "Course of Trades" to see what is actually happening rather than the games being played on the market depth?

:bier:

Hi.
If my memory is correct, Pulse ( which is a trading platform) gives you the total buys when you click the cursor on the particular row. i.e. click on 5th row and it gives the info for top 5 lines.
CHEERS

 

[Market Depth]

Very hard to tell from just a snapshot. You need to sit there and watch the stock trade. Each stock you look at will trade in a different way. Every stock has a specialist, some bigger thickly traded stocks have several specialist. It also depends on what time frame you intend to hold onto your stock. If it's for intraday or a short term swing trade of a couple of days, learning how to read and understand how your market depth acts on your favourite stocks, I believe can give you an edge. Others will disagree. Market depth trading is how I was taught to trade over the shorter timeframes. Not too much has changed over the years. The speed of the market has certainly changed. Also the amount of End of day Traders that have moved into the market has exploded in numbers over the years. The key to learning more about trading the market depth, is to pick just a handful of stocks you like and watch them trade. Take notes on spreads, volume, position sizes, and times of the day that the stock runs, or seems sluggish, usually around lunchtime. I myself only use market depth info as a short term trading technique. If you plan on longer timeframes, then you'll need to combine other forms analysis as well.