Market Depth Question

[kaerai]

Hello, I have a question based on market depth. It might be easier to show it on a screen shot.


I am not looking for specific investment guidance that is why I did not specify the share code.

I am confused as to what to make of this. So I will put my thoughts in point form.
There are nearly double the bids for purchase than there are shares available for sale. This seems good.
The average buy bid size is bigger than the average sell bid size. This seems good.
The buy bid price tapers off down to 0.02 reasonably quickly. This seems bad.

Assuming that the ASX in general will not be moving much in either direction in the coming days and no announcements for the particular stock are forthcoming, with the limited data available in this post, what would you think would be a likely scenario for this share in the next trading day and please advise why you think whatever you do.

Thank you

 

[Funda-Struck]

It would be interesting to get a few more views from other people on this, but IMO I don't pay too much attention to market depth.

Reason being is I usually don't place a buy or sell until I can action my buy/sell immediately. No one would ever see what my plan of action is. If many investors/traders transact this way then it makes the immediate price direction impossible to predict by looking a depth of market.

For example in the above stock, I could be planning on selling 1 million shares at 0.042.
But you would never know until I have transacted...

 

[tech/a]

Agree with F/S

Buy and sells in the market mean very little if anything.
Order flow has more meaning if your into it.
I doubt small caps would be liquid enough to have any real
Benifit following order flow.

Super liquid futures contracts have experts who read order
Flow like a book. Some have conclusive endings.
Both long and short.

 

[kid hustlr]

So awkward reading the ladder when its structured that way.

It's a pretty open ended question, you really need to know your market before you can start making claims about what the depth means.

Most futures markets with a stacked bid are probably about to head south

 

[CanOz]

Four years ago I did SMB capitals tape reading course for equities. It was very enlightening but not very useful for me outside of US equities. The main take away in regards to reading the depth was being able to spot who was working orders at what level. A broker, such as Goldman Sachs, might be gradually accumulating stock for a client at 51.00. To do this they might "hold" the bid there and soak up all the market orders hitting that bid. Equity markets move fast, but every time the bid came back to 51.00 you'd see Goldman there. Put this in context with some other information and you have a trade idea. I found watching the depth on equities is a young man's game, it was like watching the Dax at 20x speed.

The depth can be useful in highly liquid issues on the US equity markets. I tend to agree with others here that it has limited use in giving directional hints in smaller issues.

CanOz

 

[barney]

Ditto to other replies

You would get far more info by pulling up a chart and seeing how much volume has traded recently at various price levels around and relative to the current DOM level. That way you'll get a far better cross section of potential direction. DOM on Spec stocks is of very limited use as a stand alone indicator (I assume its a Spec given the price?)

As "Kid" said above, if one side of the DOM is loaded and looks strong, it can often be the opposite

 

[kaerai]

Thank you all for your information. You probably just confirmed what I had been scratching my head. It makes sense that previous volumes are more indicative of direction. Also the at market purchasing is also very interesting.

I'm grateful for your advice, all. Thank you

 

[skc]

A single snapshot of the market depth is marginally useful. It's a bit like reading the player stats on two sports team and try to predict who will win a match. You'd get some information... but it'd be hard to draw the right conclusion. You would make better use of the information if you know what to look for (like CanOz's example), and watch the depth and course of sale dynamically (i.e. watching the players play in addition to just reading their stats).

IMO all serious trader should pay a lot of attention to the market depth (That's not to say you should believe everything you see on the market depth on the surface). Because this is where you can identify whether liquidity is available, and save yourself some spread where possible.

 

[tech/a]

Thank you all for your information. You probably just confirmed what I had been scratching my head. It makes sense that previous volumes are more indicative of direction. Also the at market purchasing is also very interesting.

I'm grateful for your advice, all. Thank you

Be very careful with this thinking.
Reading volume is often the exact opposite to what you think is going on.
If you want to unload a large parcel you are going to do that into strength.

So buying which maybe pushing price up (Particularly at resistance) COULD be
supply feeding demand.
Once demand is gone due to the flood of supply price drops with ease.

Vica Versa short (Futures).

 

[Wysiwyg]

Watching the Grittani vids. I notice he refers to market makers on his dom ladder and you can see them on the market depth (CANT, ETRD, ARCA etc.) . However in Australia, market depth does not show market makers (brokers). This information would be handy to get a feel for what mob is active and what size they are moving. One day, maybe.

 

[skc]

Watching the Grittani vids. I notice he refers to market makers on his dom ladder and you can see them on the market depth (CANT, ETRD, ARCA etc.) . However in Australia, market depth does not show market makers (brokers). This information would be handy to get a feel for what mob is active and what size they are moving. One day, maybe.

ASX used to show broker names against orders live but now it is only revealed after settlement.

I heard that this was changed because the brokers had a big sing and dance to complain how it hurts their trading... which kind of validate your point that such information might be useful.

 

[hamli]

Market depth is irrelevant for me. What matters is what has already traded and at what price. Open interest and tight/bid ask for liquidity. This is how people get spoofed.

 

[pixel]

ASX used to show broker names against orders live but now it is only revealed after settlement.

I heard that this was changed because the brokers had a big sing and dance to complain how it hurts their trading... which kind of validate your point that such information might be useful.

That was changed a looooong time ago. Obviously, Institutional Investors and their Brokers need an advantage over us Online Rabble, to be able to keep us from knowing what they're up to. Making the playing field too level would be bad for Business.

Some online systems do, however, show broker names after 3 days. In Pulse, I can even get a report on trades over a specific period for any stock, complete with buying, selling, and net volume and value by broker.
Example: CZZ trades since May 1st, by Broker, sorted Net Value descending:

 

[frugal.rock]

Rather than start a new thread, I dug up the most recent one....
Can anyone explain overnight bracket/ spread creeping to me?
Have learnt something from the above posts as I have been placing to much weight in making trading decisions from the DOM. I have been using it as a final "health" check but know that it's deceiving.
Example, Z1P often heads north on very little apparent buyer demand.
Currently, when I see spreads such as what is sitting on PNI at the moment, the SP does often gap up.
I am used to seeing most orders dissapear off the table overnight and especially on Friday nights.
However, there's an uncanny lack of sell orders on PNI for a Monday night.?
Any thoughts?
F.Rock

 

[frugal.rock]

Any thoughts?

Nearly 3 years late.
No thoughts.

Terrible thing market depth (MD) can be. Use it at your peril.

Categorically, MD promotes an orderly market, however, certain entities know that an orderly market produces less turn over and it's turn over, or rather number of trades that is where the money is made, by some.

The best way I can discribe market depth is "tip of the iceberg".
Unless you have a good swim and dive around it, you never know how big it is...

Now, back when I seriously started trading 4.5 years ago.... ?????

 

[noirua]

Market depth started on July 2 2002, I think. Market Makers were booted out. Generally this stopped the old 'market spread' system still operated on London's AIM market. This meant only one price, or how it mostly is anyway, and cuts out the Market Makers taking profits on the market spread - this can be ridiculous on the AIM market with some rarely traded shares having spreads often from 10% to 50% and once it hits 50% stops trades altogether.

There can be a problem with 'market depth' and the ASX pricing when a share hits the floor with bidders at 0.1c and offerees at 0.2c freezing most trades. The AIM market allows prices to fall lower to as low as 0.01p though in fact none ever reach that floor level. So the ASX is far superior to AIM in most respects except the lowest price being at 0.1c bid can be a problem if a company refuses to consolidate the share price.