Market Depth

[Country Lad]

In the MX1 thread @Telamelo noted that the market depth stack consisted of 89 buyers for 3,578,620 units vs 61 sellers for 2,085,207 units and assumed the price will increase which it has.

To many traders the raw buy/sell figures can look quite enticing but they need to be put in context.

Unfortunately, people forget to take into account that the market is actually an auction (where of course the price is allowed to go up or down, but it is still an auction). I will use the example of FLN for no other reason that I have it open at the moment and the chart looks sort of, half reasonable.

Currently the FLN stack, consists of 49 buyers for 547,800 units vs 48 sellers for 369,763 units which on first appearance looks good at a buys to sells ratio of 1.5 so the market sentiment appears positive by simply looking at the raw buy/sell numbers.

The auction at the moment has the price at 64. Logically, the buyer bidding 29 cents has no show of buying any shares in the current market. Similarly the seller at 100 will be holding his for quite a while in this market.

When we originally put together the algorithm to assess the market sentiment at any time for any particular share, one of the measures was the buy/sell ratio and we needed to take into account that it is an auction and also we needed to allow for the possible movement of the market affecting that auction which in some cases could be rapid.

To decide what part of the stack actually makes up the market at any time, we settled on including only those which were within 20% of the current price.

Allowing that 20% in the example of FLN, the ratio of buys to sells is 0.98 which is weak and changed our “live” stack to 32 buyers for 219,254 units vs 35 sellers for 223,399 units, and incidentally, the price is down today.

A long winded way of saying treat the buy/sell stack with a bit of caution as it can look good but be irrelevant.

 

[Telamelo]

Here we go.. it's game on MX1 @18.5c +8.82% it's all about market depth/price dynamics in sensing when the bulls take/have the upper hand etc.

113 buyers for 4,193,314 units vs only 55 sellers for 1,950,444 units

Importantly buyer's now stacked up big time @17.5c (opening price this morning!)

 

[frugal.rock]

When we originally put together the algorithm to assess the market sentiment at any time for any particular share, one of the measures was the buy/sell ratio and we needed to take into account that it is an auction and also we needed to allow for the possible movement of the market affecting that auction which in some cases could be rapid.

To decide what part of the stack actually makes up the market at any time, we settled on including only those which were within 20% of the current price.

Any expansion on this part?
I don't wish to reinvent the wheel...
We?
Market depth discussion is taboo, is it not?

 

[frugal.rock]

Here we go.. it's game on MX1 @18.5c +8.82% it's all about market depth/price dynamics in sensing when the bulls take/have the upper hand etc.

113 buyers for 4,193,314 units vs only 55 sellers for 1,950,444 units

Importantly buyer's now stacked up big time @17.5c (opening price this morning!)

With all due respect, I think excitement may be clouding logical assessment.
Would like to see it pull back to ~0.15, find support, and then go for a run.
Nothing in today's figures, charts, MD etc gets me excited.
If it holds and finds support at 0.175... happy days, perhaps.
Good luck.
"I may be wrong, I may be crazy...."

 

[Telamelo]

With all due respect, I think excitement may be clouding logical assessment.
Would like to see it pull back to ~0.15, find support, and then go for a run.
Nothing in today's figures, charts, MD etc gets me excited.
If it holds and finds support at 0.175... happy days, perhaps.
Good luck.
"I may be wrong, I may be crazy...."

It did just so with retrace @16c last week of which since found support imho
P.S. Still have my earlier buy order sitting there @15.5c waiting to be hit lol
Cheers tela

 

[Austwide]

Do we know what percentage of trades happen at Market and therefore not show up in the market depth numbers.
I haven't found market depth very helpful in many trades

 

[Telamelo]

Do we know what percentage of trades happen at Market and therefore not show up in the market depth numbers.
I haven't found market depth very helpful in many trades

Interesting question.. as market depth dynamics is what analysts assess/use/become good at etc. to sense when to place their order's (buy or sell) etc. Understanding market depth orders provides a clear sense as to which way a stock price will move e.g If seller's say are selling into limit buy order's then this indicates supply/selling pressure etc. (tendency for price to go lower) and vice-versa. Market depth reflects the struggle between the bulls and the bears so to speak as to whom has the upper hand.
Hope this may help you somewhat. Cheers tela

 

[Austwide]

I intended to buy LYC this morning if it went above 2.21 but was late getting logged in. I watched the Market depth on the buy page as this gives me a live prices and it was at 2.26 then 2.28. I put in a 2.31(getting too far from breakout price) buy order but by then it was at 2.35.
I watched it a bit longer but it slowed at 2.38 and stayed at 2.40 ish (now 2.38).
As it had slowed I cancelled my order as I had missed the boat today and don't want to buy a BO on a falling price indicating failure. Tomorrow may well go higher but? SL?
The MD is a very short time frame indicator.

 

[frugal.rock]

Do we know what percentage of trades happen at Market and therefore not show up in the market depth numbers.
I haven't found market depth very helpful in many trades

No, and centrepoint trades don't show up in MD either...
The better indicator of order flow is Course of Sales...
Have seen the SP go against the "apparent" market depth flow often enough.... not a reliable indicator IMO, but, yes, it does have a certain amount of "visual usefulness" which the high frequency guys are well aware of and exploit regularly...

 

[Country Lad]

The MD is a very short time frame indicator.

It can be very short time frame indeed. The trick is to see it change to the positive and also react when it turns negative. Measuring it is the key as I mentioned above.

 

[Smurf1976]

Market depth is a bit like temperature in my view.

The absolute figure isn't useful so much as comparing the current figure to "normal" is useful.

If a stock has been sitting around 300,000 buy and 250,000 sell for an extended period and suddenly that changes to 900,000 buy and 30,000 sell well then it's a flag that something's going on and to investigate further.

It doesn't necessarily mean you should buy the stock, but it's a flag that something may be going on.

Extreme values likewise. If it's a 50:1 ratio of buy to sell well that's not normal especially if it's a reasonably liquid stock.

 

[Telamelo]

Someone bought 1M @18c of MX1 this morning! Well if MX1 can close @18.5c or better today.. that means it's crossed above 200dma (daily moving average) of 18.4c which is technically bullish - slowly but surely think it's heading higher imo
Cheers tela

 

[Smurf1976]

For a random example of what I'm referring to:

SHL:
Buy = 360 buyers for 244,165 shares
Sell = 39 sellers of 16,093 shares
Buys outnumber sells more than 15:1 in terms of share volume and more than 9:1 in terms of the number of orders.

That's a large cap stock not some junior mineral explorer etc so whilst that is not of itself a buy signal it's far enough out of balance for me to use it as a "flag" for further investigation.

Note that's not a recommendation to buy etc, it's just an example of how the concept can be used. At the close of trade, buyers were clearly a lot more willing to leave an order in the market overnight for tomorrow's open than were sellers with both share volume and the number of orders confirming each other.

Also, this stock closed up 1.82% on a day when the overall market dropped so that price action also points in the same direction.

My point here is about market depth not SHL that's just for example.

 

[frugal.rock]

Nice example there @Smurf1976

So, whilst it may look like a nice "buy" signal, it can change on the drop of a hat with sellers crawling out of the woodwork, just like kids ripping out of school at the closing bell....ding ding!

In this case, can't argue that the trend is likely to change, but it seems like it's getting tightly sprung to go one way or the other rapidly, soon enough.

On the speccie priced end of the market, BUD is showing similar characteristics, however, I honestly don't consider BUD to be a speccie stock anymore.
It has massive potential to challenge the likes of Phillips amongst other light bulbers. It has obselence in its favour amongst other factors, including the led environmental push etc.
Why would the likes of Microsoft, Google, Amazon etc be collaborating with BUD it if was just "pissing in the wind" ?

 

[Smurf1976]

So, whilst it may look like a nice "buy" signal, it can change on the drop of a hat with sellers crawling out of the woodwork, just like kids ripping out of school at the closing bell....ding ding!

Agreed.

I see it as a "something's up, investigate further" signal not that one should buy the stock based on that alone.

It's just one of those "hint" sort of things that might not tell you anything in itself but it's a signal to take a look. Much like anything in your body or with a machine that isn't how you'd normally expect it to be - of itself tells you not much but it's a signal that investigation is warranted just in case that odd rattle is indeed a wheel about to come off.

 

[Telamelo]

Someone bought 1M @18c of MX1 this morning! Well if MX1 can close @18.5c or better today.. that means it's crossed above 200dma (daily moving average) of 18.4c which is technically bullish - slowly but surely think it's heading higher imo
Cheers tela

Perennial Value Management Limited (PVM) increased their stake in MX1 recently from 5.23% to 6.27% so another good sign as they see 'value' in adding more here. Cheers tela

 

[frugal.rock]

If it holds and finds support at 0.175... happy days, perhaps.
Good luck.

Seems like the above may be the case.
A weak theory at best without confirmation yet.
The result should be obvious over this next week. Fingers crossed for you Telamelo.

 

[Telamelo]

Another classic example with watching/observing 'market depth' action on PEN a week ago (bought in @ .067c).. noted buyer's slowly stepping up/increasing support initially @ .066/.067c levels that became .069/.07c by last friday (with buyer/seller ratio ever increasing day by day). As a result, am expecting PEN to move higher over the coming day's imo
(please dyor of course).

 

[frugal.rock]

The market shallow.