Market Depth

[stargazer]

Hi all

I have read that market depth is important but it is not the be all and end all insofar as decision making.

I am trying to work out how to read market depth for my own learning. Obviously if there are say 100,000 buyers there must be 100,000 sellers.

Many times i have seen that some say the buyers are greater than the sellers or vice versa. There were 129 trades on this stock etc and there were more buyers than sellers. How can this be if you must have a equal amount for the transaction to occur.

I have tried to make some judgement by observing but haven't been able to get quite right.

Could someone with the knowledge explain the best way to interpret the market depth of say 10 deep as they are on some sites.

Cheers
SG

 

[new_trader1984]

hi stargazer,

The market depth is where orders have been placed at set prices, if i wanted to buy into pru at a 1.50 but current share price is 1.55 the order would be placed and sit in the market depth buy side until the price drops to 1.50 before filling, if there are 3 wanting to buy at that price its first in line that will get the order filled first once it reaches that price. The buy at market is the buyer or seller buys or sells the shares at the current share price and if lots are entering or leaving a stock it can mean a higher buy price or lower sell price.

The market depth can give you an idea of direction of share price might go by looking at the top 5 orders on each side if the buy side is stronger then sell side it could send price up if sell side bigger then buy side price could fall but this can change from people willing to buy at market which doesnt go into the market depth since the order is filled at the current price.

Phoenix a1 software has got a charting package which using the full market depth the top 5 and top 8 market depth prices to show which side is stronger which some people also might find helpful but the same can be worked out by adding the top 5 market depth on each side together and seeing which side has more shares.

For a trade to go through if 1 buyer wants a 100 000 shares but there is 5 sellers with smaller parcels the order will purchase the shares from all 5 sellers until the 100 000 share order is filled. Thats where the trades number comes from since that would be 5 trades to fill that order. If you look at course of sales you will see a lot of trades these are all from the sellers of the shares for the day.

Hope this helped.

 

[chewy]

I think you are getting confused with market depth and actual transactions.
Obviously with actual transactions there must be equal seller and buyer quantities.

But market depth is just a list of pending transactions - i.e. transactions that people have placed at limit (i.e. at a set price). So if a stock is doing well for the day it will likely have more buy orders waiting than sell. And vice versa if a stock is having a bad day it will probably have more sell orders waiting than buy orders.

(But I am a noob too - so maybe I am wrong!)

 

[stargazer]

Hi

Thankyou for your explanations they were helpful.

Cheers
SG

 

[stargazer]

Hi

I was looking at BMX the first 5 lines of market depth there are 1,416,793buyers and 2,076,181sellers current price 24c current volume 163,430 ther has been 11 trades.

This would suggest the stock is more likely to go down than up?

Does the number of buyers or sellers on each individual line waiting make a difference in assessing the stocks direction.

Cheers
SG

 

[new_trader1984]

hi stargazer,

If you add the top 5 amounts of shares on buy side and divide by number of buyers it can give you an average amount each buyer wants to purchase. This doesnt mean there isnt 1 big buyer and 2 smaller buyers if there was 3 buyers at one price level but its just to give a quick idea of the size of the trades if all were buying equal amounts. If you do that for both sides it can provide an idea of which side wants more shares per order which may help but with bmx they are roughly the same amounts per order wanting to be bought and sold since the sell side has more sellers which averages out to the same amount of shares abouts to the buy side.

I am new to charting but there is a lot of pressure on the sell side so a move up will need some news to give buyers more reason to buy but the 820 000 shares at 23 cents might stop it from moving much lower too.

If you go to the inside trader website and click on education 2 headings come up the neilsen indicator and smart money they might offer some help with the buyers and sellers and trying to use it to see which direction the share price might go. You dont need to join to see them since its just a page that explains how it is meant to work.

The market depth can help sometimes but wont always work on shares since at market trades can affect the market depth and change price movements quickly.

 

[stargazer]

Thankyou Newtrader1984.

Will do a bit more reading on it but you have given me a good explanation and idea.

Cheers
SG

 

[Porper]

Hi

I was looking at BMX the first 5 lines of market depth there are 1,416,793buyers and 2,076,181sellers current price 24c current volume 163,430 ther has been 11 trades.

This would suggest the stock is more likely to go down than up?


SG

Stargazer,

Don't read too much into maket depth.

In my experience which ever side of the depth is stacked up, lets say for example there are many more buyers than sellers, the stock price usually goes down !! That wasn't a misprint, especially with the spec stocks, usually there are millions of shares wanted just below the present price, as the price goes down, these bids get either removed or changed to a lower price.

Newbies get sucked in, don't be one of them.Market depth rarely gives you an indication of where price is heading, there are exceptions like anything.

 

[stargazer]

Thanks Porper

Well thats good news its not just me. Like today i was watching CUL and thought many sellers price should be going down and bang from 13.5 to 14.

cheers
SG

 

[bearmarket]

May I ask is it possible that sometimes when the market depth is shown that there might be buyers and sellers in the market that brokers have not told the security exchange about their client orders.

bearmarket

 

[cordelia]

Stargazer,

Don't read too much into maket depth.

In my experience which ever side of the depth is stacked up, lets say for example there are many more buyers than sellers, the stock price usually goes down !! That wasn't a misprint, especially with the spec stocks, usually there are millions of shares wanted just below the present price, as the price goes down, these bids get either removed or changed to a lower price.

Excuse my ignorance I am new at this but can you please explain this further to me. I don't understand why this would happen

 

[gavank]

Hi
Im a university accademic who plays the market - nice game this year 463 trades and 12 (twelve) losses....
If you want my view on market depth..... WELL....market depth and total market volume on buy vs sell , is the king and the only reason to trade a stock.
I am a short term trader... very short term ..... sometimes a matter of seconds.....
today I had 3 winning runs in the matter of minutes on CNM 30.5 c to 42c
($1000)..... its not big money , but it beats losing and it certainly builds up

look for 3:1 ratio on buy vs sell and you want market action ... that is 2,000,000 by 820 am (8am open in perth= 10 am sydney) + 100 trades
I want action I dont want to wait..... I have research labs to monitor after 9 am and I have to go kite surfing in the afternoon to clear out my "gills" . These are Priorities and must be met. to hell wiith investingand waiting, watching and losing.
Well thats my view and Im sticking by it

Beautiful day in perth today.... sea breeze is building ... baby daughter still asleep ..... but this afternoon , "me thinks" , its going to be beach, surfing, dinner and watching a magnificent sunset over the ocean..LIFE IS GOOD OVER HERE


Merry christmas and Happy new year

gavan

 

[stargazer]

Hi Gavan

If you want my view on market depth..... WELL....market depth and total market volume on buy vs sell , is the king and the only reason to trade a stock.

How is Total Market Volume important in the context of a single stock having a substantial volume and buying pressure.

look for 3:1 ratio on buy vs sell and you want market action

Is this calculated on the 10 deep like E trade or elsewhere.

Cheers
SG

Happy New Year

 

[Timmy]

Hi
Im a university accademic who plays the market - nice game this year 463 trades and 12 (twelve) losses....
If you want my view on market depth..... WELL....market depth and total market volume on buy vs sell , is the king and the only reason to trade a stock.
I am a short term trader... very short term ..... sometimes a matter of seconds.....
today I had 3 winning runs in the matter of minutes on CNM 30.5 c to 42c
($1000)..... its not big money , but it beats losing and it certainly builds up

look for 3:1 ratio on buy vs sell and you want market action ... that is 2,000,000 by 820 am (8am open in perth= 10 am sydney) + 100 trades
I want action I dont want to wait..... I have research labs to monitor after 9 am and I have to go kite surfing in the afternoon to clear out my "gills" . These are Priorities and must be met. to hell wiith investingand waiting, watching and losing.
Well thats my view and Im sticking by it

Beautiful day in perth today.... sea breeze is building ... baby daughter still asleep ..... but this afternoon , "me thinks" , its going to be beach, surfing, dinner and watching a magnificent sunset over the ocean..LIFE IS GOOD OVER HERE


Merry christmas and Happy new year

gavan

Nicely done gavank - you have posted your approach guidelines before and I replied I am a big fan of this momentum/short-term type of approach. Can I ask, how do you narrow down to a short-list of shares you will look at each morning - is it an end of day scan done the previous night or a live scan during the morning or a combination of the two or am I on the wrong track? Just to put my position in perspective I am trading US futures overnight (not this week b/w Christmas and New Year though, volumes too low so getting some sleep!) using a short-term/momentum approach too. Hope you don't mind the questions?

 

[IFocus]

Hi
Im a university accademic who plays the market - nice game this year 463 trades and 12 (twelve) losses....

When ever I see numbers like this my cynical side says "fishing expedition"

Focus

 

[stevo]

As has already been said don't read too much into market depth. It gives an indication of what might happen, but how many buyers / sellers want to broadcast there intentions in the market depth.

I often avoid putting an order into the market unless I know that it will be immediately filled - so the order does not show in market depth. To do this I will split orders up. I am sure that there are many more orders waiting in the wings than market depth will ever show you.

stevo

 

[jackson8]

Hi
Im a university accademic who plays the market - nice game this year 463 trades and 12 (twelve) losses....
If you want my view on market depth..... WELL....market depth and total market volume on buy vs sell , is the king and the only reason to trade a stock.
I am a short term trader... very short term ..... sometimes a matter of seconds.....
today I had 3 winning runs in the matter of minutes on CNM 30.5 c to 42c
($1000)..... its not big money , but it beats losing and it certainly builds up

look for 3:1 ratio on buy vs sell and you want market action ... that is 2,000,000 by 820 am (8am open in perth= 10 am sydney) + 100 trades
I want action I dont want to wait..... I have research labs to monitor after 9 am and I have to go kite surfing in the afternoon to clear out my "gills" . These are Priorities and must be met. to hell wiith investingand waiting, watching and losing.
Well thats my view and Im sticking by it

Beautiful day in perth today.... sea breeze is building ... baby daughter still asleep ..... but this afternoon , "me thinks" , its going to be beach, surfing, dinner and watching a magnificent sunset over the ocean..LIFE IS GOOD OVER HERE


Merry christmas and Happy new year

gavan

gavan how can you follow so many stocks in such a short time frame to find where the action is
i have had similiar success with stocks like elk fdl etc. and try to keep an eye on the forums as they seem to carry a lot of weight with some of these movements but miss heap of good opportunitys each day because of no. of stocks to watch
maybe case of having a well researched watch list !

 

[chops_a_must]

Hi
Im a university accademic who plays the market - nice game this year 463 trades and 12 (twelve) losses....
If you want my view on market depth..... WELL....market depth and total market volume on buy vs sell , is the king and the only reason to trade a stock.
I am a short term trader... very short term ..... sometimes a matter of seconds.....
today I had 3 winning runs in the matter of minutes on CNM 30.5 c to 42c
($1000)..... its not big money , but it beats losing and it certainly builds up

look for 3:1 ratio on buy vs sell and you want market action ... that is 2,000,000 by 820 am (8am open in perth= 10 am sydney) + 100 trades
I want action I dont want to wait..... I have research labs to monitor after 9 am and I have to go kite surfing in the afternoon to clear out my "gills" . These are Priorities and must be met. to hell wiith investingand waiting, watching and losing.
Well thats my view and Im sticking by it

Beautiful day in perth today.... sea breeze is building ... baby daughter still asleep ..... but this afternoon , "me thinks" , its going to be beach, surfing, dinner and watching a magnificent sunset over the ocean..LIFE IS GOOD OVER HERE


Merry christmas and Happy new year

gavan

Yeah bollocks.

I watched the ES get smashed wide open on the upside late last night on a pivot, with the sellers outnumbering the buyers by more than 6:1.

I've seen good market depth result in SP rises, just as I've seen it result in a reverse. It just seems to be a good excuse for large on market sells/ buys in the opposite direction of the depth, and to me now, extreme market depth is a signal to get out of the trade. CNP was a classic example of this...

 

[ithatheekret]

The theory leaks a little considering there is off market buy and sell lists , not to mention one would not be seeing the total transaction depth either side well down the line . Unless of course you're a major brokerage then you might have a chance of perusing the entire depth .

I'm with Chops ......... bollocks .



PS.. What about time and speed ?

 

[Timmy]

Chops and theekret, I have heard the term you used many times but I looked it up on the Urban Dictionary anyway, quite a good site!

Anyway, back to substance. I am not a big fan of market depth, very open to manipulation, but I would like to hear more about gavank's approach.

More specifically, to the points you raise...

Chops:
1. I would contend there is huge difference in the relationship between price and market depth with an instrument like the ES compared to a small market cap. share like CNM. What applies to the ES will not necessarily apply to a small cap. equity.
2. The relationship between market depth and subsequent small cap. share price movement is a complex one, at times the price will move to size, at other times not. Knowing when the behaviours will be different is the challenge.

Theekret:
The two points you raise are valid, again I would say knowing when and when not to use the market depth is the challenge. Also, can you expand on your time and speed comment?