Market Depth

[IFocus]

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?

Timmy market environment changes the market depth environment, in the specs during bull market conditions with serious momentum there is some merit but in run of the mill price tends to be king

Focus

 

[chops_a_must]

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.

My comments above were about equities.

The only time I've found depth useful, in my limited time in futures, is towards closing when positions have to be reversed. I know TH uses open interest to work out his directional bias. How effective that is in the short term, I wouldn't know. I'm not even sure that can be counted as market depth, but it appears to work well for him at least.

 

[ithatheekret]

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.

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?

Hang about , I may be on my 5th Stella , but you answered this question .

But without sprouting algorithmic strategies till I puke , lets just say the hunter can become the hunted .
If one could backtest executions effectively , it would have to deal directly with liquidity ( good subject at present , ...... cheers ..... ) , then real time data , which is 9/10ths the domain of third parties or more , which in itself can be a mine field when the transparency and accuracy needed to support the theory can be conflicting to any data messages structured by the software one is using , be it their own or another parties .

If you can merge all the suggested , lets call it a theoretical montage , where you could actually read each layer of the composites , the missing link would then be true sentiment , which in itself presents a wider timeframe than that available in market depth . Sentiment can be seen as realtime movement but the changes can't or at least not yet , to date they can only be observed once committed to execution and that can change twice in a blink primarily because of off market trades . Now if you could see market depth in off market , match it with liquidity projections , maaaaaaate , then we would have definition , with true definition who needs a crystal ball ( rhetorical question ) . It would be a transitive construction within a realtime market , which could take into account systematic differences and be bl**dy marvellous if it could be done . Even algos can't predict change in sentiment only price reflects that , then the equation can then start again as long as a trend can be summised . That then starts another barney in the market depth theory , because trend identification again is still post market .

Anything relying on pre is in for a post shock , so that cuts out any avenue on that theory straight away , as there is no measurement for pre acceleration phenomena for shares , methinks it can be concluded that market depth can only show a portion of the mass , there is no dimension to the viewer that could possibly take into account velocity .

Then we have another arguement again in velocity .


Bollocks was easier .


PS .. I like your stop theory .

 

[Timmy]

Well IFocus, Chops and Theekret, thanks for the replies - I reckon this thread is getting more and more interesting. I have said it before, but will again - I am here to learn (I'll never stop, so long as I have one finger capable of pressing the button to execute my order), and the replies from you three to my post have given me plenty to ponder beyond simply the relationship between mkt. depth and small-cap share price movement. Have a look at this list:

From IFocus and Chops...
Relationship between momentum, market depth and price.
Futures mkt. depth towards closing vs. other times.
Open Interest - short term effectiveness.

From Theekret...
Your post may have been Stella-assisted, but great stuff - great framework for considering sentiment/sentiment changes/price/price changes. And off-market trades - the bane of much analysis...
And thanks for the comment on the sig!

 

[ithatheekret]

Thanks for that Tim ,

The debate can go deeper still , if we were to roll the microscope over liquidity versus whole price impact functions , the coding on that would gain attention , because a simple ratio would not be suffice .

Post market with the aid of the course of sales does have an appeal to it that some may view as beneficial . I use this at times , but primarily in conjunction with VWAP when browsing a share price entry .

If anything with regards to market depth , I must concede that the buyers side is more of a catalyst than the sellers . At least there you can attempt to ascertain some idea of what others are willing to pay for a stock/share etc. , but then that doesn't help us when block bids hit the market , blowed if I know how one would navigate that .

Then there's the magical disappearing buyers versus the totally off the planet sellers who place astronomical prices on an exit and usually end up as fixture of the depth and not a participant of the market in real terms .

Some are obviously off with the pixies there ..... and yet market depth would have us use them in the equation . Then again there's the ones who will not wait , the impatient ones , where do they fit into the math ? This is all assuming that one has DMA in the first place without having to refresh every split second to catch the changes in the line up for starters .

Bit of a quagmire in the least of terms ..........

 

[cordelia]

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.

.

what does "es" mean

 

[chops_a_must]

what does "es" mean

It's the S&P 500 mini's.