Half the reason I find TH so helpful is that he's not TOO helpful. You need to go and think hard about what he's said, play around a bit, not just frown and nod and stroke ya beard.
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Make a list of the stuff he's said that makes no sense to you. Play around, research, practice, then come back and see if anything does make sense. A lot of it only does when you've screwed up first.
Anyway, here's what I've deduced that could help answer your questions (and which may be so wrong it's not even wrong):
Really don't understand this response. No suggestion was made that it was. So the bid/ask volume in the order book is irrelevant?
The important thing about the book is how it changes. Think of the stuff sitting there as terrain, but the
movement as the battle. As I said once before, Little Big Horn was a factor in the battle, but it was the injuns that Custer needed to worry about.
What's coming into the book, and where? What's hitting straight into the bid? What's being renewed, over and over? Are those bids two points below the spread pulling up stakes and being put back on LOWER, or are they pulling up stakes to hit the ask?
A lot of the volume in the book is a mile away, will not get touched for a week, and has been sitting there for a month. Not terribly relevant.
Are there any people out there who trade off the market depth able to confirm they use it incorrectly?
I can. I've had maybe 100 hours experience. I don't know squat, and a lot of my "sure things" blow up in my face. All I get is the occasional hint of a pattern, a little thrill to think ah-HA! I see you, you bastard, shot-gunning little pebbles into the waves.
And then I'm wrong and I lose all my money, but it's still fun.
...and it's even wrong to
completely ignore what's been in the book for days. That stuff, like a hill in a battle, can make a difference. It's a little "resistance point" that the TA folk can't even see. When that big blockade that's been sitting there, unseen by the chartists, suddenly melts away with a corresponding number of fills, it's action time! Because if there's some clear space (small orders) behind it, there's a real chance that people hitting at market are going to blast the price right to the other side of the open area, before everyone comes to their senses and it blasts right back again. Couple of seconds, half-a-dozen ticks each way. Good wage.
On smaller stocks with
just enough volume, I can be a big-boy. You can see the ask drying up, but it's all because they're falling down into the bid. Now the bid is getting eaten up by more orders hitting it - no-one is even looking at a price above the gap. It's going down, right? But that leaves the area from the ask and up a couple of points bare naked. $50,000 (spread into a few randomly sized orders placed a few moments apart - thank you IB - and day-traded, so (depending on platform) only requiring $12.5k free in your account, right down to zero upfront required) can blast right through that bare spot, right through an old calcified blockade, knock down three more more price points after that, and suddenly everyone's stops are being triggered, half the guys lurking under the bid (and these guys, although looking for a better price, would not be buying if they didn't expect the price to be heading up) crap themselves thinking they're missing the boat and try to jump on, and the poor numtpies hitting the price at market just push it harder. A couple more price points are likely to go down.
Then you can be the first to leap for the life-boats (crash your holdings down onto the bid for a few seconds, then drop what's left in at-market to clean up the book before people freak out and pull their orders or the rest of the herd wake up and stampede), and even go short if there's any volume left after you've escaped, given you're about the only one who knows why the price just spiked...
Now I don't actually do that anymore - it's too risky to try while I'm still so green, and you sure as hell can't sim it - but I'm certain big-boys do the same in bigger markets.
And the lesson: the book LOOKED like it was going to fall. It looked certain. The bid was being hit hard, the near asks were giving up and falling down into it. Volume was coming in straight into the bid, reducing the total on that side, and the ask was still strong.
Three seconds later it had shot up 9 ticks.
So along with all those "rules" you're trying to come up with is the ability to see opportunities for someone else to do something underhanded. "What I am seeing is
not a falling book, it's a set-up for a sledge-hammer, because of the following signs...".
That's one trick. How many tricks are there? How will you learn them? Whenever things go the opposite way you think, you MUST go back and try to work out why. Because a global rule like "scalp against the volume" is not going to teach you what the other bastards are doing.
People are trying to take your money. Devious arseholes are doing everything they can to trick you into making the wrong decision. Coming to the game armed with "always do this" doesn't work on this time-scale. I guess that's what TH is trying to say, with one millionth of the words.
If you're not swearing at your opponents, then (IMO) you're not doing it right. This 'aint a church picnic. People are trying to take your money.
Okay so maybe scalp against volume in the bid or ask.
And finally I think this sentence is the nothing to something scalping strategy.
As above.
A lot of the orders on the book are "dead". Their owners aren't looking. They might have been there for a week - hell, the owners may acutally
be dead!
: They sure as hell aren't reacting to anything today.
The more active people get scared of a gap though, right? So it's actually comforting for a lot of people to see a fast move
that's filled on good volume right the way up. Less "coming to their senses" panic as above. So a steady rise is one that'll generally go further. It's also one that's easier to be on - you don't need to see it before it jumps (like the blue-sky hill I was talking about above) - other factors can suggest this will be a decent shift (people who've been faffing about well down the book giving up and hitting the ask, increase in filled volume without a decrease in the lines under the bid, etc), so you can get on early and hold on, with lots of volume all around you to keep you safe. Nothing more comforting that seeing a fat bid line following you up.
So, and happy to be corrected, there's a million things going on with this stuff, which is why it's never in books. Too hard to explain. Impossible to even seriously try unless you're happy to write epic f'ing sagas like this. Better off playing the game yourself to get better. Then come back, and the cryptic remarks will make more sense.
No-one ever got good at tennis by reading.
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Having said that, if TH ever writes Part 3, I'd read it.
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