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3. I have an issue with smart = big. Observation of the big-lot trades that go through suggests to me that the big lot traders are not necessarily “smart”. It is logical that smart = big, but in my experience, not all big = smart. This may be an issue with how the data is presented, and I would love input on this. I am only speaking of the ES, my current understanding is that a 100 lot buy (i.e. a buyer who hits the ask for 100) is reported as a 100 lot buy even if he buys from a split of sellers, say a 5, 10, 15, 10, 30, 20, 10). Another point is the software exists to allow trade size to be split, so instead of executing one lot of 200 near-simultaneous execution of 4 lots of 50 (for arguments sake) can be done instead. My broker even offers a humble trader like me an “iceberg” facility to split up my limit orders.
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Glad you agreed with most of my post
. This was a bit sloppy on my part.
VSA tends to use 'smart money' as a type of catch all for the guys that are privy to stuff we dont know, it is kind of implied that they also have the guys that take massive positions. Really there is just a right side and a wrong side in the timeframe you trade!! As I mention now and then the commitment of traders report would indicate The % winners and losers don't really vary that much amongst the various market participants. In a nutshell I agree the big guys loose too. The way I see it (which maybe a bit different to the pure
VSA view) is that there is 'smart money' that knows stuff we don't or simply has there own agenda. They are probably 'large'. Where I agree with you and perhaps stray from the pure
VSA view is there are also a whole bunch of 'dumb' participants trading size too. Anyway I digress.
The thing you introduce is the other piece of information that we can use as traders. That is the order book. Basically its inventory the participants choose to advertise. Incidentally I think this is another area where people tend to use intuition and get it wrong. If you watch the order book price tends to move towards size not away from it. In fact the old timers say 'size trades to size'.
I think probably one of the key thing is how the advertised inventory (order book) reacts to the aggressive sellers. I have noticed a few things but I find it quite tricky sometimes. As yet I have never discovered a tape reader that can really explain it!
Anyway I hope we can get some practical application out of this stuff as it is unique market generated data.
Cheers