[mister ed]

BF – interesting points about the “smart money� you make “that knows stuff we don't or simply has there own agenda� – yes agree with you on both. I also think there is less of it than perhaps we assume. I have heard figures bandied around that 85% of activity is related to smart money, the figures and definitions are vague (at least to my understanding) but I can’t think that number is anywhere near accurate.

It is important to differentiate between size and smart – there is plenty of big lots traders bumping up against big lot traders activity, and one, at least, has to be on the wrong side. The point you make about sometimes they just have their own agenda is true, in MP you would refer to it as the other timeframe trader I believe, and a lot of the time their activity in the smaller timeframe is not at all “smart� – “just get me set� would seem to be a better description of their activity sometimes.

Now the order book – trade towards size is very accurate. I have heard two good, plausible explanations. One is that if the price is moving up towards large offers it is because there is no point sticking in a limit bid and waiting to get set, the price is moving up so may as well pay the offer and get in, the reason there are large offers sitting there is because in an up move the sellers can afford to sit on the offer and wait, hence the market moves towards size. Sounds plausible. The other explanation I have heard is “herding the sheep�. Stick in big offers just above market to spoof it while getting filled on the bid with iceberg limit buys. Must be one of the few instances in the business world where stuff is advertised for sale with no intention of actually selling it. This second explanation is my preferred model.

It is very interesting when this herding is occurring. I am not much of a watcher of DOM beyond when I am executing my own orders, most of the time I am watching my charts instead. But there are times when the nature of the trade changes, it is hard to explain but the range/volatility contracts while volumes remain reasonably strong. Sure enough I will flick over to DOM and there they are, offers in the thousands just above the market offer. As the market ticks higher so do these large offers, close but tantalizingly out of reach! Call me a cynic, but worth a look.

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I am still pondering on the 2 definitions slugging it out at present. Each definition will give a unique view of the market activity – the two are going to be very similar overall but at times will be distinctly different, and I think these differences will be at key points. I think its all in the way the price reacts to what is going on, as always. I am yet to go through some playback charts and look at these differences but on the brief look I have had I have a sneaking suspicion that my conclusion is going to be that both definitions offer valuable insights and maybe there is a role for using both. Anyone else doing the same thing, be good to hear other input.