I'm struggling a little to describe this in a forum typing
One of those things that is much easier to explain visually. I'll give it a try.
20A
20A
20A
20A
20A (1)
10B (2)
10B (3)
10B
10B
10B
(1) is our last traded price (LTP).
(2) If someone wants to sell, they have to hit at level (2). That would be a TWO down ticks (notice the 'gap', this our spread).
(3) Let's imagine you want to sell 15 - motivated seller at market. You will take the 10 at the bid, and 5 from the next price level. We will down tick 3 times.
20A
20A
20A
20A
20A Prior LTP
<-- original spread.
<-- notice we have a new gap. Spread is temporarily 2 ticks.
5A <-- LTP
10B
10B
10B
Depth would now look like this.
----------------------------
Then, imagine this happens:
20A
20A
20A
20A
30A First Trade
40A <--new motivated sellers have come in, offering to sell larger quantites.
30A <-- more sellers
5A <-- LTP
50A <-- The 10Bid has been pulled, and replaced with 50A (50 offered)
1B <-- Someone else pulled orders, leaving only 1B here.
10B
5B
5B
Sellers are trying to Jam buyers here. We want to cause pain to whoever is caught long. Buyers are pulling their bids, and the price is trying to be forced lower.
Even if we were to BUY in this situation, we have to hit the 50 offered, which is still a downtick from the LTP 1 tick above (where the 5A is).
----------------------------
Next trade:
20A
20A
20A
20A
30A First Trade
40A
30A
5A <-- Prior LTP
47A <-- Someone hits the 50A and buys 3. (new LTP)
1B
5B <-- Someone else pulled another 5 bids.
80B <-- Longs are trying to stack the bids, to make it look strong. Probably Bullshit.
50B <-- again, more spoofing of the bid.
Price is still downticked, even though someone "paid up" to hit the offer.
----------------------------
Next trade:
20A
20A
20A
20A
30A First Trade
40A
30A
5A <-- Prior LTP
47A <-- Someone hits the 50A and buys 3. (new LTP)
4A <-- Someone tries to sell 5 at this price, taking the 1B sending it 4A.
<-- Someone else pulled another 5 bids. We have a spread.
8B <-- "Spoof" depth was pulled. He doesn't want to keep it there incase it's hit, now that he's the front of the bid.
50B <-- happy to keep the spoofing there, because he can hide behind the 8B.
Price is down ticked by hitting a bid (normal situation). However, we took out the price level, and sent it from being 1B to 4A. Now, if someone wants to sell at market, they will downtick TWICE (because we have a spread) to hit the 8B. If someone inserts an offer ("A") in our spread, a market order will hit that, creating a downtick even though they hit the offer.
This pattern can continue indefinitely.
When prices are pulled, no trade occurs. If a bid is pulled, and someone inserts an offer, then someone buying at market will still result in a downtick on the T&S.
If you think about it, this is how gaps occur on your chart. Prices are pulled, and someone hits market to cross the spread.
MANY traders make their money from just mastering this practice, generally locals, because of their speed.
E.g.
Look at the depth below. Weak sellers up above, and strong bids.
2A
2A
2A
2A
80B
50B
10B
-----------
2A
2A
2A
2A
5B <- You insert 5 to buy, "leaning" on the 80 B below you (strength).
80B
50B
10B
Uh oh. But meanwhile, I'm actually waiting for an idiot like you to do this.
2A
2A
2A
2A
5B <- You insert 5 to buy, "leaning" on the 80 B below you (strength).
80B <-- This is MY 78 on top of a "2B"
50B <-- Also MY 45 on top of a "5B"
10B
-----------------
Now you're in trouble. You reason for taking the trade disapeared.
2A
2A
2A
2A
45A <--- Sold 50 at this price, taking your 5B and sending it 45A.
2B <-- Pulled my bids
5B <-- Pulled my bids
10B
More sellers then come in to Jam any guys who are stuck long. Simultaneously Bids are pulled, sending the market down quickly. The goal is to try and create a wide spread, even for a split second. Hopefully Long Stops go off, sending "sell at market" orders into the market, which cross the spread for us, hitting the bids. Generally, those bids will be our "take profit" bids. Then we can reverse long, and try and kill some shorts who sold because we were selling.
Does this answer the question?