DOM games

[darthtrader 10]

darth,

That's why I am wondering as well. I know OEC has DDE Excel functionality, so that may be an option as well, but how you quantify and when is something I am not sure of.

 

That could work actually.

http://www.tickquest.com/NeoTicker/data.html

 

Neoticker shows them as compatible with l2 supported. I wonder how excel would be on system resources though?

 

Also, I wonder if James would elaborate on how things work in Japan? If its illegal to play these games, what happens if you want to cancel your limit order? That seems like a tough distinction.

[brownsfan019 17]

Here's my observation of watching the cumulative volume numbers on the DOM - just watching those will drive you nuts. They change so quickly that trying to trade off it would be hard in my opinion. I see now why the thread on elitetrader discussed scalping b/c that's where this could come into play.

 

Abe - What you'll need to watch is what happens to those bids as price comes to it, if those bids remain. It's easy to sit back and say I'll buy here but as you said - since you are catching a falling knife, some will think twice as price approaches.

[RAVIN 10]

Can somebody explain with clarity why does price gravitate towards size and does this unfold on a consistent basis, if so than surely it is the making of a holy grail;)

[Soultrader 12]

Have anyone here been able to spot automated program trading on tape? On the Nikkei especially, the number of market participants is minimal compared to other markets. Though volume may be there, the actual number of traders is low. Hence, rangebound/choppy markets are controlled mainly by program buy/sell. I know arbitrage exists between the Singapore Nikkei and Osaka Nikkei but lately I have seen some other form of program trading. This... I suspect some major insitution is taking advantage of this by trading in lumps of 300+ contracts. (approx $27gran a tick) They like to take out the ask and let price run up by 2-3 ticks and then dump right back. This takes place at random price levels making it extra hard for technical based traders. I am guessing this program buy/sell occurs on some formula using the SGX Nikkei and OSE Nikkei contract. Hence, on these days I try to stay away from the markets.

 

Any US or international traders notice this sort of behavior on the tape? Perhaps take a look at some of your losses that was based on breakouts or momentum. It may be that these program buy/sell is fooling you completely.

 

Note: This observation comes only from the Index futures.

[brownsfan019 17]

Can somebody explain with clarity why does price gravitate towards size and does this unfold on a consistent basis, if so than surely it is the making of a holy grail;)

 

As I said Ravin, try doing this in real-time and report back to us how it goes.

 

While price may appear to gravitate to the volume, that is also subjective as well.

 

It's hard to explain here, just watch your DOM and try to trade based off of it.

 

PS

Turn that bold off in your posts please, it strains the eyes and we don't need to see your posts in bold.

[brownsfan019 17]

Here you go Ravin - a real-time example from this afternoon. This was just a small bit of time that I watched. I could not imagine doing this throughout the entire day.

 

Obviously with some refinement, something like this could work, but it's far from being the grail and as easy as it sounds. Big surprise!

 

[BlowFish 10]

Random thoughts.

 

The thread over at ET is one of the few I keep an eye on shame it is pretty much dead now. Interesting stuff. Casual observation show it to be 'real' though in practice the flip from bid heavy to ask heavy can occur as quickly as price can turn. Handy as a confirmation perhaps? To me this is like market delta in many ways it is more information that is not simply based on price but is more information necessarily a good thing? Actually combining market delta with order book analysis is likely to yield a pretty unique tool allowing you to see orders fillled @ price versus orders pulled @ price.

 

There are two broad categories of order those that show on the book (limit) and those that don't (stop & market). Most people have a good idea where the invisible orders are hence to and froing as the market tests levels. Ironically the break out traders and peoples stops (invisible) will likely be in the same area the buy S/R traders have there limit orders.

 

Markets exist to facilitate trade it is uncanny how they move towards size. This seems counter intuitive to some. It is a bit of a paradigm shift but offers an interesting perspective. For example if you accept this then it is easy to think of S/R as levels that actually attract price rather than repel it. Put another way price tends to move to them rather than away from them.

 

Bracket Trader (and possibly other order helpers) show cumulative depth. IB offer a sample DDE spreadsheet that's easy to modify. Neoticker can also display depth info on charts.

 

Great thread will be interesting to see where it goes.

[RAVIN 10]

Much obliged BF , can I presume that this primarily for scalping, could this be applied to say trading of 15min or 5min charts.

 

Question still remains, why does price gravitate towards size, what is the logic, the only one I can think of is if I was long, I would have a sell limit order at some resistance level, so if enough people employed this mode of exit, one could have a whole load of limit orders at a resistance level. Ofcourse to place that exit limit order was indicative of bullishness on the part of traders.

Correct me if I am on the wrong track

[brownsfan019 17]

Much obliged BF , can I presume that this primarily for scalping, could this be applied to say trading of 15min or 5min charts.

 

Question still remains, why does price gravitate towards size, what is the logic, the only one I can think of is if I was long, I would have a sell limit order at some resistance level, so if enough people employed this mode of exit, one could have a whole load of limit orders at a resistance level. Ofcourse to place that exit limit order was indicative of bullishness on the part of traders.

Correct me if I am on the wrong track

 

Ravin - If you look at the actual numbers from my sample and watch this during the day, what I have seen is:

1) Price may gravitate towards some volume at some point.

2) To try to trade off of just this is tricky at best and requires other filters.

 

What I am saying is that I'm having trouble seeing any use of the cumulative depth on the DOM at this point. There may be other filters needed but with as quickly as those numbers change, it's hard to decipher the 'real' volume that may attract price and just the games being played trying to attract price and then dump it. That's the other side of the coin - if we assume price travels to the heaviest volume, what happens when that volume just up and disappears? That happens OFTEN.

 

As for using this on a larger timeframe, I really don't see how just using the #'s on the DOM. Reason being that these numbers flip by the second, so I don't know how to translate that to a 5 min chart in and of itself. A couple of the posts at ET have turned this into some sort of charting indicator, so I would guess you'd have to go that route in order to trade off a larger timeframe. Again, how you implement something like this that changes by the second over to a 5 or 15 min chart I am not sure.

 

As for why price appears to gravitate towards volume I think it comes down to the job of the exchange - which is to match buyers and sellers. In order to move 'inventory' price needs to go to a place where there's the most buyers and sellers IN THEORY. Since the bidders and sellers can pull their bid or ask in seconds however, the auction is constantly moving around to find the next buyers and sellers.

 

I could see something like this being useful in theory and looking good on paper. Just casually looking at it though, I would think some sort of additional filter(s) is necessary to try to find when price is heading towards real buyers or sellers (those that plan to get filled at the stated price) and when to avoid the possible fake bids/asks of people that are simply trying to make price look like it could move....

[TinGull 10]

Another fun one...just now. Still is real thick on the offers....

 

[Richard III 10]

The understanding I am getting is the DOM is showing lots to buy and sell around the market price. If a large lot order is submitted, several points away from the market price when does that show on the DOM? Especially, if the order is made counter to the current market trend.:\

[Richard III 10]

I stumbled across this link http://www.ioamt.com/media/videos/dailyrecaps/9859196/sforecap.html. It is a flash video. The first half is a overall market report however, the second half goes right to the S&P emini, showing how to trade using the DOM. I dug into the source and found it to be a proprietary subscription system. But it does show enough to add some direction to the ideas on this thread.

[brownsfan019 17]

The understanding I am getting is the DOM is showing lots to buy and sell around the market price. If a large lot order is submitted, several points away from the market price when does that show on the DOM? Especially, if the order is made counter to the current market trend.:\

 

Richard - the volume will show on the DOM when it's within 'view'. On the ES for example, most DOM's show 5 levels of bids and asks. Other markets like the bonds show 10 or more.

 

So the large orders you are referring to will appear when they are viewable on the DOM platform that you are using.

[Richard III 10]

Brownsfan,

Thank you.

[RAVIN 10]

I stumbled across this link http://www.ioamt.com/media/videos/dailyrecaps/9859196/sforecap.html. It is a flash video. The first half is a overall market report however, the second half goes right to the S&P emini, showing how to trade using the DOM. I dug into the source and found it to be a proprietary subscription system. But it does show enough to add some direction to the ideas on this thread.

 

 

Hi Richard,

The link only shows video on Market profile analysis, nothing about trading via DOM

Wonder if there is another link to that, the 2nd part that you mentioned

[darthtrader 10]

Random thoughts.

Actually combining market delta with order book analysis is likely to yield a pretty unique tool allowing you to see orders fillled @ price versus orders pulled @ price.

 

That sounds like the way to go with this. Also with the market delta I would think you would be able to get a sense then too if market orders are lifting or sinking the bid/ask towards the size on the book limit order wise.

If price is near your setup and you have size on the book in your direction plus aggresive buyers hitting market orders taking price towards the size you would at least know your not on the total wrong side. To be usefull though it would seem like you have to get this down to some kind of yes or no indicator on the chart though and that might be hard to quantify.

[darthtrader 10]

Richard, I don't see the DOM part of that video either but great video none the less.

[brownsfan019 17]

To be usefull though it would seem like you have to get this down to some kind of yes or no indicator on the chart though and that might be hard to quantify.

 

I think that's the key darth - being able to take the dom with whatever other analysis you have and quantifying it into something that can be traded. I'm sure it's out there somewhere.

[Richard III 10]

:embarassed:Darth & Brown,

The video is rather long. First half is a market profile however, she moves to the S&P 500 eMini. I thought she was using depth of market to setup trades.

 

I have been taking from the forum and thought I had something to give back. I apologize for the bad information.

Richard:embarassed:

[TinGull 10]

Have you noticed, tho, that when there is a huge amount of offer-side pressure in the dom that often times it's taken out and then price ramps up? That just happened....must've been 15k cars sitting in the top 4 slots on the offer and then they vanished. Price was at 51.25 and right when those all vanished price jumped to 52.50 within 2 minutes. Now, it's not a HUUUUGE jump in price, but still, 5 ticks can make ya some ka-ching.

[brownsfan019 17]

Have you noticed, tho, that when there is a huge amount of offer-side pressure in the dom that often times it's taken out and then price ramps up? That just happened....must've been 15k cars sitting in the top 4 slots on the offer and then they vanished. Price was at 51.25 and right when those all vanished price jumped to 52.50 within 2 minutes. Now, it's not a HUUUUGE jump in price, but still, 5 ticks can make ya some ka-ching.

 

I agree Tin - at times, there's something to consider here. Again it's about turning it into a tradeable, profitable system. As much as it interests me, I've never found the combination or rules to be able to trade these setups.

[TinGull 10]

Yea, totally agree. Fun to watch for when times are as slowwwwwww as these, tho

[RAVIN 10]

Yea, totally agree. Fun to watch for when times are as slowwwwwww as these, tho

 

Here is something from a Trader who uses the info. from the DOM much more effectively:

 

DEPTH OF MARKET AND ORDER FLOW

 

 

What I want to talk about is what a lot of traders call reading “order flow†or just “the tapeâ€Â. I think a lot of people spend a lot of time working with indicators for their charts and don’t even think to just watch the orders moving in and out of the market as well as the trades that tick off (also called “prints†in the biz).

 

Most quote providers offer market depth on electronic trading these days and I highly recommend utilizing this gift. The edge that floor traders have is now being given to everyone in the marketplace who trades these instruments, thus providing complete transparency and an even playing field. The problem is that if you’re not a professional and aware of what this actually means, you cannot capitalize on it.

 

The next trading day, load up the market depth window of your favorite electronic mini contract and just start observing what you see. I’m going to be honest with you. This is going to be one of the hardest ideas you will ever try to comprehend as a trader. By watching this screen and this screen alone, you can gauge trader sentiment, their emotions and really make out what exactly is going on out there, things your indicators will never say.

 

The first thing that is apparent is that the market moves like a pendulum, swinging one way and the other. It can look very messy at times but it is always essentially doing the same thing. It makes a move, a counter move, a counter move to that, etc, until it finds equilibrium and then it does it all over again. Watch how it does this over and over again and you will start to really get a feel with how the market is moving, when it’s turning the other way, where the pressure really is, etc.

 

One thing to look for is what is happening in pullbacks. Let’s say the trend is up. The market has been making higher highs and lower lows and we’re in a mini down cycle and price is pulling back. The first thing to observe is how is the market pulling back? Is it a frantic sell-off pullback where the longs are scrambling? Is it orderly and more of a “drift†down?

 

A frantic sell-off usually means the longs have panicked. This is fear in its purest form. They’re jumping on top of each other to sell. Offers are coming in and they’re hitting bids. The down thrust stops for a little bit but there is no mini bounce in the action. After a tiny stall they are hitting bids again, even if there aren’t many offers. They just want to get out, and they want out NOW. The lack of bids and support is a bad sign if you’re looking to purchase this pullback. If going long is the correct play, there needs to be buyers somewhere to hold the price up.

 

An orderly pullback is more along the speed of what we’re looking for in terms of wanting to get long. Sellers are taking profits but it’s a slower move down. Sellers do push it down, and it can look rather thrusting when it happens, but you then see buyers step in and gobble up some levels and back off. Sellers may come in again, push it down, but then again, buyers come in and gobble up a few levels and back off again. This is the big money buying a pullback. You’ll see 6 times more contracts on the offer but the bid is holding because someone is showing a 10 lot and sitting there refreshing it. They’ll print off 50-100 and step off the bid allowing the price to come down more. Now, when I’m using number examples, understand this is all relative to the instrument you’re trading. Printing 50 and backing off isn’t as significant in the ES as it is to the YM, but the idea is the same. Eventually the sellers are going to be done and the selling will become exhausted at or very near a support level that you’ve been watching for it to pull back to. Buyers will start stepping in and when they gobble up some contracts, the selling that follows isn’t as strong any more. The point here is that buyers were sucking the stuff in the whole time it was pulling back and that’s the difference. A big money player, like a huge bank or fund, is working thousands of contracts and you’re going to notice it. I don’t care who you are. An elephant can’t run through a cornfield without leaving tracks.

 

On a downtrend, typically what happens is the selling is frantic and the bounces are slow. Same type of scenario except that moves up in the previous scenario tend to be slow also. This is just a psychological thing. Bull trends tend to be slow, bear moves tend to be very, very fast. If the moves up are fast, it’s most likely short scrambling. Fast moves tend to indicate fear; people not in their right mind. I believe Alan Greenspan dubbed this situation “irrational exuberanceâ€Â.

 

Honestly I could write a book about the market depth screen alone. A lot of it is something that cannot be quantified. I spent years scalping NASDAQ Level II without ever using a chart, just using order flow, momentum and levels and I can say that the same thing applies to the futures market. If you wanted to, you could do this just to scalp, and I mean REALLY scalp; taking 3-4 ticks in a matter of seconds. If that suits your personality so be it. I did that for years and did very well. It’s how floor locals make their money and there are many people doing it on mini futures now. In my opinion, however, it’s just too killer on the nerves.

 

The point of this little essay is to give you some perspective into thinking like a local trader. If you’re like me, you’re looking at long term charts, medium term charts and short term charts. However, most people are not watching the flow. Work at adding this aspect to your trading to become a local when you’re looking to execute your trades. It will help you get great fills. Think how much money saving 1 tick per execution would save you. 1 tick on the YM is $5 and figure 3 trades per day. That’s 6 filled orders. 6 ticks = $30 per contract traded. 20 days a month trading is $600 per contract. That’s reason enough isn’t it? Now throw in the fact that adding this technique with solid technical analysis will make you a solid, well-rounded trader, which should be everyone’s goal.

 

See, you want to become a local trader when you need to be and be more in tune with the market you’re trading. By watching the order flow and characteristics of the bids, offers and prints, you can be so much more effective. Don’t spend your time staring at your chart to get the last trade. Watch your market depth. You’ll thank me for it.

[Blu-Ray 10]

RAVIN

 

An excellent post, Thanks very much

[BlowFish 10]

Ravin I recall having read that before somewhere could you let us know the original source?

 

Cheers.