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horace

A Question Concening Volume at Bid and Volume at Ask

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Thanks Cruiser,

 

I understand the difference between market orders and limit orders, but can you expand more on the value (if any) of using the ask-bid ratio in day trading.

 

If you believe that the ratio has value, could you explain it please.

 

Sorry - I don't look at the bid/ask ratio at all. I put my attention to price action and market internals.

 

I occasionally watch the bid ask numbers once I'm already in a trade but never have gotten a lot of info from it as price can easily move counter-intuitively in relation to the number and span of bids and offers.

 

I trade emini index futures in the day session so the bid & offer volumes and spreads from moment to moment aren't that important to me as I'm already familiar with the characteristics of fill and slippage on orders during the time frames I usually trade. Occasionally, I'll trade stocks (mostly Nasdaq 100 stocks) based on various scans and when I do I'll end up trading stocks I'm not all that familiar with so the bid/ask levels up and down the scale are more important to get an idea of what kind fills and slippage might occur. But I'd pay even less attention to the bid/ask ratios close to current price for stocks as the market makers for the stocks might be playing all sorts of games.

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price can easily move counter-intuitively in relation to the number and span of bids and offers

 

Finally! Someone that's actually studied this subject! Thank you.

Price normally moves counter-intuitively to the sum of the bid ask info.

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with some common sense.

 

 

I'm not interested in "common sense", mate, I'm interested in what is actually the case. It's actually the case that in Post #19 you state:

 

The bid/ask should have a queue. This is something you should be watching as well that no one has mentioned yet. You need to see what is waiting to get filled and if they are getting absorbed.

 

. . . when in Post #3 I had already stated:

 

"In other words, comparing volume at bid with volume at ask might not be that informative; try comparing volume at ask with depth of book at ask, and volume at bid with depth of book at bid."

 

Now I bet when you come home from your other job that isn't trading you jump onto your comp and replay the day and think to yourself that it is the same thing.

 

Within my platform order book data cannot be collected historically; it is only available to be streamed and then stored at the time it is created. Therefore the data that can be used to backtest is the same data that would have been available at the time of trading.

 

Can you see how you're continuing to talk drivel here, "Colonel"?

 

You are probably thinking that its fine because you have been trading in sim in replayed markets for so long and making progress after all these years.

 

Don't trade in sim; don't trade intraday fella - now how do you like them apples?

 

 

Volume is not the stuff on the ladder. Volume is the amount traded or the contracts traded.

 

 

Yes, thanks for the basic definition of volume. If you read post #3 you'll see that it's perfectly clear that I know what volume is. Not sure why this should even be a point of doubt.

 

 

The queue isn't the orders on the ladder. Its not orders on the DOM either (if you call a ladder a dome).

 

 

Call it what you like (I never look at it, so I don't care). It doesn't change the fact that the statement above is completely incorrect - the orders on the ladder/DOM are the queue/depth of book.

 

Because maybe you didn't think I mentioned your post and gave you the credit you think you deserve or earned?

 

No "Colonel", I'm angry because you explicitly claimed that nobody had stated something (suggesting that everyone else in the thread was perhaps a little less enlightened than you), when in fact I had clearly stated it in the third post.

 

If you are going to make money with this then you are best off getting up early and being ready before the open.

 

No need to get up early, I live in the UK. Nor do I understand references to "the Bush league team" :)

 

My point still stands, "Colonel" - you made a claim that was incorrect regarding the contents of previous posts in the thread, and you claimed that certain data was not available for backtesting when in fact it is.

 

Now when are you going to admit that you made two incorrect statements in your last post?

 

 

BlueHorseshoe

Edited by MadMarketScientist
language

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Finally! Someone that's actually studied this subject! Thank you.

Price normally moves counter-intuitively to the sum of the bid ask info.

 

The value of this information is not in predicting price movement, it's in knowing relative liquidity around the prices you trade.

 

BlueHorseshoe

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The value of this information is not in predicting price movement, it's in knowing relative liquidity around the prices you trade.

 

BlueHorseshoe

 

What is gained by learning/knowing the relative liquidity?

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I'm not BlueHorseshoe but I try to bring my own answer.

 

Price moves because there is an imbalance between:

- demand of liquidity (market orders)

- supply of liquidity (limit orders).

 

For instance, if there is more BUY market orders coming in the market than the numbers of limit SELL orders waiting in first level of the DOM, all this first level of the DOM will be "eaten", and price will increase by one tick.

 

So liquidity is key. Because it is the basis of price movement.

 

Just my opinion.

 

Nicolas

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What is gained by learning/knowing the relative liquidity?

 

Understanding liquidity around a price means that you can make better judgements about how to execute your own orders and, depending on your goals, whether to execute orders.

 

Coming from you, I'm assuming that you're asking this question for the benefit of others?

 

BlueHorseshoe

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Understanding liquidity around a price means that you can make better judgements about how to execute your own orders and, depending on your goals, whether to execute orders.

 

Coming from you, I'm assuming that you're asking this question for the benefit of others?

 

BlueHorseshoe

 

I really wanted to know what you used it for.

 

I try to estimate what traders may do next which means , no matter how I slice it, I am trying to estimate or predict behavior and determine if that is what I need to happen next or if it ok for it to happen next, given a particular trade I am in.

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I really wanted to know what you used it for.

 

I try to estimate what traders may do next which means , no matter how I slice it, I am trying to estimate or predict behavior and determine if that is what I need to happen next or if it ok for it to happen next, given a particular trade I am in.

 

My apologies, MightyMouse - you caught me in a bad mood there!

 

I am currently working through a series of questions relating to liquidity, orderflow, position in queue, and efficient execution. I haven't made use of any of this in my trading before as I traded from daily charts and found that execution had a fairly negligble impact. I'm now considering day-trading strategies, where I have become convinced that a thorough understanding of all the above would be very helpful indeed.

 

If you want a specific example of how then I'll provide one.

 

Hope that answers your question.

 

BlueHorseshoe

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ZDO

 

Can you describe the tests you ran and the results you found as they would be helpful to me.

thanks

 

No lag time response... whew - almost missed this question forever...answer won't be of much help either :)

 

Generally, backtesting was done on various bhvrs of the cells coming into price pivots.

It got very number crunchy... in the ES well over 2000 stack instances had to be included coming into a pivot... later tweaked around with some GA and a few other things ... but generally... with the raw numbers - Nothing reliable was found

 

Around this whole topic ... using the book is a skill that can be developed. Much like tape reading though it takes a certain type of mental aptitude (ie savant like strangeness ;)) to be able to scan it day in and day out and know when to act, etc...

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When ES is rising on the TF greater than my trading frame, I wait for a pullback and then enter on rising momentum when the price breaks out of the pullback/congestion.

Also, I dredge up the supply /demand zones and these add weight to the pullbacks as price enters these zones.

Given that a lot of traders are doing the same thing, I wonder if better knowledge of ask-bid on my part would give me an edge or just give me a headache.

 

Hi Horace,

 

You're correct in thinking that there will be a lot of traders doing the same thing. I'm currently reading "Street Smarts", which is rather an old book now, and that contains strategies such as 'the Anti' which aim to exploit exactly what you describe.

 

Here is an idea that may be useful to you that might allow you to improve the profitability of your approach without worrying about the bid-ask. This is especially relevant if you're trading the ES, as it often struggles to produce sustained moves, even when the pattern you describe works perfectly.

 

Rather than wait for price to break out of the congestion (ie a reconfirmation of the original trend), establish a position as the pullback occurs. Buy the pullback; not the breakout that follows it. Sometimes this will mean that there is an adverse excursion after you have entered a position, but your actual fill price is unlikely to be worse than it would if you seek a confirmation breakout move, and sometimes it will be better.

 

I've attached a chart showing what I mean.

 

I hope that suggestion is of some help to you.

 

BHS is there an algo available for what you are suggesting that reads dtn IQ data

 

Not that I'm aware of, but you could easily program one, or pay someone to program one for you, or ask someone on the forum who can program for your platform very, very nicely if they would do it for free. I've had absolutely shed loads of free help from people on TL with programming queries, and what you're after isn't very complicated to produce.

 

BlueHorseshoe

5aa711345a2b3_PullbackEntry.thumb.gif.b84eea299465e69aa437fabb7d808d30.gif

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... Price moves because there is an imbalance between:

- demand of liquidity (market orders)

- supply of liquidity (limit orders).

 

For instance, if there is more BUY market orders coming in the market than the numbers of limit SELL orders waiting in first level of the DOM, all this first level of the DOM will be "eaten", and price will increase by one tick....

 

 

Well put! I’ve been hitting at this here and there lately – in my experience, far more traction is available in understanding market order flow than is available in understanding (appearing and disappearing) stacks of standing orders

 

ie and roughly

market order flows help me to work price movement

other types of / limit order flows help me to work price stability

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