Depth of Market [PDF]

Zitiervorschau

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What is depth of market? What does the data mean? What do changes in the data mean? How DOM can help you find support and resistance How DOM can help you get better fills for entry and exit How I use DOM to predict extremely short-term swings How DOM can help you determine the true meaning of market reactions to news How DOM can tell you ahead of time whether there is accumulation of distribution How DOM can trick you into erroneous conclusions Tips, tricks, and techniques for using DOM Detailed methods I have developed for daytrading with DOM 2/24/2014

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A trading information retrospective  Pre 1900: basic charts, fundamentals, rumors, news and insider trading, manipulation  1925-1940’s charts, pools, bull and bear raids, insider trading, Livermore; charts kept manually  1950’s – late 1960’s; Edwards & Magee, Graham and Dodd, tech analysis grows. Charting gains popularity. Richard Donchian. Wyckoff volume. Granville OBV. “If we could only use computers”.  1970’s Computerized trading analysis grows as does tech analysis. Multiple Ma’s Victoria Feed 4, 9, 28 Van Nice absconds. If we could only enter orders and get all data by computers  1980s to early 1990’s Market profile, AI, electronic order entry. If we could only do this faster and bypass those blood sucking brokers and those crooked floor brokers and get lower commissions and faster data  2000’s we got it all – but can we find out where all the orders are?  HFT, order book, DOM, ladder, volume at each tick: what’s next? 2/24/2014

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DOM: good news / bad news

OMG!!!

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Standard definitions • Definition of 'Depth of Market (DOM) A measure of the number of open buy and sell orders for a security or currency at different prices. The depth of market measure provides an indication of the liquidity and depth for that security or currency. The higher the number of buy and sell orders at each price, the higher the depth of the market. Depth of market data is also known as the order book, since it shows pending orders for a security or currency. This data is available from most exchanges for a fee. • Investopedia explains 'Depth of Market (DOM)' Depth of market also refers to the number of shares which can be bought of a particular corporation without causing price appreciation. If the stock is extremely liquid and has a large number of buyers and sellers, purchasing a bulk of shares typically will not result in noticeable stock price movements.

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Depth of Market – Order Book • • • • • • • • • • •

Review of data and meaning of data What it tells us How to use it Cautions REQUIRES some interpretation – method as opposed to system LIMITS of application MY discoveries and applications Dynamic vs static Applicable to all futures Applicable to stocks (level 2) My best uses: day trade and 2 – 5 days

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How I Use DOM Not in order of importance • Support and resistance • Accumulation of positions • Distribution of positions • Optimum entry and exit prices • Prior to major reports • Assessment of market reaction to news • My version of HFT day trades • Short term trades • Determine anomalies in balance of buy / sell intentions • Changing stops and targets dynamically based on conditions in DOM • More applications being developed • FOCUS ON PROCESS and UNDERSTANDING

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Market Generated Information (MGI) • • • • • • • • • • • • • • • • •

What is MGI? Pit traders and MGI – the edge – Tom Baldwin Buying the bid selling the offer The million widget dilemma Now that the floor broker is an anachronism What else is there? Levels of MGI How we DISTORT MGI and why Why MGI is the highest level of info HFT the ultimate application of MGI We can’t compete with HFT BUT we can get the edge… Warren Buffett acts to prevent early info access by HFTs DSI and HFT requests WAYS TO TRADE: CONSIDER THIS FIRST! It’s critical to define your space and develop that space with powerful tools KNOW WHAT YOU CAN DO and maximize it DOM can be used by ALL TRADERS – I will show you how But remember DOM is a method not a system at this point

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Levels of market information • 2 main categories 1) External market related information (examples) 2) Market generated information MGI (examples) • Levels of MGI ---- lowest level charts ---- one level up charts + indicators ---- volume and open interest (futures) ---- depth of market and order flow ---- Liquidity Data Bank – LDB (example next slide) and Market Profile (Steidlmayer) http://www.elitetrader.com/vb/attachment.php?postid=921848 http://www.abebooks.com/servlet/BookDetailsPL?bi=11628615487&searchurl= ds%3D30%26isbn%3D9780471621157%26sortby%3D13

---- Resting orders info from exchanges (HFT)

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Markets as an auction process • • • • • • • • •

The concept The application Facilitation of trade (FT) is critical How to evaluate facilitation of trade How momentum can reveal FT How depth of market (DOM) reveals FT FT can be evaluated in any time frame A DOM study step by step (10 deep) Caveat: rule based vs analysis 9

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640AM Mon 2 Dec

• Note orders below LOD vs sell orders above last trade – now look at the daily chart

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Let’s look at a trade with DOM – my steps • I determine current trend*** BEFORE start of US day session using my trend and timing tools. For THIS purpose I find MAC best • Why? Because it gives me trend, mac support and mac resistance but I can also use divergence mom trigger / trend if there is no MAC trigger. I NEED TIME TO OBSERVE • If trend is up I want to assess buying power and orders below current price so I look at dom 10 deep if possible below market and COMPARE 10 deep to sell above. Example next slides • TIME frame for initial step depends of the market and size of market moves. How much does the given market or stock move in a given time frame? Is the move worthwhile in $$$? Can you make money in the time frame chosen given size of move? Do you want small move and large position? Can you make money on 2-3 ticks in sugar? Do you want to trade only 2 units to get started? Can you make money in soybean oil on 3 ticks x 2 contracts? In what time frame is that doable? YOU HAVE TO MAKE THAT DECISION YOURSELF! Does the market move too fast in that time frame? How fast is fast? Is your time frame too slow? How will you know? 2/24/2014

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643AM • The support and buying pressure continue…approx 4:1 ratio over sellers confirming to me that the trend as of now is likely to continue up. I want to BUY BUT WHERE?

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649AM • Support and buying support continue and increase as sellers decrease – I want to be long – where?

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659AM • The demand continues let’s look at the chart up close…the auction process shows large demand in the 418 ½ to 420 ¼ range…look at what’s happening on the chart…see how momentum is ramping up! 24

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706AM • Accumulation and buying interest continue from 418 ¾ - 421 with only 3 large sell batches above market – buyers in control – this market is going I will go long if not already long? Very fast target (arrows) – risk below here 26

712AM • Look at this! If I am not already long I need to do so by hitting the offer

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715AM • And this! So…I need to be long corn since the buyers are in clear control and an upmove is almost imminent! 28

724AM • Demand and support continue – the market is talking to me

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728AM • Buyers take a rest but are still in control

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738AM • Balance returns which means the big buyers are giving the sellers a chance to show their power or intentions – the auction has reached a stalemate but the slight bias remains on buy side 31

744AM • Big buyers step back in to the game since sellers couldn’t take control

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804AM • Support continues to be stable at and under LOD

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848AM • Price begins to move up and buyers still support higher prices

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929AM • Market coming into balance but buyers still in control

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957AM • Prices rallying and balance returning

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1005AM • As prices rise large sell order appears at high of day but support still stable

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1010AM • Large sell orders begin to show near high of day but buyers still plentiful – price now 6 cents above levels at which strong buying developed

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FYI this is what happened after many days of large buy orders below market 3 to 1 ratio or more the market is “screaming “ ‘buy me’

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Also FYI here is where support developed in jan before $1500+ move

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1043AM • Burden of proof is on longs as large sell orders develop at high of day

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1054AM • Same process continues

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1120AM • Buyers fade away and there is doubt that prices can remain at this level...take profits on day trades or sell on stops or use PMAX 44

544am Dec 5

• DX on left • ZCH on right

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603am • What do you see in DX or ZC

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631am

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636am

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649am

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723am

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836am

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Corn 21 Jan 6:44am

Its happening again! Look!

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Corn 21 Jan 6:58am

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30 jan 741am what to do? Why?

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30 jan 741am

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30 jan 837am

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30 jan 954am

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Today 641AM

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DOM 641AM CZ

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645am today DX ES

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Today ES up 14.00+

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DOM

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ES chart at same time

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Back to CZ 712am

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Assess a low volume market

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Coffee: DOM wont help me

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Sugar today – assessment?

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Sugar chart at same time: follow rally?

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I bought corn: now what? Look at chart and dom 728am

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Zc 744am

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751am

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753am Sugar backs off from high

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819 corn

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Es 831am

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Revisit corn: 842AM

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ES makes new high: resistance level and place to take profits or raise stop?

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Es 944am conclusion? Is the market facilitating trade?

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Buy corn again or pass?

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SSTT sessions are recorded

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I can be reached at 800-678-5253 or 831-430-0600 Email me if you have questions: – [email protected] Mentoring appointment interview – http://www.comtrade1.com/letter/

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