bid/ask size analysis

[fandelem]

hi all,

please help me understand bid/ask size movements...

let's say on the ES

bidsize:302
bidprice: 1185.25

asksize: 206
askprice: 1185.50

i sit here watching the bidsize slowly move down to 250,210,150,30,when it hits below 1, the price moves down an increment. if in the process of the bidsize going down, the asksize goes below 1, the askprice goes up an increment...

but this doesn't happen all the time, and it doesn't seem to jive with the "last price/size" .. I see the last size in like 1-10 lots for the most part, but see the bidsize/asksize move much more rapidly.. so can someone please piece this together for me.. what is actually happening? i believe this is the first step towards understanding price action.. reading the bid/ask correctly.. so if anyone would spend a few minutes enlightening me, i would be most gracious.


k.

 

[winter]

Folks can be placing limit orders (increasing the bid/ask size) or cancelling previously placed orders (lowering bid/ask size) without any trades taking place. Is this what you are missing?

 

[losloslos]

u r looking at offers. the respond on
decreasing offers at bid or ask
is a lower res. higher price

 

[fandelem]

Quote from losloslos:

u r looking at offers. the respond on
decreasing offers at bid or ask
is a lower res. higher price

so when the bid/ask sizes move, it doesn't necessarily mean people are buying/selling at that specific price and it also doesn't mean people have to break through the bid/ask sizes to move the price. i understand this.

is the bid/ask sizes basically a guage and the last price/size is the actual speed.. more last prices and higher sizes in one direction swings the bid down or the ask up (and last price accordingly) ..

but how do you know how many last price/sizes it will take before it moves the bid/ask a direction.. that is my real question to the experienced..

 

[winter]

Quote from fandelem:

so when the bid/ask sizes move, it doesn't necessarily mean people are buying/selling at that specific price and it also doesn't mean people have to break through the bid/ask sizes to move the price. i understand this.

is the bid/ask sizes basically a guage and the last price/size is the actual speed.. more last prices and higher sizes in one direction swings the bid down or the ask up (and last price accordingly) ..

but how do you know how many last price/sizes it will take before it moves the bid/ask a direction.. that is my real question to the experienced..

I think you are trying to use abstract concepts (gauge/speed) for what is a concrete phenomenon. The bid/ask size represents the total volume for everyone who has standing orders at those prices. In order for the current bid/ask to shift, one of the bid/ask size must hit zero. That can happen by either someone hitting the offers thereby removing size offerred from the current bid/ask or by existing orders being cancelled.

How many last price/sizes (I think you mean trades) will it take to move the bid/ask? One if its big enough (volume equal to the current bid/ask size). [Why does that remind me of the old tootsie-pop commercial?]

Seriously though, maybe the best way to look at it is to imagine you yourself in charge of managing limit and market orders (mechanically) - I think you will see that what occurs is exactly what you would have to do if you were faced with the same order flow.

 

[nononsense]

Quote from fandelem:

hi all,

please help me understand bid/ask size movements...
...

many tried, all failed, even nononsense.

 

[fandelem]

Quote from winter:

Folks can be placing limit orders (increasing the bid/ask size) or cancelling previously placed orders (lowering bid/ask size) without any trades taking place. Is this what you are missing?

Okay, so this brings up a good point I wasn't completely aware of.

For example, yesterday I saw the ES ask size at like 2,500. The bid size was aruond 300 (the norm it seems). You are saying this could have been the result of many people placing LMT orders then cancelling them..

But I don't understand.. if people are placing LMT orders at the current ask/bid, shouldn't they start getting filled? Are you saying a partial cancel (ie. out of 300 they were filled 100 and cancelled 200)?

 

[fandelem]

Quote from winter:

I think you are trying to use abstract concepts (gauge/speed) for what is a concrete phenomenon. The bid/ask size represents the total volume for everyone who has standing orders at those prices. In order for the current bid/ask to shift, one of the bid/ask size must hit zero. That can happen by either someone hitting the offers thereby removing size offerred from the current bid/ask or by existing orders being cancelled.

How many last price/sizes (I think you mean trades) will it take to move the bid/ask? One if its big enough (volume equal to the current bid/ask size). [Why does that remind me of the old tootsie-pop commercial?]

Seriously though, maybe the best way to look at it is to imagine you yourself in charge of managing limit and market orders (mechanically) - I think you will see that what occurs is exactly what you would have to do if you were faced with the same order flow.

1) what is your definition of a "standing order" -- is this a "waiting to be filled order" in other words?

2) So when I see the ES has 2,500 ask size, and 300 bid size, that means at 1180 and 1180.25 there are a total of 2800 contracts waiting to be filled?

3) This is a great explanation: "That can happen by either someone hitting the offers thereby removing size offerred from the current bid/ask or by existing orders being cancelled." .. so in my question #2, there may have been 2,500 ask size, but if someone has 1000 at ask and it started to get filled.. say they were down to 950.. (the market then collects 50 more contracts from bid) then 900 (the market then collects 50 more contracts from bid) .. then they cancel it at 900, the ask size would drop to 2500-50-50-900=1500, right?

4) a major question looming on my mind.. when I see an ask size of say, 2,500, can I assume this is "a huge resistance/support" level? can I assume that once it breaks through this, it is a good s/r level to take note of in the future?

Thank you for all of your time in this thread!

 

[winter]

Quote from fandelem:

Okay, so this brings up a good point I wasn't completely aware of.

For example, yesterday I saw the ES ask size at like 2,500. The bid size was aruond 300 (the norm it seems). You are saying this could have been the result of many people placing LMT orders then cancelling them..

But I don't understand.. if people are placing LMT orders at the current ask/bid, shouldn't they start getting filled? Are you saying a partial cancel (ie. out of 300 they were filled 100 and cancelled 200)?

If the bid/ask size was 300 x 2500 that means there are folks willing to buy 300 contracts (total) at the bid price and folks willing to sell 2500 contracts (total) at the ask price. By "willing" I mean they have submitted buy/sell orders at those prices.

If you place a limit order at the bid then you get in line with everyone else. You do not get filled unless someone is willing to sell at the bid (a market sell order or a limit sell order at the bid price) AND its your turn, FIFO queue.

The current bid/ask size represents limit buy/sell offers that cannot be filled because there is no agreement in price - they are separated by .25 in the case of ES.

 

[winter]

Quote from fandelem:

1) what is your definition of a "standing order" -- is this a "waiting to be filled order" in other words?

Yes, by standing order I meant a limit order that is not filled. If the bid/ask is 1200/1200.25 and you place an order to buy 1 contract at 1200 then you join the bid queue (bid size goes up by 1). At 1200/1200.25 you have people willing to buy at 1200 and people willing to sell at 1200.25. There is no way for those parties to trade with each other unless someone is willing to change their price. Market orders or "marketable" limit orders are the only things that create trades (buyer willing to pay at a price that the seller is willing to sell at).

Quote from fandelem:

2) So when I see the ES has 2,500 ask size, and 300 bid size, that means at 1180 and 1180.25 there are a total of 2800 contracts waiting to be filled?

Yes, exactly, 2800 contracts to be bought/sold at that price level (300 bought @ 1180.00 and 2500 sold @ 1180.25). Also remember that there are also additional buy/sell limit orders sitting at other prices levels, further away from the current bid/ask.

Quote from fandelem:

3) This is a great explanation: "That can happen by either someone hitting the offers thereby removing size offerred from the current bid/ask or by existing orders being cancelled." .. so in my question #2, there may have been 2,500 ask size, but if someone has 1000 at ask and it started to get filled.. say they were down to 950.. (the market then collects 50 more contracts from bid) then 900 (the market then collects 50 more contracts from bid) .. then they cancel it at 900, the ask size would drop to 2500-50-50-900=1500, right?

Yes, if I understand you then that is correct. If you see the bid/ask size change and you do not see any trades then you know that limit orders @ the bid/ask were added/cancelled. Its as simple as that.

Quote from fandelem:

4) a major question looming on my mind.. when I see an ask size of say, 2,500, can I assume this is "a huge resistance/support" level? can I assume that once it breaks through this, it is a good s/r level to take note of in the future?

That's a little beyond the scope of this discussion and I'm no expert on S/R. I would consider actual historical trade volume at different price points as much more important then (unfilled) size orders for guessing where S/R is myself.

Like you pointed out above, orders can be "spoofed" to make it appear like there is resistance; like placing an order for 1000 contracts but cancelling it after getting some small fills (50+50).