This is exactly why I mentioned earlier somewhere along the thread that there is some considerations to be aware of especially considering your last point about the markets heading for the highest volume... If I remember carefully, what you mention was what Scientist had understood. So he and I see slightly differently. There is directionality in the market with regards to volume, however I haven't observed direction being a matter of the greater bid/ask size. My observation is a bit different in that it is the smaller of the two in addition to the incoming VOLUME CAVEAT. The consideration that has to be dealt with is in fact a minority aspect. You'll have to pardon me since I had worked out this aspect after sorting through many questions I had regarding what is what at this particular junction several months back. I verified what I had come to understand as truth by doing simple continuous mechanical (programmed) trading on this small principle. The issue here is about the size of either side (ie. bid/ask) but not necessarily in the direction of the greater side as Scientist had understood, as a scalper mind you (read carefully the context of his posts). Continuous Trading was much later for him. When you look at either side BID SIZE, ASK SIZE, it is an either or of what's happening (ie. either net fluctuations of a particular side is yielding a general increase or decrease in the particular side). All price charts encapsulate this activity and thus it is at the heart of the matter for all trading. The majority do not like it because it is hyper monitoring and directionality changes are frequent.
As usual, an illustration/analogy. My mind is geared to pictures. You can think of the matter as a tug of war. As in any tug of war, there is a minimal displacement required to defeat the opposing side. Trading is similar in many respects, how many individuals punch away at the bid with the presumption that the market goes up or punch away at the ask with the presumption that the market goes down. The subtlety here can be understood by looking at who lines up at the tug of war. When you look at either side of the rope, you can do a size up to see which side has the preferential to outpull the other. The issue here is that the individuals lining up is NOT the BID SIZE or ASK SIZE, but is in fact the immediately arriving orders that are punching away at the two sizes. For example, if bsize/asize is 100/900 and you get a 1000 contract bid, this order will tick the price spread (dP) down .25 pts. So this is where the T&S comes in VERY useful especially if you have BSIZE/ASIZE on your T&S. If you don't, well then the BID SIZE/ASK SIZE does just fine.
When monitoring these things, and this is where scalpers would do very well if they would just get tuned to it, you'll notice that there is directionality in the change of both sides of BSIZE/ASIZE. Isolating just one side for the moment, only two things happen. Either the flunctuations in the size will be generally increasing or generally decreasing. Eventually, then there is a reset. The reset is a new price level (ie. bid/ask price depth). As an additional illustration, I liken the actions of a single side (ie. bid size) action to a boat with a hole in the bottom. The market orders which continually flow in (T&S) are equivalent to the water coming in through the hole in the boat. There is also a counter mechanism to this inflow which is continually scooping water out of the sinking boat. The scooping out is equivalent to the limit orders arriving at the bid side thus increasing the bid size. So now you see that on just the one side, you have two dynamics working on just the one side of the current price depth. You have bid volume flowing in, but you also have limit orders lifting bid volume (ie. 1 market order for 2 short contracts can be undone by a sequential order of 1 limit order to cover 2 short contracts at the current bid). This single sided net flow is in effect how fast the boat is sinking... To capture both sides, you have the same dynamics at play on the other side, in other words two boats. The idea then is to monitor, analyze, and decide which boat is sinking faster and act only when shifts occur. Oddly enough, you bank profits by siding with the quicker sinking boat. GO FIGURE!
MAK!
