Quote from Spydertrader:
Depth of Market (DOM)
...with the use of the DOM (and its partner - T & S), we have the ability to anticipate signals of change before they occur.
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As Jack has often noted, the minority rules this situation. When Price encounters a DOM Wall, Volume must come in and eat through the wall (or contracts must be pulled off the Price Level) before Price can proceed through this Price level. In other words, if the wall remains intact, we can anticipate change. If size eats away at the wall (without other contracts replacing those filled) we can anticipate continuation.
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We want to monitor to determine if our âwallâ remains in place, disappears entirely or âmovesâ to a different location. For now, we should focus on monitoring for when a wall remains in place vs. disappears. This leaves us two questions: What do we look for (the wall) and when do we look?
In an uptrend, if we notice a wall on the Ask (See Attached), we can anticipate change as long as the wall remains in place.
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How do we know if we have size eating away at the Price Level or if the âspoofersâ (those individuals who âfakeâ orders on the DOM) are pulling their contracts? We can see this through the use of T & S (Time and Sales). If we have a wall decreasing its size without a corresponding trade on the T & S, then we can safely assume the smart money has decided to âpullâ their contracts in anticipation of Price continuing the trend. The same is true when we see multiple trades of size (greater than 50 contracts) eating away at the DOM Wall. Normally, youâll see a combination of these two (pulled contracts and size hitting the wall) when the market finds itself in continuation mode. If we see, no (or very little) size hitting the wall, and the wall remains stable (no, [or few] pulled contracts) we can anticipate change as the smart money anticipates Price heading in the opposite direction.
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I hope everyone finds the above information useful.
- Spydertrader
