What to look for before a potential breakout?

[k p]

Found that thread I was referring to:

http://www.elitetrader.com/et/index.php?threads/scalping_my-way-with-acv.68098/

Thanks for looking up this thread. I'm just working through it, rather casually, only to see if I could ever at some point add reading the DOM into the mix.

But I must admit that when I got to the point where he was only scalping for 2 ticks, it almost made me the WTF is the point! LOL... It is after all a scalping thread I guess, but I thought that the idea was simply to allow one to gauge if a breakout from a trend had enough power behind it or if it would in fact be an FBO.

Anyway... since the thread is from 2006, and since I've read that HFT's have changed so much of the trading, do you think that all those offers in the ladder, the very same ones that I hear are pulled within milliseconds, still add value? I know you'll have a good answer because ever since you helped me out with the bid/ask spread lines in Sierra, along with plotting the average line, I feel as if it has really helped me see things better. I know from your screen captures that you have the DOM up on the chart, not even the separate window, so you must use it, and so I'm wondering if you can provide any current info as I feel this info from 2006 might be a bit dated.

 

[wartrace]

Anyway... since the thread is from 2006, and since I've read that HFT's have changed so much of the trading, do you think that all those offers in the ladder, the very same ones that I hear are pulled within milliseconds, still add value?

In my opinion the DOM and Tape are still very useful provided you invest enough time learning. A lot of people dismiss the DOM because someone told them there are games being played by large traders. I use Jigsaw trading tools and the games are pretty obvious to me. The thing is people decide to not even TRY to understand the DOM. My guess is because it isn't easy like slapping on some technical indicator green light/red light system.

On the DOM you can see if the book is firming up after you place a trade. very useful information for managing your trades.

You can see if limit order traders are nervous and start pulling their orders (liquidity) as price moves against them.

You can see if limit traders are defending a price by adding to the book as market orders hit it. They aren't always successful but sometimes they are.

You can even spot the games. If you see orders being added and pulled over and over at a level there is a good chance that trader is trading the other side. They are trying to make one side look strong but by pulling their orders and adding back in they move to the back of the order que.

If you are willing to put in the time and concentrate on one market you will probably find the DOM useful.

 

[k p]

In my opinion the DOM and Tape are still very useful provided you invest enough time learning. A lot of people dismiss the DOM because someone told them there are games being played by large traders. I use Jigsaw trading tools and the games are pretty obvious to me. The thing is people decide to not even TRY to understand the DOM. My guess is because it isn't easy like slapping on some technical indicator green light/red light system.

On the DOM you can see if the book is firming up after you place a trade. very useful information for managing your trades.

You can see if limit order traders are nervous and start pulling their orders (liquidity) as price moves against them.

You can see if limit traders are defending a price by adding to the book as market orders hit it. They aren't always successful but sometimes they are.

You can even spot the games. If you see orders being added and pulled over and over at a level there is a good chance that trader is trading the other side. They are trying to make one side look strong but by pulling their orders and adding back in they move to the back of the order que.

If you are willing to put in the time and concentrate on one market you will probably find the DOM useful.

Thanks for the reply. I have seen your posts in the recent past and it does seem that its working for you. When I try to watch it, it just moves so fast for me. If I try and actually read the numbers, I barely can before they are gone. I can get a nice little visual at least that displays graphically the mix between orders above and below the current price, but even then, I find that if I'm focused on this, I'm not actually watching the price bar on my chart too well and miss seeing what is happening there with the push and pull and rejections, etc.

I also find it odd how for a fraction of a second, most orders disappear, and then the book fills up again in no time. And never mind that for a fraction of a second it seems heavy above the current price, and then heavy below the current price, and it seems to go back and forth! LOL... Clearly its not for me just yet.

 

[wartrace]

Thanks for the reply. I have seen your posts in the recent past and it does seem that its working for you. When I try to watch it, it just moves so fast for me. If I try and actually read the numbers, I barely can before they are gone. I can get a nice little visual at least that displays graphically the mix between orders above and below the current price, but even then, I find that if I'm focused on this, I'm not actually watching the price bar on my chart too well and miss seeing what is happening there with the push and pull and rejections, etc.

I also find it odd how for a fraction of a second, most orders disappear, and then the book fills up again in no time. And never mind that for a fraction of a second it seems heavy above the current price, and then heavy below the current price, and it seems to go back and forth! LOL... Clearly its not for me just yet.

I took six months before it even started to "click" for me and I think that is probably why a lot of people dismiss the DOM as a trading tool. What product are you trading? Stocks are likely more difficult than futures as far as depth of market is concerned. I KNOW that the built in time and sales on Ninja Trader would be hard to use compared to Jigsaw.

 

[k p]

I took six months before it even started to "click" for me and I think that is probably why a lot of people dismiss the DOM as a trading tool. What product are you trading? Stocks are likely more difficult than futures as far as depth of market is concerned. I KNOW that the built in time and sales on Ninja Trader would be hard to use compared to Jigsaw.

I'm trading the NQ and using Sierra Charts. Just did a quick little screen capture video. This has just the graphical type of DOM which I assume would almost be good enough as perhaps I don't need to see the actual value at each level... the graphical bars would be good enough to show me what's happening?? As you can see.. its moves soooo quick, and goes back and forth between heavy on the top and bottom almost at random!

 

[wartrace]

I'm trading the NQ and using Sierra Charts. Just did a quick little screen capture video. This has just the graphical type of DOM which I assume would almost be good enough as perhaps I don't need to see the actual value at each level... the graphical bars would be good enough to show me what's happening?? As you can see.. its moves soooo quick, and goes back and forth between heavy on the top and bottom almost at random!

This is Jigsaws DOM & tape on the NQ

 

[k p]

This is Jigsaws DOM & tape on the NQ

When the T&S isn't filtered for a bit of volume, you're basically just watching red and green colors fly by! LOL... I've read somewhere to use a >10 and >20 volume filter as this may in some way help you see what the bigger players are doing, but at the same time, I've also read that the big players can just pass off all their orders as 1 lot transactions to hide this fact.

When it starts moving though, it moves quick. The video seems to be moving a big faster than real time though. (ah.. I see in the title, 4x speed) Also, the DOM is only about 11 points wide. In the environment today, 11 points will run off the chart in no time. I usually set my screen up to show a range of 30 points, but now even use 50 or 60 points to compress it given how huge these moves are lately.

What's interesting here is that although the numbers change, entire lines don't disappear like they do for me. Its like for a fractions of a second, lose all bids or asks.