Why DOM is Deceiving
- Thread starter increasenow
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Hmmmm.. interesting.. "there might be gold in dem der hills".. this general approach may have some legs.. but IMO I still think too much faith in DOM is misplaced
Gottta love MACD, when I first stumbled on it, it had 3 times the impact when compared to discovering Bollinger (no.. not the drink!) as a fresh newb on some price action... "wow look at that!" he said breaking out into song...
"I can see clearly now the rain has gone......"
acv ratio augmented with MACD may require some study....
regards
Paul
Quote from buzz:
Look at Cumulative depth volume over the last few ES points!. Whenever one side of the market is larger, that is where you want to place your trade. Example, if there is large orders on the offer, you want to buy, if there are large bids, you want to sell Basically do the opposite of what others are looking at
Buzz
Yep, agree ... works this way on the YM as well probably 70% of time seems to me.
Edit. dont know about ES. YM only.
The real reason that price follows aggregate book volume is that Market Makers place volume on the side of the book before they move price in that direction.
It is a direct consequence of the fact that they "crowd" the book price levels so that they can "make the spread", so that we (in general) have to pay the spread.
Being on the book early is the key to MM's making the spread, so of course book volume placement patterns will tend to predict price movements. Of course, you can't "eyeball" it; you really need to measure it with some computer algorithms.
FS
I can't believe I give it away for free. ha haQuote from buzz:
Look at Cumulative depth volume over the last few ES points!. Whenever one side of the market is larger, that is where you want to place your trade. Example, if there is large orders on the offer, you want to buy, if there are large bids, you want to sell Basically do the opposite of what others are looking at
Buzz
Doesn't being left with large orders at the ask a natural consequence of strong buying immediately prior? If I have a huge and urgent buy order to place I will naturally sweep all the lots offered at the nearest few ticks, what's left will be the largest (sitting) offers a few ticks from where price was originally before I placed my order.
Quote from buzz:
FS
I ignore the traded Volume at the bid and offer .I look at Cumulative depth volume a few ticks away from the current price action.
If you number Market Depth tiers from 0 (inside) outwards as 1,2,3,4... Persistent price trend is usually driven by ratios of cumulative volumes from tiers 2,3,4 outside both the bid and ask. A ratio of askv / (bidv + askv) is highly correlated with dominant trend. If greater than 0.5, it is a rising market.
Very clever of you to have discovered this relationship.
Now, I don't know what you mean by "traded volume", as we are considering book size here as an indicator of medium term price trend.
More challenging is evaluating the "inside market", which means tiers 0 and 1. These are very fast and complex aggregation / stabilization algorithms are needed to extract info from these "hot" inner book sizes.
But, contrary to popular belief (as you said), the inner book behaves in the same way, just faster. Almost no one knows much about "book analysis".
The "hot" inside book, of course, is where "the rubber meets the road" !
The ES market is a FIFO system and a retail order is equal to any so-called MM in the que depending when it was placed. You sound like you're talking about the NASDAQ system of the old days when the spreads on stocks were wide and the MM had axe power and forced the retail trader to negotiate with him to get a fill. In the ES market--with the inside price always 1 tick--all this MM talk is nonsense.
Place a limit order early and you can get a fill wthout price trading through. I have it happen many times.
FS
The majority always has to be "on the WRONG side". There are still so many traders believing a big fat bid means price goes up and vice versa. From time to time I post live trades trading ES. Next time im in ET Chat room I will show you how its done....Im off now to have a few beers, don't waste to much energy thinking about Volume you don't really need it, price will do, it has served me well over the last 19 years or so. Remember volume can also confuse you!.
Buzz
The majority always has to be "on the WRONG side". There are still so many traders believing a big fat bid means price goes up and vice versa. From time to time I post live trades trading ES. Next time im in ET Chat room I will show you how its done....Im off now to have a few beers, don't waste to much energy thinking about Volume you don't really need it, price will do, it has served me well over the last 19 years or so. Remember volume can also confuse you!.
Buzz