Does it pay to closely follow the bid size size and ask size differential? Is it better to look at the bid/offers close to the current price than the aggregate size?? See attached...
matador, Yes it does. The ratio of the accumulated first 5 levels on both sides of the ladder can provide useful information. You need to watch it for a while to figure it out - it may prove counter-intuitive to you. Some platforms will help you monitor this ratio. You use IB .... have a look at Button Trader. Also search for some old threads on ACV. Good luck, bolter
it is completely worthless....can you change orders faster than a supercomputer...and how many are "fake" just write me a check for $10,000 and save yourself the aggravation.
It can matter. In fact, one way to back out a theoretical value is to do this: Theo = {(Bid*OfferSize) + (Offer*BidSize)}/(BidSize + OfferSize) Contrived but still illustrative examples: Price: 1.40 - 1.60 Sizes: 20 x 80 Mid Market = 1.50 Theo = 1.44 Which makes sense as MM are better sellers. ---- Price: 1.40 - 1.60 Sizes: 80 x 20 Mid Market = 1.50 Theo = 1.56 Which makes sense as MM are better buyers. You can check out my blog if you want to see options trading ideas/analysis. http://livevol.blogspot.com
what i've found to be more important than that is watching as the furthest away bid / offers are revealed and identifying overly large bid / offers that are resting orders (at least 5x normal bid / offer depth)- those won't be filled unless they are good for at least a little bit - there is my freebie for people for now
No, I don't. I know of traders who have figured out HOW to read what goes on in the DOM. I personally don't use it that way, but I'm not naive enough to say something is impossible. Makes a lot more sense to say that you couldn't figure it out and had bad results and to be careful with it rather than claim that no one will ever figure it out.
You can build your own "executable" price feed based on your trading size. Use the level II data to calculate the price to fill your max position size. ie 50 ES contracts. Maintain a calculated executable bid/ask pair for filling 50 contracts and trade using this customized price feed. You will be dealing with fractional ticks. ie. 1087.112/1087.713 but will be accurate to push market orders through with very little slippage. In most cases you will receive price improvements from the calculated feed. This technique works well for scalping as long as you have a fast feed and fast order execution < 100 ms. During a fast market you may receive up to 70 updates per second. ES is one of the most liquid markets and probably a poor example. This will help when trading thinner instruments. ie. YM, Especially when the bid/ask size are single digits.