Discussion in 'Professional Trading' started by Mononoke, May 13, 2010.
Is the bid volume ask volume ratio good indicator for entering the market.
Ever hear of iceberg and hidden and renewing orders, and dark pools?
Thanks, Can you be specific. I'm a total newbie
I was hoping that someone more knowledgeable than me would reply. But on ET, you ask a stupid question, you get a stupid person to answer. The inside market, and the deeper market, do not truly reflect demand from at least three kinds of orders: totally hidden (no size at all showing), iceberg (some size showing, some size hidden), and autorefresh, typically one futures contract or 100 stock shares, which regenerates every time it is hit until cancelled. There are probably other hidden order types I don't know about. So there is no way you can be sure what the book really looks like, and hence any relative size data is meaningless. Re dark pools, a significant percentage of large stock trades are transacted off the exchanges, further clouding real demand. Complicating this is that big players routinely enter large orders they have no intention of leaving there to be filled, they're just painting the book. To see this at work, watch time and sales and the inside market and see if you can make any fucking sense of it. I can't. Also there is a popular misconception that market orders melt away the inside market limit orders until the bid/ask changes. That is total bullshit. The big players allow the inside market to change only when they want it to. My betters will now no doubt correct me.
Who are the big players you are referring to?
What do you mean by "painting the books"?
For my limited experience with it, price is attracted to where the ratio is higher, its counter-intuitive. Try asking your question over at TradersLaboratory where its more volume friendly.
I agree with Danxg. I loathe watching market depth because it isn't deep enough to show you where the market may want to retrace to ("Off the map there be dragons!"). The big boys sell at resistance and then flock to the bid at support while tamping down the ask just enough to discourage the herd from charging the fence. So it appears that "price seeks volume."
I don't know what the right term for it is, but if the tape can be painted, so can the book. I mean that they put phony large orders at and just behind support and resistance to make it unattractive to transact there. Sometimes they let the S or R hold. More often they release it for a nasty surprise continuation.
Who are the "big boys?" Not anyone on ET. They are the large institutional traders who make the markets with limit orders. They have pockets hundred of contracts deep to enforce what shape they want the day to take.
Now for a big laugh. Barring unexpected (to them) news, the entire fucking day is choreographed before the open. Like today. Up. Down. Sideways. Down big time. Up a little. The news is rarely a surprise to them. Only to you. Ask me any more questions at your own peril.
In general the limit side of the order book is a lousy indicator of liquidity consuming order flow, which is what moves the market. When you think about it, that makes sense - the limit order book reflects the positions of liquidity providers, not consumers.
The stop, or "dark side", of the order book is more informative about liquidity consumption, since it at least reflects orders entered by the people of interest.
If there is any correlation between limit orders and market movement, it's that the market tends to move towards size. This has to be the case - large market orders move the market, and in order to get executed they have to move the market to where a large volume of limit orders can be found. Thus price goes to size.
Have you ever traded at a major desk for anything? Because I guarantee you desk traders
a) do not know what the news is going to be
b) do not plan ahead of time what the day is going to look like
c) have no way to place "phony" orders - if the order's in the book, it can be hit.
Paranoia is all well and good, but more often than not it's just you who's out to get you.
No offense, Big D. But I have been around a while. If a certain type of pattern repeats more that randomness suggests it should, one assumes it is not a random event. The pattern I have in mind at the moment is that an Outsider descries and cries out "Manipulation!", and an Insider replies condescendingly "Paranoia!"
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