Volume ratios are always good signals. A lot of trading platforms show various volume ratios continually. As it turns out they are leading indicators of price. You may be asking about Best bid and Best offer. Price always moves when the ratio goes to either infinity or 0. This may become obvious to you in time. Several games are played on the various displays. As time has passed, the games have changed and most of the shadow aspects deal with more and more about less and less. HFT is an example. What is really nice about this aspect ofvolume is that it is approaching the market's granularity and so with respect to "making money" it has become merely a technological advantage of the financial industry which is ordinarily front run by those who are really making money with set amounts of capital. The illustration of how corny the financial industry has become was a week ago. The ratio you are asking about looked like one "constant" or another during that period. Using the display of the ratio was sooo terrific at that time.
Thanks that was very informative. I was thinking how to use volume more and realized that the most fundamental indicator for price has to be supply & demand ratio, there is also no lag involved here. So even if the type of font desk transactions don't take place this is still a good indicator. IMHO
I am trying to be kind here and choose my words carefully. Jack is a theoretician, not a practitioner. And an Aristotelian theoretician at that. Neverhteless, he has much of value to offer. But be careful what elements of his total offering you bet your money on.
I have no idea where that Hershey post came from, but I won't pull any punches here - Jack is dead wrong. The problem with his model is that price does not move progressively within a given tick. Even in situations where markets are very thick and the top orders in the queues might represent 10s of millions of dollars, price moves don't look like a series of hits on the bid or ask that eventually overwhelms it and moves the market. If it did, the ratio of contracts at the top of the queue would mean something. It would thereby allow anyone with an IQ above room temperature to see that a move was in progress before the price changed, and to take the appropriate position with the move. Needless to say, your trading opponents aren't quite that dumb. When someone decides to enter an order that will move the market, they don't dribble it out and let everyone frontrun the back part of their order - they just do it. Similarly, for market moves where more than one order moves the market, they typically occur in sort of a stop-and-go pattern. When the orders are coming in, they're in tight batches (presumably caused by very similar technical strategies) and usually it's too fast to insert yourself in the middle. The price will move one or more ticks, consolidate at the new price, and then they process may or may not repeat. But at no time during the move will the ratio of contracts bid to contracts asked tell you anything of interest. If you want to confirm what I've just said, you can do this: get a printout of the ticks for something with exchange timestamps. Mark every time the price moved, and then find the orders that did the moving. You typically find it's either one order per tick (or ticks), or that the orders came very fast. Not always, but most of the time.
I understand the bit you have written. so you're saying orders come in tight lumps, and the price literally hops to the next level. and the whole process repeats again. How does the supply side work, do you get a bunch of sell orders in bursts o is the supply side more homogeneous.
I'm not 100% sure, but I think there's some confusion implicit in your question. In a standard market, there are two basic trader roles - liquidity suppliers (aka market makers) and liquidity consumers. Both are capable of buying and selling, but they do it differently. Liquidity consumers, which include most retail traders, and in general anyone who wants to have control over what their position is, trade via market orders (or limit orders at a price that they expect to execute based on the existing book) and stop orders. These orders consume liquidity offered by orders in the book. Liquidity suppliers, or market makers, trade via limit orders at prices that will not execute, thereby leaving another order waiting in the book. They then sit and wait for people to hit their limit orders. They're what you're looking at when you look at the bid/ask queue. If all that was unnecessary, sorry. Now, to answer your question: liquidity consumers trade in bursts due to various combinations of big orders, similar strategies, and of course any stops that get kicked off in the process. It doesn't matter if they're buying or selling - at the tick level things move the same. As to liquidity providers, the big ones also move in stepwise fashion. When their orders get hit, whether the price moves or not the market maker typically regenerates the limit order, possibly at a more distant price. They typically don't change their order size - if their position gets very unbalanced, they may eventually drop out of the market though (the exception being certain designated market makers/specialists). The reason they don't adjust order size is simple: if a market maker changed his order size based on how unbalanced his position had become, you could use that as a gauge of when the market was going to move, and then jump in front of the move and stick him for even more than the move was already going to cost him. You can safely assume the big MMs in any popular market are definitely not that dumb. All of this of course applies to the skilled players in any given market. You will occasionally encounter random acts of retail traders that don't fit this profile.
As was pointed out to you by others, not everything is seen as the market operates. What is seen is sufficient and provides certainty for trading. I do not have the "either/or viewpoint assigned to me. Certainly, I have made it my business to model and fully develop the markets and tools needed to operate in advance of market moves. See page 199 of Larry Harris where you will find the hierarchy of trading. I am a frontrunning technical parasite which means I speculate by "reading" the markets and I anticipate. To deal with your opportunity, you need to be able to observe, analyze, decide and act. I observe on three levels of precision: coarse, medium and fine. From this, I continually take the market's offer. To carve the turns to collect profit segments as they flow, observing the DOM; a leading and lagging OTR (P and V);The T&S of the DOM and the bias and drift of the Premium is all that is required. You will find the market is largely counterintuitive and it is controlled by the minority. Therefore, the first job incumbent on the pragmatic trader is to, at all times, know just who is the minority. A second and important thing to follow and use to your advantage is the type of market harmonic that is at play, odd or even. Of lesser importance but very significant is who and how the major three games that are played on the book level II. Most of what shows is there to handle adroitly the psychological and strategic shortcomings of the mediocre traders who misinterpret the "adding" and "pulling" of orders on and near the BBid BAsk. RiskArb. com is a standard industry source of the Premium. For a person just entering the world of using information to front run the markets and extract all of the offer segment by segment, the place to earestly consider is the orders that do not get filled as a market turn takes place. This is a specific observation of how the majority gets left behind and how the minority is in control. A simple and very successful strategy is to do profit segments by taking the price move between these two limits as the sequence of limits is displayed one after another throughout the day. Each limit comes into view five ticks before the limit acts to precipitate the turn. Therefore, this crude and coarse measure as a signal comes first. Second you turn to the OTR's where one leads and one lags. You trade the lagger and use the lead to see the turn in advance as the crude limit, above cited, is being reached. For a given harmonic, you can set the spacing of your partial fills as your orders carve the turn. An odd harmonic example is the FOMC news and its three moves followed by the asymptotic reversion under one of three conditions of damping. Before eminis, it was possible to pull 900 points on the DJX.X over a period of an hour or so on the FOMC announcement. big money has a lot of mass in terms of a physics type consideration. As was pointed out to you these people are more MM's and money managers, so they do not "perform" but just strive for continuing commissions and fees and keeping clients satisfied. All these things add up to what you think is the standard for supply and demand. this is actually a low allowable level of "churning" that keeps the rent paid rasther than using capital to make money. Keeping track of the "sentiment" of big money is easy to do. The sentiment shifts 20 to 40 times a day and closely resembles what you would experct to see where you to monitor RTM operations. Any imbalance would be corrected. Thus you see the limits of imbalance well in advance. The technical measure is done by using the Premium. Its first and second derivatives act as very reliable leading indicators of the traded price. Unfortunately the Premium is infrequency tabulated so algos and bots take on that job. Since they do and since they are crudely adjusted to trigger. Frontrunning, their triggers is just a matter of keeping a good monitor of "drift" in the picture. finally, you need to look at the relationship of supply and demand as compared to "liquidity". As you do you discover HFT. This is just one of the many examples of how the members of the financial industry deal with finding ways to "use" financial markets to "get" something out of it. In the long run, people who want to "take" the market's offer, concentrate on timing the segments of either of the two sentiments of big money's expression if sentiment. Larry Harris spent a lot of effort towards defining this sweet spot. Being parasitic and adding frontrunning and doing it technically is the most attractive place. Obviously, it cannot be done inductively or based upon statistics; that is what the huge herd does. So a deductive paradigm emerges and noise and anomalies are eliminated. From that logic is used to assure certainty by sufficiency. There are others who do not agree with me and still others who more or less pass on my comments because of the personal demands incurred. My viewpoint is that trading is not competitive but instead it is a very coherent process and is kindred to the coherence aspects of meditation: awareness, love and compassion, and wisdom. Trading is mindfulness.
A tiny correction to your otherwise perfect post: the index premium site is indexarb, not riskarb. But riskarb would be an appropriate name to warn you away from their foolishness.
Hi Jack, Could you expand on odd harmonic (triangular) and even harmonic (square wave, lateral) for carving turns, particularly when partial-fill is part of trading problem to deal with? I am curious why you said the subsequent market move after FOMC news is old harmonic. TIA
its dumb to try and day trade every day... you are just making commission for someone else... stick to the fundamentals... there are no get rich quick schemes in life.... and of course someone will point out that "yes" there are get rich quick schemes... and ill tell you that people like madoff thought that way.... "good things take time"..... the whole theory of the "big boys" controlling the markets with a hidden agenda for the day is lunacy.... all these huge funds and brokerage houses are all in it to blow each other out of the water and make money.... there is no conspiracy theory.... like i said before.... stick to the fundamentals do your research and you'll make money : )