Sure, would love to discuss this subject further. Price Action, DOM and T&S is the key to successful short term day trading. The only way to do it unfortunately is real time, since this info is not captured anywhere. I guess one can construct they own platform and capture it, but this is too much work. Let's see if more people join.
Interesting topic. There are some archived webinars on IB's website done by Jack Broz on reading order flow that might be helpful to some starting out. On another note Linda Raschke says about 40% of the activitiy you see on the ES DOM is black box generated.
Red - I agree, does seem like you need to capture it in real-time. If I remember, I'll try to grab some screenshots and then we can see how price is affected. Just a matter of having snagit ready to go. Care to explain what we are looking at? If anyone has links to these webinars, please post here.
I'll give a go at this and we can see where it goes... Let's assume one is just using their DOM to trade from, as VST discussed in this thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=68098&perpage=6&pagenumber=1 So the ACV is simply when your ratio of bid to ask or ask to bid is at least 2:1 or 1:2. Easy enough to figure out even if done manually as long as your DOM adds up the numbers for you. I use Open ECry and that function is available. Step 1: Have bid/ask numbers added and then compare numbers. If ratio is 2:1 or 1:2, consider trade. Once we have an ACV ratio that we are targeting, the next step is... Step 2: Ratio shown on DOM, we can either 1) initiate a trade assuming price will gravitate towards the bigger lots or 2) wait to see what price does when/if it tests the wall or where the bulk of those contracts are sitting. In other words if your bid side has 500 and your ask side has 250, then you could go short making the assumption that price will head down, towards the bigger orders. You could also wait to see if price does move down and then how does price react at these orders. This could be where a wall is sitting at 1 or 2 levels. Wall = a lot of orders sitting at 1 price level. Step 3: Once price is heading for the wall, you could either 1) put an order 1 tick in front of the wall to increase your likelihood of being filled and assume the wall will hold price there or 2) wait to see what price does after it hits the wall. It's easy to see the pros/cons of each... Get in before the wall is hit and if price moves as expected, you are in the trade. If the wall fails, you need to be nimble on your exit. Get in after the wall has established a level which means getting in later but could avoid some fakeouts. =========== In it's simplest form, that's how I've interpreted this after clicking around the various threads floating around here on this topic. The questions I have at this point for Red and any others using the ACV/Wall technique are: 1) How would you define an entry? ACV and/or wall setup. 2) What would your stop loss be? ACV and/or wall setup. 3) What would your profit target be? ACV and/or wall setup. I say ACV or wall setup b/c I think those are 2 separate trade ideas - one is to scalp to bring price to the wall and one is to create a support/resistance level. The other threads on this topic really center around using this method to scalp, which at this point makes sense to me. For example - if you go with the ACV as soon as the dom triggers a target ratio, you are assuming price will drop 2-3 ticks (approx) to reach that wall. And you are assuming the wall will hold so if you are selling into a wall on the bid side, you can't get greedy and expect the trade to drop like a rock. You should expect it to drop, but also test and stop at the wall. As for initiating a trade off the wall, I'm wondering if you could give that a little more room to work. Attachment - PDF from VST's thread discussing some ideas, with DOM info presented in there. Alright, that should at least get Red talking some more and maybe a few others out there reading this. Personally, this type of 'reading' has crossed my mind from time to time (I have a post on TL on the idea of trying to read the dom but never got any real direction) so we'll see where this thread might go.
Here is the link to a Jack Broz webinar. http://www.interactivebrokers.com/en/general/education/priorWebinars.php?ib_entity=llc This should get you to IB's Previously Recorded page and the "Industry Sponsored" tab then scroll down to Feb. 14, 2008 date. I have not seen this particular one but in the past he has always done these watching a DOM of a live market and then he describes the things he watches for. A strategy that works sometimes (nothing works all the time in this business) is to buy into a market going up into a high when it is the second attempt of that high, then cover on the other side of the "wall." You have some momentum working for you but you know at some point it will run out of gas. Vice-versa for lows. Or place a buy stop just above the recent high with a sell limit a point above that. Sometimes when it breaks the high you can get a quick point off the "pop". Vice-versa for lows. These ideas have been areound for a while. There is nothing new under the sun.
After you click on that link click on the "Industry Sponsored" tab then scroll down to Feb. 14, 2008.
1) You observation is correct. When price is several ticks away from the wall the odds in your favor that the price will go through these few ticks and hit the wall. Here is the reason why: Many times the size on the DOM is fake. More often than not. There are plenty of traders who "want to see" if this is fake or real resistance/support. Thus the price is pushed towards the wall. Once it is there, it is being tested with small size trades, if it is fake the volume will be pulled, and the price will proceed for few more ticks. If 2 (or more) serious players collide, the whole wall might be taken via trades as well (observe T&S). The whole premise of a good trade that it takes you into the green relatively fast, then only price action matters. 2) The Stop Loss should be the other side of entry bar +/- 1-2 ticks. Make sure not to use time bars, use either volume, range or tick charts. 3) No profit targets, we can not see the future, and thus our guide is once again price action. This will help in not killing trades that will make most $.
Good stuff Red! Regarding entries, how do you play the acv/wall? In other words, do you play the ACV (and how)? Do you play the wall (and how)? Next question - what market(s) do you watch for the ACV/Wall and how often do you see this occur each day? And do you watch these manually or have some alert system in place?
I use both. Most of my trades start with fewFrancois Mitterrand ticks of profit in mind, then I just follow the it. I currently trade Kospi futures. The wall and acv happen all the time. I trade manually.