Very fast market and highly liquid means you are not going to be able to determine much from the b/a unless you are very experienced, very smart, and very focused.
I am guessing if one were good enough, they could tell where the support and resistance are really strong.. is this what you are referring to?
Vanilla, you need to set your time and sales filter to show actual trades only and not include bids and offers. As for watching the size in bid/ask, lets say you wanted to go short right near current bid you might wait for the next up tick to get .25 price improvement on your short then pull trigger. many traders might have decided to sell into that up tick which will suck up the available bids and send it right back down. watching these #s will just drive you nuts. I will sometimes use the imbalance to make me pull the trigger quick before current bids or offers are all hit or canceled but I don't expect the bid/offer imbalance to point the direction of the market. It changes too quickly. I use charts for that. One other thing to keep in mind about futures contracts being bought or sold is that some are day traded for 5 seconds to 5 hours and others are held for longer terms weekly - monthly used to hedge large stock positions etc. On some days there is an imbalance of contracts being closed or opened this can cause huge trend days that will close on the low or the high of the day. This can be caused by stocks pushing futures or by futures pushing stocks. When I first started trading I thought because it trended up all day that it must be a good short opportunity near the end of the day when other traders would be exiting their longs to get flat for the night. Wrong move... you can get killed trying this. I am not saying that you cant fade alot of trend days you just need to be aware of the market dynamics and what can happen. I would advise new futures traders to paper trade a while and get used to the flow. I am not saying this to put any one down or seem like I have all the answers. I started trading futures without paper trading and I payed a hefty price for my education. Them beasts can be very humbling. There are many great simulators like FT and others to hone your skills. Happy trading all .
Nasdaqmadness, Could you define this imbalance....and how does one track it? Don't you find during these low range days that the reduced volatility renders these imbalances less effective? Michael B.
When I spoke about imbalance I used it in different time frames. One imbalance is the immediate imbalance that can be seen in bid/ask size at current price. This imbalance is only a perceived imbalance and can flip either way instantly. It might help your scalping but probably only has a 50% chance of predicting the direction of next tick. It may help you get a good entry and beat others to the next up tick or it may fake you out and be useless. Other types of imbalances that may take place during a trading day are a bit harder to predict. Example: price has stagnated for the last 10 minutes with no apparent direction. This has happened because longs and shorts have been near equal, stops have now collected above and below this horizontal channel. We all know it will probably break out in one direction soon but the direction is unknown. once it can creep just above or below the channel new contracts will pile on at the same time that stops are being triggered. This imbalance can send the es several points in one direction. Try to avoid being the one guessing wait for the breakout. This type of thing is happening on all time frames every day and is difficult to see. Some traders are playing this breakout on a 3 minute chart while others are playing it on a weekly chart. I try to see where we are on many time frames so I don't get caught on the wrong side of a longer term imbalance. It helps to have recent highs, lows pivots, support and resistance areas marked on your charts. The tight range we are currently trading in right now is the the end of an imbalance that has brought us to 945 on the S&P, Now lets see what happens. I hope this clarifies it a bit.
nasdaq madness, excellent points, thanks very much. In fact, I traded ES for two weeks. In week one I was up five or six points, and in week two I blew out almost a damn $1000. !! actually, that's probably the story of everyone here when they started... So I am paper trading again to get more confident with the feel. Thanks for the important tip. I find myself making similar assumptions to the one you mention regarding fading the end of a long trend day, and I agree these seemingly intuitive relationships are dangerous territory to bet on. Anything can happen any time. Regarding size, I think I see what you mean, like at the very last second, you might use size to determine whether it's worth joining or transacting at market. Good point. Regarding T&S, I do actually have it set to trades only, and sure enough, Tradestation's tick volumes don't match the trades... they're almost all exactly half the size... I'm looking into this with them, just curious what the relationship is. THanks very much
I've used imbalances in the bid/offer volume to help in trading the ES. What I've found is that when there is a large imbalance (like 3:1 or more), the market will tend to trade in the direction of the imbalance. For example, if there was a total volume of 600 bids and 3000 offers, the market will likely trade up and fill those offers. Watch for yourself. It's kind of counter-intuitive, you'd think it would be the other way around, but it's not. It's especially noticable in trading ranges. Near the bottom you'll see more offers come in and the market will trade up. At the top, you'll see the bids come in and then the market will trade down. Also, in a strong up-trend, you'll see a lot more offers and the market will follow them up (and vice-versa). The key is to look for extreme imbalances. The way I used this was as confirmation either prior to entry or shortly after. For instance, if I want to put on a long position and notice there is an imbalance like the example above, it would give me more courage to enter the trade and/or hold my position a little longer. You have to spend some time observing this to learn the nuances, but imo, it's worth researching if you're trading the e-minis. Imbalances in the bid/offer are the closest thing to a leading indicator I've found yet.
Thank you Nasdaqmadness and Sempai. Very interesting indeed. Michael B. P.S. I wish J-Trader totaled the depth of market on each side, Bid and Ask, 5 deep, dyamically.
J-Trader does total the depth of the market on each side. That is what the cumulative column on the right side is. Just look at the bottom numbers in each cumulative column for the total amount of bids and offers
sempai, Thanks very much, that sounds like what I'm seeing -- movement down into large bid sizes and up into large offers. Your confirmation of this relationship helps a lot. I thought I was just completely off the mark. I'll be watching it more closely... so far, one thing I haven't seen so far is a 3000 offer size. That sounds huge. Will be interesting to observe. Thanks very much for the info Sean