...I know not whereof I speak, but consider this scenario: The market is rising. You think there's no strength on the ask, so you go long. Meanwhile the hidden strength (which earlier was selling into the rise) is eating up all the market orders to buy and creating the resistance it wants to stop the market dead and make it reverse. Then your long drops like a stone.
In the first place, I'm not sure if the method I posted originally is valid. Valid for me means that it can make money. Not seeing all size may make it impossible to make money with the presented information, or maybe not.
I've seen that very thing, except on an uptrend day during a pullback. Before I knew about hidden orders, I was wondering how that 200 lot could absorb so many orders. Now I know.
I disagree with this. It is true that many of these large orders in e-Minis get pulled. It is not because the orders were placed with intent of creating a false sense of market direction. Much of the success of this contract has come from the huge amout of arbitrageurs that have set up business on the floor of the Chicago Merc. When an order comes in the pit, they put in orders in the e-minis (5 times the size of course) to take advantage of a very slight edge they can get. If the order disappears in the pit, they quickly cancel. So movement in the depth of the market in e-minis has little to do witht he actual market trend. Slim
...my betters may correct me, but I believe this is how they control the reaction to the 8:30 AM EST news, keeping a lid on the response (usually) until the open. Doesn't take much size to do that. The same technique can be used to move the market to the neutral or slightly biased position they want it at for the open.
So movement in the depth of the market in e-minis has little to do witht he actual market trend. Slim [/B][/QUOTE] That is a very interesting point Slim.
Hi Slim, With all due respect to your trading history - I must disagree with you here. The "bluff poker" game is huge on the ES, less on the NQ, but also in many other markets such as the German BUND. I can save myself a lot of work here, since I still have an email I wrote to a friend some time ago. Here it goes: Remember my theory elaborations regarding when either cumulative of the market is at least 1.5X-2X heavier, that's where the market will probably go? My own explanation till then wasn't sufficient. While I assumed that the reason for this had to do with markets following the path of highest volume, I recently realized that this isn't the whole truth - or in fact probably less than 50% of it! I knew there was a puzzle piece missing and I found it - Watching depth very closely : A major reason, if THE major reason for this happening is the fact that the pro's tend to load the side of the market opposing the side they want to go - In order to hide their intentions and mislead people! The power-effect they have doing this is double-whammy : First pull, then push, within seconds! Imagine, first they put, let's say, 3,000 cars on the ask to get people to think bearish. Next (I.e. once TRIN ticks over, or TICK hits a support or resistance or UVOL/DVOL ticks over or any sign of confirmation) step is that one guy pulls 500 cars, and the other pro's will follow foot-on. Now you'll see 3,000 cars disappear from the ask in a flash, and the cars pulled from the ask are now entered long at bid or market!!! You know what this means... A few hundred cars may get slaughtered in the process, depending on who reacts the fastest, but it's worth the reward and it's mainly the newbies who don't know this who get slaughtered anyway. How did I find this out? Lots of watching ES depth. What I realized is that you can see exactly the sizes being added and subtracted on bid/ask all the time by watching closely. Can you see them? They're always 100 cars, 250 cars etc at a time? Exactly! But you know what - They never execute! Almost NEVER! When you see large orders (100+) going through past on the tape, I'd say in 90% of cases they're market orders! The big pro's almost never use a stop-entry "limit-trap" to get in on a price! If they did - They'd have hundreds of greedy dwarves hanging off their collars! So if you can see huge sizes being added and subtracted all the time on the "heavier side of the market" (obviously stop-or-limit-orders), while the actual, executed pro orders are almost always market orders - what does that tell us??? No further explanation required. The pro's, who make 80% of the volume on the tape, clearly do everything to bias the market the other way until they can get a good discount and then they enter at market. If they enter limit-/stop-orders, which represent 100% of the volume seen on depth, then this very often serves the purpose of confusion alone. This way (given you own a seat to afford this kind of low commission, you can make perverse amounts of money with pretty low risk, too. Knowing this, the only major challenge left really is to be the first in and the first out the door, no matter how huge you are. I should mention here that I am an extreme-volume scalper, I have been doing on average 150-250 RT per day lately. That is roundturns, not trades. 90% of that is ES, the rest NQ. Sometimes I arb the two if it looks like a nice opportunity, otherwise I just tend to take the better swings on each. I often pay $1K in commission (per car) and still end up triple of what most "swing" day traders on ET call a top daily average. I am considering buying a CME seat, which would almost triple my daily average again (CME fees cap at $50/day). How do I trade this way? I mainly focus on depth and tape. IMHO, you can do anything with depth and tape. Many people tend to believe they're insignificant. I could say charts are insignificant, I can trade completely without them. Not to even mention mathematical indicators, they're nonsense anyway. To anybody who wants to improve his trading : I would recommend you try doing the same - just for a couple of weeks. Use a good simulator (ButtonTrader is the best - best execution platform of all and even features trading recorded day sessions - www.buttontrader.com ) and try to play the smallest price indeficiencies. Watch the market internals, depth and tape and every smallest movement. Focus, focus, observe and I tell you, you will learn as much about the market as you would otherwise not in 2 years or so of normal "day trading". Eventually, you should start to get a pretty good feeling for what is really going on. You can still go back to your old kind of trading then - but you will be a lot, lot wiser. This is how the locals trade, it's how the game is really played. The tape and depth are the only things that really tell you about order flow. Show me a trader who deeply understands order flow, and I show you one of the best traders. LOL I think this is gonna be an interesting discussion. I haven't posted on ET for ages, but a thread on ES tape reading - I just couldn't resist. Compliments, Scientist.
Just to make clear what I was zooming in on. This is a very totalitarian and misleading statement. I watch the e-mini depth 7/5, and I know better. I make my money this way. Scientist.
Scientist, Excellent reply. It sounds like you are a very nimble trader. And yes, for a scalper or an arb in the e-mini market, the depth of the market is very important. My reference is about overall market trend that goes beyond a few moments. Slim
Scientist: What's 7/5? And what do you think of the observations I made in the first post: anything you can add to these or anything you disagree with?