Hi FuturesTrader71, Did you ever create the video of you trading? Thanks a lot for all the input on this thread. redduke
hi guys, just read through the thread and i find, it´s a pitty that the thread moved from actually watching the raw DOM to software issues again, so I want to contribute a little to bring the thread back on track It´s ironic, that many people have a static look at the DOM searching mainly for S/R - levels that are determined by the size already given in the book. I´m personally trading of the book for years, switching from market to market to look for new inefficiencies. Generally spoken, I find it alot easier to trade illiquid markets, because they move and there isn´t so much spoofing around like in the liquid ones attracting the professionals. As mentioned before, I have a different view of the DOM, not a static, but a dynamic one. When it comes to figure out entries and exits, one doesn´t have to watch the orders already being in place, but have a close look on how orders are moving. looking at the orders that already are in the book is wrong, because traders placing those orders because of the fifo structure of the market: it´s more efficient to just place an order at a desired price level and see, what the market is doing there, then the other way round. it gives an execution edge. If you place the order first and the market doesn´t react the way you want, just cancel the order, but if it looks like a good opportunity you are in the first row to get a fill. you are also able to exit on those guys, who placed the order after you on the same price level. You have a disadvantage, when you see the market reaching your desired price and posting your order AFTER that event, because there are more guys in front of you. the fact, that placing an order in ADVANCE ( cause it gives you the execution edge) explains the fact, why there are always more orders in the book, then actual trades. unsophisticated traders think of this fact as spoofing and faking, although this behavior is just normal and the actual spoofing can be easily detected. How to detect flipping?: first you have a look at correlated markets. there is a 300 lot order in the ER2 at the second best bid. Is a comparable size also in the S&P mini?? if not, this just might be a marketmaker trying to scare others into his limits at the ask. Also be aware of the fact, that the size is on the second best bid, not at the inside bid, so the chances for the pusher are lower to get a fill. On the other hand, if there is also size in the S&P bid and the size in the ER2 is at the inside bid, this gives you the indication of a strong market. The trick is now to watch the size in the ER2. Where is it going to? when the market upticks and the size stays at the old price, forget about the long - entry. When the size also goes a tick higher, fronrun the size as there might be a trader, who urgently needs to get out of his short position. the strongest indication of a bull move it the size moving upwards to the inside ask, executing heavily against the sellers. I go long, when this happens the first time, however, i go short after the size in the s&p disappears or when the large order in the ER2 is completely executed.
as you now have an idea of spot a pusher or a flipper (this are just the basics. I won´t tell you all ...but for your own research, just imagine, what happens, when a pusher is getting filled on the wrong side...), let´s deal with the fact, that size already being placed in the book is NEVER a hint for support and resistance: When you are a big player or a market maker, what is the worst situation for you?? Of course getting a fill on the wrong side and not being able to get out due to the lack of liquidity (just imagine a marketmaker trying to get out of a bad trade with a 1000 contacts in the ER2...) So the large orders in the book are mostly on price levels, where it doesn´t matter, when they are filled, because the marketmaker can offset the risk in another market at a better price (that is, what marketmaking is all about. selling a tick above the fair market price and offset by buying the fair market price) be aware of the fact, that marketmakers in index futures mostly hedge against a basket of stocks or vice versa. When making a market in the bund, one can offset by hedging in the bobl(it´s more difficult to spot the hedge - trade in the index futures, then in the interest rates)...that´s also, why marketmakers never get squeezed out...they are always hedged. So that explains also the fact, that large orders are mostly one or two ticks above/below the market, because the MM knows, when there is a fill on that price, he could instantly book in a profit. So I hope that uncovers the "secrets" of the DOM a bit. It´s just pure logic thinking and watching
stf ... you make an excellent point here. It took me a long time (too long) to wake up to this trick. It is just like surfing, in that you must be slightly ahead of the mass of the wave in order to catch the best ride. If you dont like the shape of the wave you just stand on the back of your board and bail out to await the next wave.
ok, now we are getting serious about trading with the DOM. All the things explain a bit, what not to watch, so I now can say a few words about what to watch. Please do not get upset, when I´m telling you now, that I don´t want to uncover my whole tradingstyle. On the one hand, it took years of watching the DOM from opening to close to get the knowledge and I don´t want to give it all away for free. On the other hand, this kind of scalping is very agressive, although I do not need rock bottom fees, and I will be fucked when everyone of you guys jumps on my pricelevels and I loose my execution edge As I said, it takes years of watching, testing and loosing money so if you really wanna trade this way, it will be a long journey. There are no strict entry and exit rules, it´s definetly trading by using your instincts, logic and the subconscious mind filled with the expirience of years. I may also mention, that you better use hotkeys, then mouse Ok, here are some of the things I watch, besides frontrunning size that urgently want´s to trade, I already explained above. watch the DOM on tops and bottoms. There can be two things: absolutly no liquidity and huge vola (traders do not know, what is going to happen next and so they step aside) or huge sizes close to the market, large orders fired of on both sides (this is somewhat of a S/R range of a couple of ticks) watch the DOM in ranges. Sizes far away from the current inside and small sizes in between. the DOM in trends is a bit tricky. the size is mostly at ask in an uptrend and at bid in a downtrend. in an uptrend, check the small sizes at the bid when they are hit: do they disappear or are they replaced immediatly. In the second case, I join the bid 1-2 ticks below the inside. always check the bid in an uptrend. as soon as size appears here, odds are high, that the market is about to range or turn, because someone want´s to squeeze every drop of juice out of the orange. also, when you are in a long trade and the bids won´t follow up the price, it´s time to exit (not to short) One of my favourite setup is the following: When I´m trading ER2 vs. S&P and I see the S&P moving higher on volume (tape!!) and the ER2 is not able to follow, I will prepare a short on the ER2. The most important thing is to closely watch the tape of the ER2. When the price is not able to follow the S&P because there is a big seller at the ask, sucking up all the buyers, I won´t enter, because the odds are high, there will be a huge break of the resistance level, as soon as the seller is filled. Before I go short, I want to see the buy - volume drying up in the ER2. I immediatly hit the bid, as soon as there is size in the offer moving either to the inside or at least 2 ticks down ( the long guy, who wants to exit urgently...) This is quite easy to see a couple of minutes before the close of the pit... so thats all so far...suggestions or comments are welcome
Most importantly: does bid/ask analysis really provide an advantage OTHER than scalping i.e. swing-trading ?
Stfreak - Thanks for trying to keep up this thread. You are right - it's worth it. Your posts undoubtedly belong the best I've read at ET. Would like to ask a few questions as soon as I have worked through your comments - albeit you "threaten" with a learning process of several years". lol for scalpers surprising: switching between markets. almost sensational: looking for illiquid markets?? IMHO would this deserve (need) a few more details. More questions by the end of the week Charly
charly, the fact that I preferr illiquid markets can be easily explained: when do you make money? -->when other traders make mistakes when trading a liquid market, many traders have to make mistakes at ONCE to move the market a tick and it´s quite difficult to spot the loosers because so many trades are going on between bid and ask when you trade an illiquid market, it´s often enough to spot a single medium to larger guy being wrong to move the market a couple of ticks and thats the profit. Of course, you have to find a way to reduce your risk, when you are wrong...but thats quite easy, if you think about it I personally do not care about market direction, I just watch the DOM for people being caught on the wrong side. Most important factor is not to trade in the direction of the trend, because the trend already happened in the past ( and it is never my friend ). I always will ask myself, if either the upside or the downside has the biggest price vulnerability. that means, when I frontrun this order to the downside, are there enough people hurt by the move a couple of ticks down (because they are long and get squeezed out) or are they happy about the price retracing a few ticks (because they are also short, had a early entry and are now able to get out at even). In the first case, I will let the winner run, in the second case, I will exit, as soon as the price beginns to stall.
Stfreak, Thanks for sharing but have a couple of things to clarify. 1) "watch the DOM on tops and bottoms. There can be two things: absolutly no liquidity and huge vola" Qn :--the vola is volatility? 2) "always check the bid in an uptrend. as soon as size appears here, odds are high, that the market is about to range or turn, because someone want´s to squeeze every drop of juice out of the orange." Qn :--Did I get it correctly that you are saying when market is about to range or turn, there will be size on the bid? Is this then fake size on the bid (because the buyer is long and wants to get out, so he should be selling and not buying). 3) "Before I go short, I want to see the buy - volume drying up in the ER2. I immediatly hit the bid, as soon as there is size in the offer moving either to the inside or at least 2 ticks down ( the long guy, who wants to exit urgently...)" Qn : for the long to go out, we will see size on the ask? Seems contradictory to question 2 so I think I must have gotten confused somewhere. Thanks
billp, 1.) vola: yes, it´s volatility 2.) I said, the odds are high, that this is fake size. there is only one thing, causing the price go higher: buying at the ask. So when the buying stops, there can be size on the bid for two reasons: on the one hand there might someone try to scare some more shorties into the asks (to sell at the higher price) on the other hand ( an this happens more often) the market maker might just higher his bids, because thinks of lower volatility. 3.) perhaps there is some missunderstanding in terms of the market condition I´m talking about here. I´m not bottom/top picking so this setup doesn´t have anything to do with the situation described above. yes there must be size, before I short. I will cut the trade when the size disappears. As a general advice I should say, that there are no general "if-->then" rules to trade. I could write a whole book on setups, but it would not help anyone to make profits. You should just try to understand the motives that are diving the market participants to place limit orders so you get a better understanding how the DOM behaves in certain market conditions. I found out for my own trading, that it´s quite useless to search for setups and watch the dom, until that setup shows up, because this won´t happen exactly the same way. It´s more like watching the DOM to figure out the current market condition. You will know how it should look like, when everthing is efficient so when there is some odd behaviour, it jumps right into the eye. Before I trade, I have to have the feeling that the market has no other chance then to move into this or that direction and I´m right about 90% of the time. We were talking about profits all the time, so what about the loosers?? Thing is, that market conditions change within seconds and inefficiencies are mostly linked, so you also have to trade that way. Example: Market is ranging, that means, the spread of the sizes is large and only small size is around the inside. we are trading at the highs of the range and size appears in the second best bid, but no size in the correlated market. That would make me think of a squeeze or fake and I will offer at the inside ask. I get a fill, the pusher disappears and wait for the move down one/two ticks. suddently size shows up in the correlated market, too and a large bid is posted in my market two ticks above the previous inside ask, which was my entry. I now have a looser and although I was right in the beginning, I have no chance to make this trade a profitable one. I now will reverse my position, knowing, that there is agressive buying going on, perhaps someone tries to force the breakout. Now it´s getting interesting: on the one hand, when the breakout really happens, the DOM should look like in an uptrending market. Bid´s that are hit should immediatly be replaced. A very strong indication for a real breakout is the small selling at the bids and no buying at the ask. Sounds weird but here´s why: some minor participants try to sell the range top at market but the bid sucks up all the liquidity, noone really believes in the break. then the selling stops and for a millisecond nothing happens. This is the time, when the sellers realize, that they are on the wrong track, so guess, what´s next . The catalyst for the move is usually a larger bid showing up at the inside...then the herd beginns to run. So ok, I reversed my position waiting for the upmove, but suddenly a large sell eats away two bids ( perhaps a MM pushed to the high´s, another one sells into the breakout for profits, because he bought the range bottom and takes the opportunity to sell into liquidity). The market stalls and tanks back into the range. I have a looser again So perhaps you now understand, that there are also no safe profits by using the DOM. You should not try to predict, but only react to the action. The situation I described above happens in a few seconds, so you have to be really fast. Most important rule for me is: Only enter, when you know what´s going on and when everything fits together. Exit, when the opportunity is over or when you loose the grip. That means, that I will step aside, when something surprises me. When you really try to learn trading with the DOM, you should not use any chart. you will be surprised, how the chart is in your head after two hours.