Market Depth patterns

Discussion in 'Strategy Building' started by rhay, Dec 23, 2004.

  1. qtip

    qtip

    Thanks so much for the kind words...


    BTW, any new news on moving the Virginia.

    I just submitted my paperwork to rent a place in Roslyn. Things go by so fast that I need to find a place now... :)

    Also, it seems like your trading is going very well. That is good to hear!
     
    #41     Dec 26, 2004
  2. Hi there. Move is planned for mid-April. New baby is due end of May. Line to Chicago already priced out and ready to be ordered. I will get in touch the next time I'm in DC. Thanks.
     
    #42     Dec 26, 2004
  3. I use the DOM to execute my orders. Are you asking if someone has turned off the DOM and entered their orders using the order book or something? If so, what would be gained from that in your opinion?

    Cheers.
     
    #43     Dec 26, 2004
  4. qtip

    qtip

    #44     Dec 27, 2004
  5. You're welcome.

    Spending time to read and learn is always one of the best investment one can do ;-)
     
    #45     Dec 27, 2004
  6. qtip

    qtip

    It sounds like the style I use the Market Depth is simliar to a scalper, yet I am not trading much size. I usually one trade 4 contracts.

    Example:

    Indicator: %K
    Time Frame: 1 minute candlestick chart
    Market: NQ
    Profit Target: 2.5 points
    Stop: 1 point

    For a buy: I look for a lower low in price. On the second low, the %K must match the valley. On a candle before, not a candle behind. I take the close price and add .50. The reason I do this is too make sure that the %K since it is a lagging indicator, isn't giving me a fake out.

    Once these items have happen, I look at the Market Depth. Since I am buying I am looking at the inside Ask to get below 50 contracts. If this happens I place the buy.

    I also scale out of the position at 1 point, 1.5 point, 2 points. If i make the 2 points, i move the stop to breakeven and let the last contract run.

    Disclaimer:
    I must say I do get stopped out a lost. But, the Risk vs. Reward allows me to lose 2 trades for every 1 winner.

    ***ALSO, PLEASE DO NOT TRADE THIS SYSTEM. I AM ONLY POSTING THIS AS INFORMATION. I HAVE TRADING "METHODS" FOR MULTIPLE MARKETS AND THIS IS ONLY 1 OF THEM.

    AGAIN, PLEASE DON'T TRADE, THERE ARE NO EASY WAYS OUT!
     
    #46     Dec 27, 2004
  7. rhay

    rhay

    Sorry to be a bit thick FuturesTrader71 - I'm a bit confused about the above in an earlier post.
    You mention "prints" - Orders?

    You are already long 40 but "ready to hit it as soon as prints on the offer shrink in volume ".
    Are you (a) fading in more long (b) getting out because there are slim pickings on the offer for buyers (c) getting out because the lack of offers with respect to bids can sometimes be a sign of reversal because of the loading on the bids - which of course can work the opposite way as well ?!!

    You mention "It magically goes to size." What do you mean?

    Thanks.
     
    #47     Dec 27, 2004

  8. By prints I mean actual executions on the offer. These are shown on the DOM as well as on T&S. I'm watching to see what kind of participants are jumping in on the rally.
    I'm ready to hit the bid. "Hitting" only implies go to the bid at market. I'm not "fading" in more long in this case, I'm actually trying to position myself for a safe exit (sell my contracts) on that size (the DAX is only 30-50 or so up at each price - in other words, only 30 to 50 lots per price level is available as liquidity) to minimize slippage. As prints slow down on the offer and bids get heavy, you are looking at people who are trying to bid in (many people don't like to go to market or lift the offer). If that is the case, then who is left to buy? Late comers and those who have a wider target, probably. However, they are not enough to get me out of 40 contracts on an offer. Hence, all those guys who got long with me are also looking to get out. I try to be the first when things slow down.

    I will also add or get back in as soon as there is renewed energy in the rally. I don't mind giving up a tick or two to catch a move. With experience, one knows which ones to catch and which ones to just let go.
    I mean that much to many traders' surprise, the market goes to where the size is. For most people, a 1000x200 ES market (1000 bid x 200 offered contracts at that price) at 1215.00-.25 says that there are more buyers than sellers. So they often try to buy 1215.25 anticipating a move up. Actually, and this depends on many factors including S/R, oil prices, currencies, MP etc, it is likely that the market is setting up to print on the bid of 1000 at 1215.00. Again, this highly depends on what else is going on. I say "magically" because one is often puzzled at how it sells off even though the bid is bigger than the offer. Watch it for a while and see how it works. Don't worry about the bid/offer as much as what is actually printing on the tape. Price and volume. Always the key indicators. Volume is only accounted for in the actual prints, not the bid/ask. That is the best advice I was ever given and that is what I'm offering you.

    Does that seem illogical? Of course it does. The participants benefit greatly by proving the majority wrong (again, basic mass psychology).

    In "The Nature of Risk" by Mamis, the author explains how a stock was sold at the very top by a fund manager who shorted it right when the company was beating earnings, had great analyst ratings, was due to come out with an excellent report, etc. That fund manager made a ton of money shorting the stock at the very top. How did he know to short it?

    Well he went home that night expecting dinner and found that no dinner was prepared by his wife. In fact, she hadn't even started on it. Completely baffled, he walked in on her in their livingroom while she was completely consumed by the video game she was playing. She was having a blast. She played it so much that she lost track of time. The next day, he went and shorted a bundle of that video game company's stock.

    In most cases, an ordinary person might say, "wow, this company is so hot that even old ladies are buying their product and playing with it. It should be a stock that I buy especially with the rally it has had and the great balance sheet." However, that fund manager sold it and his explanation was simply, "If my wife has bought that game and is playing it because everyone else has one, then who is left to buy? Who will keep the earnings of the stock going?"

    Ultimately, if you are long and there are no prints of substance on the offer, then you also have to ask yourself, "who is left to buy?"

    I hope my wordy reply answers your question. :)

    Again, this is a scalper's perspective: short term.

    PS: Get that book by Mamis. Great insights and a must have.
    PPS: I've notice that my replies have a habit of putting an end to a thread. Too long for anyone to read. :D
     
    #48     Dec 27, 2004
    i960 and traderdemarket69 like this.
  9. rhay

    rhay

    FuturesTrader71 - what a terrific reply - answered all my questions and more. Thanks for all your time - appreciated.

    This is not the end of the thread!
     
    #49     Dec 27, 2004
  10. sinewave

    sinewave

    futurestrader and science_trader, thanks so much for sharing your discussion here. this is an approach about which i have always wondered, but didn't really know where to begin.
    angela
     
    #50     Dec 27, 2004