Scientist and/or Jack Ive been watching DOM on ES for a couple of weeks now and I dont get it. I cannot find any predictive value in it at all. Jack talked about dom evaporating on down spikes but I have noticed that at all. You can have over a thosand three or four levels down and it will tick down through them withoud them changing much at all. Right now there only about half the size on the bid as the ask but it is ticking up steadily. What am I missing?
easyrider, I quite share your appraisal of DOM. One or more threads have been going about this and they did not make anybody much wiser I think. As to Jack on this subject, you may remember his story of the fellows standing in line with placards, meeting at a table. This was at the same time he posted a kind of controversial "trading record" for ES. He never carried through with the placard show, neither with the ES "record". Both were rather intertwined as I recall. I admire Jack's writing skills but he simply doesn't often ring a bell with me. Be good, nononsense
nononsense I advise you to read Jacks post carefully. He definitely is listening to a different drummer but I learned something the other day that has made me money already. Its kind of like panning for gold. You have to clean a lot of gravel.
Would you say your trades, at the time of entry, are predictive or reactive? Personally speaking, I'm becoming more and more against opinions on future direction. "What the hell are you talking about?!" "If you didn't expect the market to go in a certain direction, you wouldn't trade, would you?" True. However, I'm not interested in predicting a market move, I'm interested in trading a market that is already behaving in a certain manner - reacting to what's going on right now rather than what might happen in 10 / 60 minutes. To crudely paraphrase Jesse Livermore - markets are never wrong, only opinions. Essentially, I try to react to what's happening rather than anticipate possible future developments. Do you see what I mean or do I sound like a pompous idiot?
Several people have made a lot of good points and they also have raised some questions. I'll try to make a couple of comments and also do a few attachments. Three consecutive beginner prints may help out as well. The DOM has been discussed by others. Some here do not see any value (and they all are"predictors). I am referring to the IB market depth on five levels here. I set my bid on the left and my ask on the right. Out ward from the center I place the columns as follows: contracts, price, cum contracts, av price. Thus I see the # two columns of contracts on each level side by side. The originators of the DOM format screwed it up obviously but that is correctable by using the plug in called button. I chart as well so I use the DOM as a vernier on the current bar. (5 min usually). I have another vernier as well where I monitor a leading pair (cash and futures) of the DJ. I use the ym04H as the futures since it is most liquid. This second pair I view by assessing the "offset" of the two values. Before the ES moves the offset moves. It has three possible values: small, neutral, and large. Small indicates a "long" is coming up on the ES. Large indicates "short" is coming up on the ES. MM refers to this as "shooting fish in a barrel". I will post an IB print for three consecutive days to show how many fish were shot for 1 contract. The DOM vernier is equally powerful. It works hand and glove with the above. This provides a confirmation of what is going on. For trading, the NOW is where it is at for making money. not the past not the future, but NOW. As you look at the DOM, you are gathering data. Four steps ensue: gather data, analyze it, make a decsion by comparing to your NLP pictures, and take action. Repeat as desired. DOM shows you the NOW and the portent of things. The odd rows I swiftly assess. Row 1 at top is the NOW propensity of the market in makng money. It sequences: A new pair arrives, one side is big the other is small, If not, then both are the same size. as snapshots flow the size changes. Small side fills in and large side shinks. Then a new sequence repeats. youwill noitce that the small side just before the flip to a new pair is telling you the market NOW direction. for longs the ask value "runup" the right side (ask). The bid is filled with repeated formerly unseen values and they "run down" by popping in from above. (you can't "see" these until they pop in). The bottom row (5),shows the trend the bars are traversing. which ever side has the smallest value will be the trend and it will correspond to the right line across your chart. the middle row (3) willshow you whathas happened recently on the chart as depicted by the smaller value side. If small is on bid you have recently seen some "short" emphasis. I can predict skillfully as I have mentioned. I always know what the prediction that will prevail is. So what. It is just an automatic for me. Why would I want to use that info for anything since I have a more efficient approach. Efficient means that a person can learn and make money more effectively. My use of the DOM is as a vernier on what is going on NOW. I use NOW as the symmetric line that divides the past and the future. I continually move the NOW line on my charts. since i trade SCT (Seamlessly and continually) I deal with NOW as my agenda. The DOM tells you the recent past. Go down row by row to see further back. The top line dictates to you the propensity of the marketcontinually. It is a NOW thing. you can know by looking one singular important thing for makng money. It is: ARE you on the right side of the market at this point in time? You are or you are not. You have a job: cut losses and let profits run. DOM turns this job into slow motion. It gives you the pace and volatility of the market at any time. You can see that as well on your chart and indicators. I will follow up this post with attachments and stuff.
This is a phenomenon you will see quite often: one side is much larger than the other, say, like in the example you watched, it is the ask side. People think now, market should drop, because it takes much less effort (contracts) to push it down. Not so: the ask side being much larger usually means, sellers want to sell at their limits, they do not want to hit the bids (sell at market). And this means bidders have to step up their bids (take the offer) to get a fill; result: the market rises. DOM is just another arrow in your quiver: you should use it only in the context of the whole situation and then it will start to be useful. The most important thing is, to recognize when to ignore it. How to get there? I do not know, experience probably is the only way. Have a nice weekend Bernd Kuerbs
Hey Bernd, who sent you a PhD on the the whole cumulative depth volume theory? I have since come to a lot more in-depth conclusions about cumulative depth etc, i.e. have widely expanded my research there and discussed it with someone very versed at this indeed. Yet, Bernd, I'm still waiting for a relative cumulative volume display feature to be built into our favorite trading platform... To all those who don't get any of this: Most people have not the faintest idea about this. Cumulative depth volume is a leading indicator! Whenever one side of the market is larger, that is where price has to go. Most people think it's the other way 'round, thus lose. Reality is, more sellers = price goes up (buying energy), more buyers = price goes down (selling energy). I wrote a very intricate analogy about this a while ago but I think it went by rather unnoticed, since rather un-understood, like apparently most of the stuff I write about on ET, anyway: http://www.elitetrader.com/vb/showthread.php?s=&postid=304132&highlight=bacteria#post304132 So, you'll ask now, how the heck can it be this way? Well, as a matter of irony, it MUST be this way! Otherwise a minority of people couldn't be making money off a majority, and the futures game wouldn't be worth playing for anybody! Clearly, the majority always has to be "on the wrong foot" in order to make this game a game. Does this make sense? It's nothing but perfect logic. Yet there's still so many people believing a fat ask means price goes down and vice versa... OK, there's several reasons. I've written essays about this, but these are off the top of my head, here in illustrated for bullish moves: - There must be more sellers than buyers in order to host a nice, fast raise that's profitable to a low number of bulls. (= buying energy) - Exchanges and brokers profit from volume, not trade outcomes - The market always follows the path of the most volume, in order to make a minority profit from a majority (and the brokers & exchanges) - The really smart market participants know all this, and they hunt for volume. Then they hunt for stops as an extra bonus - The smart players (hundreds or thousands of contracts) also tend to "load" their side of the market with fake volume, to further amplify this effect. As price comes closer, the volume suddenly "evaporates" from the "fat ask", and ON TOP OF THAT gets entered in the opposite direction via market orders! The effect of this needs no explaining. The market always follows the path of the most volume, in order to make a minority profit from a majority (and the brokers & exchanges). This is perfectly congruent with the P/V relationship on a price chart, too. More volume, price continues, less volume, price stalls and goes the other way. Or how do you think an uptrend could happen on rising volume unless the ask was constantly growing over the bid? Clearly, you have to have a growing number of sellers in order to have growing buying volume. Somebody has to sell in order for these to buy. At some point, volume will stall, because the majority is convinced it's going up now and doesn't want to sell anymore. At this point, the bid will also be pretty fat, and probably much fatter than the ask... Time to turn around and screw the crowd the other way again (now selling, hitting the dumb, fat bulls). Sounds cruel, but that's the volume reality of the market most people never understand. I trade like this pretty much all day long. Using a DOM display that visually displays depth volume, the way professional platforms (ButtonTrader, X_Trader) do, you can very "graphically" hunt for the volume all day long. You just look at the screen, see where the volume is/was and fire at it. Always take out the naiive and weak crowds and squeeze them hard, until they're stopped out, then you can turn around and go the other way again (to make extra profits from the undisciplined revenge traders / stop-reversers as well). Think you aren't powerful enough to squeeze the crowds? Don't worry - you'll have plenty of help from the big pro's... Rule #1: Never follow the crowds. Always fade them. You either sell the tickets to the show, or you buy them!!! No compromise... I think this volume stuff is more useful information than I should even be revealing on a public forum like this for everyone to see. But why not give something back? Have fun with it, and have a good think about it. Good trading to y'all! Scientist.
What wonders me most is that while this stuff is so logical, nobody else has actually written about it. For those here who have a copy of Larry Harris' "Trading & Exchanges", you will find all sorts of stuff in there (~650 pages!), but nothing too much that will really make you a good trader. IB sent many (high-turnover) customers this fat book for free last year, and while I was thrilled at first, it just turned out to be another academical work on what's rather irrelevant and "matter of course" stuff on actual trading. Larry Harris, PhD, proclaimed "an expert in market microstructure" is a nice guy and I do like some of his work. He also holds various chairs and honours in the field of finance, is chief economist of the SEC and many other things. Yet I'd beat the crap out of him in trading any day - for sure. Because most of the "science" is the really irrelevant stuff. Funny that we got this book from IB, saying "We want you to succeed because our success depends on your success". Sure, we know that the people from IB are just as smart to traders' real needs as any other broker & co out there. All the great wizards that understand why markets move, but few of them know how to trade. When I look for something on the price/volume relationship, I can't find anything useful in Harris' - or any other book for that matter. Looks like I'll have to keep looking. Or write my own book... Have a nice weekend! Scientist
I agree with all of this. I react to what's happening rather than trying to anticipate "possible" future developments. Who knows what will happen in the future? The variables are far too plentiful IMO. But then I guess that's an advantage of being a scalper anyway - You can be very reactionary/preactionary in your trading, rather than having to think up "possible future scenarios". The big challenge of scalping, however, is to properly interpret immediate market action and to encapsulate it within the consideration of larger fractals. The larger the timeframe, the more powerful a trend and it's trendlines etc will be. So I certainly won't even try to scalp for a few ticks unless I'm fully aware of the trend, retracement levels etc on the 1m, 5, 15m, 60m, D chart! If you go through Mark's DAX Journal, you will find that even he looks at 60m charts etc, and he's the kind of guy that does "one trade per minute". So yeah. The smaller the timeframe, the more it is a matter of "reaction", and the larger the timeframe, the more it's about "direction". One needs both. Ideally you should trade the channels and trends in each timeframe, encapsulating one fractal within another, trading the 1m channel traverses within the 5m channel, the 5m channel traverses within the 60m, the 60m within the D channel and so on. That way, if done properly, you would have the ultimate effectivity of money extraction. Jack/Grob is an expert on this stuff, also known as SCT / Seamless Continuous Trading. Hey alpha_monkey - You still owe me a reply on that "UK Scalpers" thread! I won't forget you! Best Regards and Happy Trading
Almost 4 years of continuos study and practice and I still feel like Im in Kindergarten. I consider myself a fairly intelligent guy but when I read some of this stuff I realize Im not so smart. It takes me all day to read through and comprehend some of yours and Jacks posts but it is uttterly fascinating. The problem is I dont want anybody else to read it. If you could obfuscate your posts a little more like Jack does so nobody else will bother I would appreciate it. I would further appreciate it if you would delete that post about dom now that I have made a copy of it. Thx. p.s. could you please give an illustration of what you mean by "trading the 1 min traverses in the 5 min. channel.'