Understanding Depth

Discussion in 'Index Futures' started by StreamlineTrade, Dec 16, 2005.

  1. StreamlineTrade

    StreamlineTrade Guest


    First time poster, long time lurker.

    I have started trading ES. I have noticed something that would seem to go against common ideas, like most things it would seem in this game.

    Anyway, here is my question. When the market is moving down, all the size would seem to be on the bid, yet the price continues to fall. Why is this? One would have thought that logically, it would be the other way around, i.e. falling market, everybody is selling.

    The inverse is true for a rising market.

    I have read the CBOT handbook for Market Profile, although I do not use this price display. I thought it would be good from an educational standpoint.

    My thoughts so far are that that big size I can see going against the trend or move are from the non-commercial interests looking to scalp perhaps (As price moves downwards, it attracts buying and visa-versa). Where as the commercials are the ones making the move happen and are just steam rollering the poor non-commercials who are providing the liquidity for the commercials to steam-roller. This sounds like a losing proposition to me though. Clearly it can not be, as otherwise there would be no non-commercials.

    Can anybody please explain this?

    Thank you in advance.
  2. StreamlineTrade

    StreamlineTrade Guest

    WOW! I am watching ESH06 now - 2000+ on the bid, and about 400+ on the ask.

    I think they must have pulled the bids pretty quickly as the market dropped 2 ticks pretty quickly. Maybe a commercail ate the lot? I don't really know for sure as my Last Trade Size is quite unreliable and I wasn't watching it.
  3. Ebo


    A. Today is Quad Expiration Day
    B. S & P 500 is being Rebalanced
    C. ARB Programs flash huge bids and offers on and off and never trade.
    D. You are wasting your time!
  4. StreamlineTrade

    StreamlineTrade Guest

    A. This is not something I have noticed today. It is a regular occurrence.
    B. See above.
    C. Yes, I had a few thoughts it could be this.
    D. Why? Knowledge is power, is it not?
  5. Ebo


    Learn the art of reading charts and T + S and you will be on your way to profitability.

    Wealth is power, btw.
  6. I've noticed *exactly* the same phenomenon on YM and others. When an up move starts in earnest, the asks far exceed the bids. The reverse is true for down trends. I agree it's counter-intuitive and I can't explain it. Though I *am* glad someone else noticed this as well, meaning I'm not crazy.

    I've observed this on the bid/ask on my IB screens. I've also used this to my advantage while waiting for entry. i.e. that's when I "pull the trigger"
  7. Agyar


    Bingo. If you watch what actually trades instead of this you'll be much better off, IMO.

    Well, I also agree that anything that improves understanding isn't necessarily a waste of time, even if you can't point to exactly how it affects your bottom line. But from the time I spent watching it, I found C to be so distracting, that it was worthless for me.
  8. plugger


    It's all about order flow.
  9. Ebo


    I look at my charts for an hour at night and 15 minutes when I wake up. The rest of the day I alternate between T + S and T + A!
    Once you set up your system, you really do not need to stay glued to DOM all day.

    Happy Holidays folks!
    May 2006 be a prosperous and Healthy one.
  10. Stalker


    You see the size of the limit orders. When the market is moving up, logically there aren´t much limited orders on bid cause the market has recently traveled through that area. So the bid size is going to be lower then the ask size before people establish more limit orders on the bid. As long as the market continues to move up, there won´t be enough time for people to establish limited orders, so ask size will be bigger.

    Tried to watch these things for a while. For me it turned out to be a distraction, but might be useful to someone else.
    #10     Dec 16, 2005