I've also been curious about this for a long time. Sometimes these huge orders disappear as soon as price comes near; sometimes they're real and price still tends to run right through even after the absorption of the entire order.
Examine your capability. You have capital and thus you have BP. BP is in units of contracts. the market sets one level of your BP and your IB gives you more BP if he wishes or you both agree on something. Others have BP determined the same way. as you get acquainted with limit orders which result from BP, you figure out more and more about how trading works. you may noitce that traders communicate on the DOM. then you may notice that small groups work together. limit order contracts may only be placed up to the limit of BP. When you see three players working together you may notice one is using 300 contracts and the others are using 400 contracts each. Multiply your contract capital for one BP contract by 1100. you notice they are powerful as a consequence of their account's BP. As I trade I prevent slippage by always assuring there are enough contacts on the DOM to handle my MAT accounts partial fills. futures contracts are there for some strategies to act as insurance as hadges. These holdings are not used to play games. Financial businesses have loose change around that is not deployed; some of their traders could use this capital to play games during times when other holdings are bst in cash. If you have ears you can hang out after hours at bbars, cafes and grills around the Chicago exchanges. I have passed my card out occasionally in such places. If you are a guest of bigmoney players at Cbot building offices you get to see and hear conversations about how client accounts are used to mkae money for the firms. It appears you also watch the DOM to use it to make an extra few ticks on profit segments. A lot of traders do. I do pool extraction so I need the best information to optimize my hold/reversal approach. I thing of a behavioral action as having two aspects: first to extract the max on a hold and second to renter at best beginning point of a new hold. Hence, I use reversals because of how the common aspects of each planned behavioral action. I am glued to finding the places where big smart money you mention makes its most common mistake. Smart big money is too smart to work together (except when playing games). this faux independence helps those whose can watch skillfully. I invented a term to chat with others. "WALL". I define a Wall as a value where a large group of limit orders piles up. I size walls so I can see the market turns in advance. as a person watches the DOM, he deduces its operation. I found "walls" as an aid for making optimum reversals. As an engineer, it is easy for me to reason using calculus and transformation theory which describe operating systems processes. So I see the "independence" and lack of observations skills of smart big money. trades on the T&S rank third for me on the "activity scale". adding and pulling limits orders are both more active than actual T&S trades. So these non retail trading characters screw themselves all day long. It appears they do targets and set loss limits. And they think is very similar ways. Those who operate markets let them do as they wish with their BP. they bunch together and sit on the same value forming a wall unknownst to ach of them. the velocity of the T&S is less than the velocity of adding and pulling with respect to walls. For trending, the velocity of the T&S is greater than the velocity of the adds and pulls. so the market moves or migrates in a dominant sentiment direction. When this velocity tipping point hits a wall, it may be seen on the OTR chart that the trading bias shifts from one sentiment to the other and price bounces off the wall. the space between bid and offr walls is the full market range for making profit segments. Observing and using a hold/reversal strategy is emotionally pleasant. I feel supported, comfortable and onfident. I kep track of the dynamics of walls and I monitor and analyze the successive formation of the Order Of Events that happen between the End Effects that occur at walls. I keep a chart of the market velocities of various things that happen during RTH. By having these mant indictors and their derivatives, I see my way through the day. To finish this contribution, I'll wrap up with how walls crumble and how wals move from one value to another. This is on the level of checkers and not nearly anything like chess. I do have a set of descriptions of the games played. You can google those write ups. crumbling. It s good to watch walls. Their main contributors will not escape your eyes after a while. As you see a wall coing into view, you then see contributors pile on. At some point the trend is completing its OOE. As the end comes close, all you do is look for those who piled on to move their positions to not to another further along the trend position they sideline instead by partial exits one three or four values. They are moving their targets based on GREED. Think of the end of a retrace in the second move of a tend for example (or more generally speaking the end of an even move in a drifting trend). Crumbling is contextual. It is like a school of fish moving to another feasting place. As you watch you see the relative velocities go through the tipping point and the trend slowly grinds out its migration. In channel talk internals stretch the sides of the envelope and soften the slope of the RTL by fanning. Target moving. This is simpler. look at round values. these walls are moved mostly by traders pulling and adding identifiable blocks in pairs going further along the trend. the migration is at the same rate as the trend migration price jumps. thank god for granularity. this is most noticable as volume is getting larger in the PM. In the AM crumbling is most noticable. for those who type their trending, target moving is a type D trend (drift) phenom.
If already in a trade and see them disappear, that means the road is free and you can hold. Problem is when they stick and get filled. They can either reverse afterwards or keep going.
...and sometimes they're real, price runs through them by a few ticks, and then reverses hard after absorption of the entire order. So what information do we get from this? That sometimes there is a genuine intention to do business, other times it is an illusion of an intention to do business? How can we discern which? We get price, time, size, side information from the book. What do we not get? Whether orders are: -opening new positions / closing existing positions -directional or non directional (e.g. hedge, spread) -"genuine" or displayed to create illusions What additional information do we get by combining depth of book and time and sales? Can we use any of this information to make trading decisions? What are the limitations?
I know how to use depth of book for micro-scalping, but I don't trade that way. To make trading decisions I use a combination of the patterns printed when my chart divides price movement into bars and key S/R levels. I admit, though, that if I see unusually large size at a price level and my profit target was going to be ahead of that level, I often hold for more, knowing that more often than not the level will be tested.
Ain't the above contradictory, Jack? Stationed vs moving. Can you understand what you wrote here, Jack? I am one of the many whom are not smart enough to read your mind. TIA
I created a thread a while back to analyze DOM: http://elitetrader.com/vb/showthread.php?s=&threadid=103293 DOM is very important for those who trade sort term.
I have bookmarked the thread and will come back to it as it seems a serious attempt to create a valuable tool or methodology. That said I have never been able to make much sense of it and, despite a significant amount of observation have neve been able to make a single cent from it. I look forward to reading about the experience of you and otheres.