How to read the market depth?

[edho11]

Hi all,

how do you read the depth charts in trading software?
My attached picture shows the current price as the mid price and then there is the buy and sell sides.

The column on the left is the sellers and the right being the buyers.

So in the example, does it mean there are more buys willing to buy at higher prices? Or are the buyers on the right actually short positions waiting to be closed at higher prices?

How do you take advantage of these depth charts to trade?

 

[Trembling Hand]

edho11 you have around the wrong way. Left column is buy orders sitting in the market and right column are sell orders.

 

[richard99]

I am in the process of trying to understand market depth as well.

From what I understand you can get an idea of the demand and supply
of the shares in a company. If there's a lot of buy orders and not many sell orders then there high demand and low supply which means the price will most likely go up.

That's my take on it but I am still learning.

 

[professor_frink]

I am in the process of trying to understand market depth as well.

From what I understand you can get an idea of the demand and supply
of the shares in a company. If there's a lot of buy orders and not many sell orders then there high demand and low supply which means the price will most likely go up.

That's my take on it but I am still learning.

If it were that easy we'd all be millionaires

 

[pixel]

I am in the process of trying to understand market depth as well.

From what I understand you can get an idea of the demand and supply
of the shares in a company. If there's a lot of buy orders and not many sell orders then there high demand and low supply which means the price will most likely go up.

That's my take on it but I am still learning.

Hi Richard,
you've got the basics right: Bids (to buy) on the Left, Offers (to sell) on the right.

But that's as far as it goes. In the "good old days" you could gather some intelligence from the distribution of bids and offers. In today's "age of the bots and onliners" that's no longer so clean-cut.

(footnote: "bots" is short for "robots" or programmed trading, where instos use sophisticated computer programs that feed small parcels, even single shares, into either side, depending on their masters' intentions. Onliners are traders with online access - e.g. you and I, if you use a broker that allows you to enter orders for straight-through processing.)

The more experienced members of these groups will take advantage of what they see in the market depth, but will be most careful not to make their own intentions known. If they place a bid to buy, that doesn't mean they really intend to get those shares, but they may have an offer higher up in the (right-hand) queue that they try to "lift the market" towards.

In short: It's far more complex than adding bids and offers and taking the "weight" on each side as an indication for the way the see-saw will balance.

 

[Trembling Hand]

The only real use is to see how much slippage you will get on "@ Market" trades.

Past that its generally pointless looking at what side has more orders to gauge direction.

 

[nulla nulla]

The only real use is to see how much slippage you will get on "@ Market" trades.

Past that its generally pointless looking at what side has more orders to gauge direction.

Dunno T/H, Iress has recently added the totals of all the buy bids and the total of all the sell "asks" at the foot of each column. Sometimes I think this can be intrepreted as buy or sell pressure and a guage of the emotions (possible direction) of the market for that share.

 

[Trembling Hand]

Dunno T/H, Iress has recently added the totals of all the buy bids and the total of all the sell "asks" at the foot of each column. Sometimes I think this can be interpreted as buy or sell pressure and a gauge of the emotions (possible direction) of the market for that share.

Nulla in "sometimes" does that mean what 20%? 50% 80%. Why don't you do 20 trades from it then you will be able to show us the results.


I've been staring at market depth for 8 years. I execute about 100 trades a day directly into a market depth ladder. Adding up the totals for each side is useless.

 

[richard99]

The only real use is to see how much slippage you will get on "@ Market" trades.

Past that its generally pointless looking at what side has more orders to gauge direction.

If its pointless then why does software programs display it ?

 

[Trembling Hand]

If its pointless then why does software programs display it ?

It is of great use for many reasons just not the obvious.

If you move any size you need to know where you can execute that size without slippage.

Its good to finesse orders for a tick here & there.

You can use it for good old fashioned tape reading, like most now use a chart for. (but with bots, icebergs, flash orders and spoofs its not so easy as what the two bob punter thinks it for)

 

[pixel]

It is of great use for many reasons just not the obvious.

If you move any size you need to know where you can execute that size without slippage.

Its good to finesse orders for a tick here & there.

You can use it for good old fashioned tape reading, like most now use a chart for. (but with bots, icebergs, flash orders and spoofs its not so easy as what the two bob punter thinks it for)

Totally agree, TH

I find it very useful in pre-open or after a suspension. In situations like that, where the "two bob punters" as you call them come rushing in, it often shows the sentiment - especially in conjunction with the "iap", the indicative average (opening) price - and tells me if a scalp quickie would be possible.
Similarly, after 4PM, in the Closing Auction, the overlaps may allow me to get out at the day's High without having had an offer in all day.
Some programs, e.g. the Market Analyser, have a graphic bar chart representation, which I use like a visual (movie) alert: You don't have to concentrate on an individual little chart, but if a new buy level is added, there is movement on the Left, pushing the buy side down; if the top bids are taken out, the buy level bars move up; etc...

Eye-catching, and thus effective as an alert tool. But that's about it for the usefulness in general of m/depth and m/pictures.

 

[Naked shorts]

Adding up the totals for each side is useless.

I have actually found adding up the totals useful for me on some occasions because I sometimes I over-look large size sitting in the books.
E.G. An 897 might look like a 397 when I glance things over, but when the size in the books is added it might give a four digit total instead of the usual three digit total which I see much quicker.

I would never trade off it directly however.

 

[newbie trader]

I have a question on commsec under the 'buy' 'sell' depth table they total the buyers and seller and the volume i think. If you have for instance 500 buyers 1000 sellers, would that indicate sellers have the market therefore the share is likely to drop? If not, could this be taken into account along with other indicators when assesing the probability of a share dropping/rising?

(I don't have a clue what im talking about as my username suggests, so i hope my question makes sense)

N.T

 

[white_goodman]

ive seen some stuff on total bids v total offers, say theres 400 in the bid total and 1200 on the offer... generally the market should move up according to what i read (ie moving to size), however i think this stuff was written prior to all the bots and algos shenangians we see these days

 

[Trembling Hand]

ive seen some stuff on total bids v total offers, say theres 400 in the bid total and 1200 on the offer... generally the market should move up according to what i read (ie moving to size), however i think this stuff was written prior to all the bots and algos shenangians we see these days

Yep short term moves can not be give a fail safe rule.

ie
MACD divergence = bad
RSI Oversold = good
Break of range = Good
Bids stacked full in the order book = good

All these things can work perfectly yesterday in a ranging market and be blown out of the water today if its a trending market. Then ad in varying degrease of ranging, trending & volatility and you're in real trouble. In general the above statements are no better than a coin toss without context. The great thing about the game is that newbies, like in any field, have very little experience to build context from. Thus pulling up a market depth screen, trading off it & passing their account contents over to the more experienced.

90/10 rule - lovely

 

[nulla nulla]

Nulla in "sometimes" does that mean what 20%? 50% 80%. Why don't you do 20 trades from it then you will be able to show us the results.


I've been staring at market depth for 8 years. I execute about 100 trades a day directly into a market depth ladder. Adding up the totals for each side is useless.

Take it easy TH. I don't base my decisions on this aspect of the depth screen but it is a factor I take in to condsideration

 

[Trembling Hand]

Take it easy TH.

Yes I probably should from time to time.

I don't base my decisions on this aspect of the depth screen but it is a factor I take in to consideration

Yes, I guess my above post about context is in agreeance with you.

 

[SmellyTerror]

I have a question on commsec under the 'buy' 'sell' depth table they total the buyers and seller and the volume i think. If you have for instance 500 buyers 1000 sellers, would that indicate sellers have the market therefore the share is likely to drop? If not, could this be taken into account along with other indicators when assesing the probability of a share dropping/rising?

First, pay attention to TH. There's also this thread: https://www.aussiestockforums.com/forums/showthread.php?t=15175

Second, in my (very limited) experience it's much more important to see how those numbers change. A million people waiting to pick up a share at some stupidly low price isn't going to effect today's trading. A million waiting to take profits at some aspirational price that might get tagged a month from now doesn't effect today's trading.

If you see the bids falling away, that can mean something. Could be they're pulling up stumps and throwing themselves into the ask - is the volume reflecting that? If that's what happening, then that might actually be bullish. The ask might be getting depleted too (is it? are the numbers coming down? or is someone feeding into it?).

Or is it the other way around - are the bids getting depleted by asks coming down into the bid? That would be bearish. Unless, again, someone is feeding into that bid to keep that side steady, rather than adding bids further down. What's coming into the book? What's leaving? What's happening dierectly on the bid or ask?

It's the change that counts most, not what's been sitting in the book for hours or days. That stuff is mostly landscape. Sure Little Big Horn is hard to climb, but that's not the battle. It's the injuns you have to watch.

What are the near price points doing? Are the nearby bids giving up and running for the hills, with no corresponding volume? Folk near the spread are hoping for a better fill, but also hoping the price will reverse off that - when they start to lose that hope they might bugger off down the book, or to the other side of it, or off it altogether.

The only time I get much use from the book (and remember I'm a rank newby) is for fairly small volume stocks. If you can see a big clump sitting a few price points ahead, it's like a little resistance point (Little Big Horn) that the charting folk talk about, but that doesn't show on a chart. A bigger resistance point is a spot or range where regular feeding-in is going on. You won't see that without watching for it.

"Momentum" in the book is when those aspirational folk near the spread start moving - you see the price move up, leaving a little hole behind, then bids that were being left behind come up to make another thick line under the spread. You see asks that were sitting a couple of points up get taken off as the price approaches and reappear another couple ahead. Are they on both sides, or do they see some momentum and are confident they can get a better price? Will they fall back again, or are they going to get antsy and dump straight into the bid if we stall?

Sometimes you can see a spot where a big chunk of the asks have congregated on the far side of an open area, a few points above the spread. Then one will drop a point below, probably someone who was near the end of the queue and isn't confident the whole price point will be taken out. Then another will hop off. Then some others, who a minute ago were near the front of the queue and had blue sky between them and a fill start to worry, and they hop down a point below the other guys.... and a moment later the bid is getting hit by a stampede and you lose a couple of price points in a few second, until people either calm down and take a step back, or more people panic, (or some clueless numpty drops a market order in at a bad moment), and a couple of bid levels get wiped out, and it drops again. More often these will fly back again when people who didn't see all that internal action wonder WTF just happened and put their asks back where it was a moment ago, or another numpty puts a buy in at market and all of that carnage means they end up at the far end of a hell of a gap. Then a new battle line gets set up around a new spread, and we're off again.

As I said, I'm a rank newby at this and have only the most tenuous glimpse of what might be going on. I've never found anyone outside this forum that talks about reading the book, and even then it's not a lot. Hard to put in a book, I guess, and hard (impossible?) to really backtest.

Do historical data providers sell the depth? I've never heard of anything like that, but then, no-one really talks about this stuff, do they?

 

[sexythang]

First, pay attention to TH. There's also this thread: https://www.aussiestockforums.com/forums/showthread.php?t=15175

Second, in my (very limited) experience it's much more important to see how those numbers change. A million people waiting to pick up a share at some stupidly low price isn't going to effect today's trading. A million waiting to take profits at some aspirational price that might get tagged a month from now doesn't effect today's trading.

If you see the bids falling away, that can mean something. Could be they're pulling up stumps and throwing themselves into the ask - is the volume reflecting that? If that's what happening, then that might actually be bullish. The ask might be getting depleted too (is it? are the numbers coming down? or is someone feeding into it?).

Or is it the other way around - are the bids getting depleted by asks coming down into the bid? That would be bearish. Unless, again, someone is feeding into that bid to keep that side steady, rather than adding bids further down. What's coming into the book? What's leaving? What's happening dierectly on the bid or ask?

It's the change that counts most, not what's been sitting in the book for hours or days. That stuff is mostly landscape. Sure Little Big Horn is hard to climb, but that's not the battle. It's the injuns you have to watch.

What are the near price points doing? Are the nearby bids giving up and running for the hills, with no corresponding volume? Folk near the spread are hoping for a better fill, but also hoping the price will reverse off that - when they start to lose that hope they might bugger off down the book, or to the other side of it, or off it altogether.

The only time I get much use from the book (and remember I'm a rank newby) is for fairly small volume stocks. If you can see a big clump sitting a few price points ahead, it's like a little resistance point (Little Big Horn) that the charting folk talk about, but that doesn't show on a chart. A bigger resistance point is a spot or range where regular feeding-in is going on. You won't see that without watching for it.

"Momentum" in the book is when those aspirational folk near the spread start moving - you see the price move up, leaving a little hole behind, then bids that were being left behind come up to make another thick line under the spread. You see asks that were sitting a couple of points up get taken off as the price approaches and reappear another couple ahead. Are they on both sides, or do they see some momentum and are confident they can get a better price? Will they fall back again, or are they going to get antsy and dump straight into the bid if we stall?

Sometimes you can see a spot where a big chunk of the asks have congregated on the far side of an open area, a few points above the spread. Then one will drop a point below, probably someone who was near the end of the queue and isn't confident the whole price point will be taken out. Then another will hop off. Then some others, who a minute ago were near the front of the queue and had blue sky between them and a fill start to worry, and they hop down a point below the other guys.... and a moment later the bid is getting hit by a stampede and you lose a couple of price points in a few second, until people either calm down and take a step back, or more people panic, (or some clueless numpty drops a market order in at a bad moment), and a couple of bid levels get wiped out, and it drops again. More often these will fly back again when people who didn't see all that internal action wonder WTF just happened and put their asks back where it was a moment ago, or another numpty puts a buy in at market and all of that carnage means they end up at the far end of a hell of a gap. Then a new battle line gets set up around a new spread, and we're off again.

As I said, I'm a rank newby at this and have only the most tenuous glimpse of what might be going on. I've never found anyone outside this forum that talks about reading the book, and even then it's not a lot. Hard to put in a book, I guess, and hard (impossible?) to really backtest.

Do historical data providers sell the depth? I've never heard of anything like that, but then, no-one really talks about this stuff, do they?

Was watching Blackmores trading today. Of coourse it looked like bots or high frequency traders were in the mix. Whats the best way to read these type of scenarios? there were more bids in volume and less asks but the price kept on creeping up. How do I inteprete this ?

 

[ThingyMajiggy]

Was watching Blackmores trading today. Of coourse it looked like bots or high frequency traders were in the mix. Whats the best way to read these type of scenarios? there were more bids in volume and less asks but the price kept on creeping up. How do I inteprete this ?

What's in the book on both sides is pretty much useless/irrelevant(unless there is significant size, then the market will most likely test it to see if it's real). What's most important is what side is being hit and how much effort vs how much ground is being made, not what size the bids or offers stacked up the book.