Importance of Market Depth

[toothfairy]

I trade online with NAB and their site shows us market depth/ detail. As some of U already know that is the number of shares wanting to be bought vs number of shares waiting to be sold, with their respective bidding / asking price spreads.
How important are these data as sometimes I find a share that has a lot more sellers than buyers (in numbers of shares quoted) can actually go up a few % in value and vice versa. At the end of the day ( actually at anytime of the day for that matter) the number of shares bought & sold should be equal.
Is it better to have 100,000 shares waiting to be bought @ 1% below the trading price rather than 1,000,000 shares waiting to be bought @ 5% below the trading price?
Cheers

 

[dj_420]

i think i know what you are asking, often you can use technical analysis and find resistance points areas of support on the charts and you can actually see this on the market depth.

you can literally watch support/resistance build up on market depth. i dont think its relevant with percentage numbers wise, IMO what is relevant is when the market depth is filling the gaps on each price increment. this is where on the depth screen you see gaps for eg no one bidding on that price.

when gaps start filling right up and volume for the buyers starts increasing its gaining support at that particular level (on that particular day).

if the buyers start filling the gaps and increasing in volume its building resistance at that particular level (on that particular day).

 

[rub92me]

I look at changes in the average bid or ask in the market depth in combination with the absolute number of shares in the ask and bid, up to two tick above/below the market price. I don't actually use it to base my trading decisions on, but it develops a 'feel' for the stock you are watching.

 

[telstrareg]

I think you have to watch what happens over several sessions to get a feel for the dynamic. Just remember you only see part of the picture. There are heaps of market orders that are only going to be triggered when certain conditions are met, and there are also players sitting there with their fingers on the trigger.

For example watch what happens when the price drops to a typical trigger point eg a stock has been trading at 10.12 and starts dropping fast towards 10.00 . You think hey, there are heaps more sellers and buying looks really thin below 10.00, the price is going to smash through the orders clustered there. Then the price hits 10.01 and bang, the price starts climbing again for a moment as a bunch or orders are triggered (or at least that’s the way I've always interpreted it).

 

[Garpal Gumnut]

I trade online with NAB and their site shows us market depth/ detail. As some of U already know that is the number of shares wanting to be bought vs number of shares waiting to be sold, with their respective bidding / asking price spreads.
How important are these data as sometimes I find a share that has a lot more sellers than buyers (in numbers of shares quoted) can actually go up a few % in value and vice versa. At the end of the day ( actually at anytime of the day for that matter) the number of shares bought & sold should be equal.
Is it better to have 100,000 shares waiting to be bought @ 1% below the trading price rather than 1,000,000 shares waiting to be bought @ 5% below the trading price?
Cheers

Market depth can give one a false sense of security as to the numbers of buyers and sellers in the market at any one time. Brokers are not required to post all buys and sells on the ASX even though they may have portfolios on their books being accumulated and distributed.

I refer to a pdf disclosure of a selldown in SUN, posted by the asx on behalf of PPT on 12/4/07. The action extends from late Dec 06 to early April 07.

There are many different portfolios all under the Perpetual umbrella, selling and buying Suncorp to decrease the total holding of the parent entity. Some of the transactions are worth many millions, some just a few hundreds.

The file although only 20 pages exceeds the upload limit on the forum.

To view it go to Announcements on asx site, asx.com.au . Type in SUN and pick 2007. You can then open the pdf file for PPT on 12/4/07

Next time you see a funny number of shares on a buy side just wonder how many more may be on the sell side from the same vendor the same or following days.

The action starts on page 8

Garpal

 

[Bobby]

Market depth can give one a false sense of security as to the numbers of buyers and sellers in the market at any one time.
Garpal

Yep Garpal so true, those at the hit level are worth considering , below that well sheeez........ lets play a game !
You know what I mean..

Regards
Bobby.

 

[toothfairy]

There are heaps of market orders that are only going to be triggered when certain conditions are met, and there are also players sitting there with their fingers on the trigger.

Hi telstrareg, when U mean players with their fingers on the trigger does it mean that they are putting in an "on market price" order to buy or sell at whatever it is going for at that time, ie jumping the queue. Otherwise if you specify a fixed price (usually a lower one if U are buying & a higher one if U are selling), you will be listed in the market depth, even for a split second.

Hi Garpal, U said brokers don't have to post their dealings, do U also refer to these "on market price" dealings?

Thanks

 

[Garpal Gumnut]

Hi telstrareg, when U mean players with their fingers on the trigger does it mean that they are putting in an "on market price" order to buy or sell at whatever it is going for at that time, ie jumping the queue. Otherwise if you specify a fixed price (usually a lower one if U are buying & a higher one if U are selling), you will be listed in the market depth, even for a split second.

Hi Garpal, U said brokers don't have to post their dealings, do U also refer to these "on market price" dealings?

Thanks

Yes on market may be hidden as large funds may just buy or sell for the lowest or highest price or may not disclose the amount of stock they have at a buy or sell point. Colin Nicholson summarises it well in a paragraph just over half way down this pdf.

 

[toothfairy]

Yes on market may be hidden as large funds may just buy or sell for the lowest or highest price or may not disclose the amount of stock they have at a buy or sell point. Colin Nicholson summarises it well in a paragraph just over half way down this pdf.

Thanks G.G., Colin's explanation is very clear. Now I am wondering whether there is any stats to show what proportion of shares are traded "at market price" vs "at prices norminated and shown in market depth". If a large portion (80%) is traded at market, we can really ignore the market depth as false advertisement.
Otherwise, if it is a significant amount traded NOT "at market", we should still need to have the oppotunity to quickly filter through these bid/offer prices according to a "sliding window frame" technique to limit tthe spread to ....say may be 2% on each side of the market price dependent on volatility of the stock and the day. Does anyone know of such facilities/ websites/ softwares?

Cheers