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I don't understand CME Book
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I don't understand CME Book

  #1 (permalink)
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I don't understand CME Book

I have been spending a fair amount of time watching CME (ESH2) Quote Book - and have noticed something I would like an explanation for.

I notice that it can take as little as 1 contract to cause an up tick or down tick (change in Ask or Bid) however the depth prior to the change can be quite large.

I was under the impression that all contracts at a giving price tier had to be exhausted prior to a change - why doesn't this appear to be the case?

Thanks!

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  #3 (permalink)
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people often put orders in the book that they don't intend to get filled on. Exactly like bluffing in poker. Or double bluffing, etc...

over the past few days I have put up a few videos showing one of my approaches to trading by reading the tape/orderbook, the links are in the "tape is my shape" thread. I just posted them. Orders pulling/reloading are one of the basic stages of orderbook/tape reading.

HTH

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  #4 (permalink)
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"Tape is my Shape" - I will definitely take a look.

,... I can see the bogus orders come through - however - I am watching the affect on depth (tier size) as orders are matched - and I don't see depth decline to a level that would qualify a transition to a different tier based on order flow - that is what is bothering me.

It could be my code - I will scrutinize and see if I am doing something wrong.

,...However I suspect something else is going on.

Thanks,...Gustav

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  #5 (permalink)
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Answered my own question

Well, I spent most of the day watching Book for the ES.

I was looking for the reason that caused ask/bid to up/down tick – and I what I saw was not what I suspected.
  1. Many up/down ticks were precluded by large block trades.
  2. The balance of up/down ticks occurred with trades of small volume even though depth could be quite significant.
  3. With a few exceptions, the large block trades did not cause an immediate change to ask/bid – rather the change was delayed (in some cases by up to 50 or more additional trades)
  4. Change in last trade price (up/down tick) usually precluded an up/down tick change to ask/bid


Conclusion
  1. It appears that change in ask/bid price had less to do with inventory being used up (based on order flow) and more to do with changes resulting from orders being pulled or reallocated.
  2. About half the time, when the buys exceeded sells (by 60% or greater) – the market would tick down, - half the time it would up tick (and vice versa) – (I need to better measure to be sure) – in other words, a large imbalance in Ask/Bid was not sufficient to predict a movement.
  3. Finally – I could be myopic and what I saw just wasn’t so

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  #6 (permalink)
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Thanks cpi65

I pondered what you said and dug deeper - I don't know if I got it correct - so any further insight - or critisim would be welcome.

,...G

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  #7 (permalink)
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One more thing

I was measuring depth flow (change in size of the inside Ask/Bid) as buy/sell orders were being matched.

I expected flow to decrease to a significantly low level to allow inventory to be used up, whereby precipitating a change to ask/bid - rarely did this happen.

What usually happened was that there would be a sudden up/down tick regardless of what inside depth was.

This could have resulted in latency - ask/bid depth not adjusting (or rather not being properly reported) as orders were processed.

Any other thought would be welcome

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