I look at it and remember it this way - if you place a market order to buy, what price do you get filled at? If you place a market order to sell, what price do you get filled at? Based on this buys occur at the ask, sells occur at the bid. What are the only types of orders that are "active"? Market orders are - they cause limit orders to trigger. I also only "know" with a high degree of certainty a market order that fills at the bid is a sell and at the ask is a buy. Measure what you can with a high degree of certainty. I only can measure with a high degree of certainty "active" orders.
But here is the other side of this thought, if market orders are hitting into the bid, selling into the bid, heavily, but price is not going down.. what is happening... all the selling pressure is being consumed, meaning bought. Everything being sold is bought. This tells you something.
Technically speaking, there are an equal amount of buyers and sellers at any price. Price will move up if liquidity is consumed, i.e. offers are continually taken out by buyers who are willing to pay higher and higher prices (reverse is true with bids and sellers). So someone who has a large order to fill will inevitably have to pay higher if he wants to buy at market given theres only a certain amount of people willing to sell at any price. But anyone with significant orders will want to disguise their hand so usually they fill it over time and use iceberg orders so they dont get front run and have to pay more. One of my strongest trading setups is seeing an iceberg absorb a lot of contracts but it keeps stepping lower and lower, it leads to a lot of buyers getting trapped and momentum to the downside, whilst I shouldn't be taking too much heat because of the large seller. I don't see this happening often though. Same deal if you see an iceberg on the bid and it keeps stepping up. Shows someone with a lot of size really desperate to buy or sell.
Understanding yourself is just as important as understanding markets.
Last edited by TickedOff; March 11th, 2015 at 11:46 PM.