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I just wanted to point out how impressed I am when looking how the S&P went up today during its final minutes and more importantly seeing with the default NinjaTrader level 2 an order between 3k to 5k parked at 2005.00 stand out to then get filled during the last minutes, then the market went even higher.
I am right now thinking how is this possible, how could some institution or individual place that order, leave it there standing out and not change it for about an hour to get filled at day highs, over 240 million dollars worth. I would appreciate if somebody could confirm seeing this and maybe explain. I have been looking at Jigsaw and some related traders explaining this kind of scenario but haven't covered much material yet. Could this kind of thing stop happening soon and for how long could this type of scenarios happen? Yesterday I saw something similar but with at bid way below, similar thing except the market went much lower. The main thing to me here is that they leave the orders there stand out to be seen by everyone. Why would that happen?
Found this an interesting question and fired up my Ninja Market Replay to find out what you were asking about. Your main problem in understanding this is that the standard DOM market depth is very misleading indeed, and not at all suitable to trade from. You mention the Jigsaw tools and I assume you do not have them installed, as from my Jigsaw screenshots following you will understand what is happening much easier.
First thing though is to dispel the various beliefs you have, made clear by your questions.
1. That large offer at 2005.00 was not an order (ie one order) sitting there. It was the combination of many individual orders. Lots of traders (mainly computers) have orders sitting there.
2. Although the 3-5k orders can be seen by anyone, they do not represent the actual interest at that level. many traders (inc computers) will wait until price gets there before adding more, pulling some, etc.
3. While you were absorbed watching the 2005.00 level did you not see the many very large order depth at many levels above and below 2005.00? Yes, the 5k at 2005.oo was the largest at one point, but it did not stay that way.
4. That 3-5k depth evaporated when the market reached 2005.00. See below. So a good portion of resting orders were actually false, and just there to give others the impression of a weak market. 'They' want you to sell too, which is why the market rallied a little into the close.
5. Having orders sitting in plain sight is fine. Nothing wrong with you placing a resting order (stop) wherever you want to take profits for example. But most big players do not show their full hand of course, just like poker.
6. The market was moving into the close which is a very tricky/dangerous time to trade. All sorts of reasons for buying and selling, and often makes no sense to us who are looking for simple profitable trades. Reasons to place short trades at 2005.00 while market rises could be, for example:
Taking profits on longs, closing positions for day, taking a low probability short with a potentially large payoff (the next day/later), order flow scalpers taking a few ticks, big money spoofing the market to sell (buying lower), and so on...
Back to actual question on what happened, here are four screenshots from 3:49pm to 4.15pm close. Note I am 12 hours ahead of New York so Jigsaw shows 03.49 etc.
1. 3.49pm:
4,737 offers at 2005.00 as you describe. High yes, but most other levels above and below are very thick which is the norm before the NYSE close.
2. 3.50:07pm:
Market reaches 2005.00 and notice the offers now down to 1,976 with ONLY 926 trades. Now, 1,976 + 926 = 2,902.
BUT 4,737 was original offers right? So 4,737 - 2,902 = 1,835 orders PULLED from order book. A spoof.
3. 3.50:24pm:
Market up to 2005.25 and you can see 2,927 orders filled at the original 2005.00 level. Still 1,810 orders below the earlier figure.
Note also the large buy orders coming in on Jigsaw recon tape (leftmost-side). One 1,687 market order at your original 2005 interest point to lift market.
Also note the large resting orders in second recon tape. I set this to opposite colors and anything larger than 100. So your original thought that ONE order was sitting there was actually many small orders plus the 106, 100, 300, and 232 limit orders (Jigsaw set to NOT reconstruct trades so I get to see large resting orders filled by that one huge sell order).
4. 4.15pm Market closed.
Turned out that 2005.25 was a major level. Look at the 50k+ trades there. And after a return to 2005.00 the final orders were 7,642 on the offer side.
But compare the orders placed from 2005.00 and above. Way larger than anything that was sitting on bid or offers as market moved.
Thanks a lot for this answer, I learned a lot from this. I am now just beginning to get the orderflow perspective from trading by jigsaw and honestly it seems about the most useful and logical approach for execution, and it goes very well with volume profile analysis which so far I think has to be at the top of most effective trading strategies/plans.
My screenshots do not show the 2000 tick chart I have on my screen. I give 70% weighting, or more, to price action on the chart and use order flow to confirm setups, buying and selling pressures, trade management, etc. I also have market internals for NYSE Tick and S&P Premium as a 5% guide. Sometimes though, the order flow information will be so powerful that I will anticipate a trade and get in early. But the chart price action is still valid.
Order flow alone for me can be far too emotional (even neurotic) as there are so many short term players affecting what we see. A temporary 2-3 or more points shift against the trend, for example, means nothing to the big guys but will shake out the order flow reading little guys who cannot see the context of the price chart. I know of some folks who once in a trade do not look at order flow again and manage from the chart. Makes sense. A chart gives you clear profit targets and sensible stops. Order flow and volume profiles can help with this but a picture is worth a thousand numbers/words to me!
Glad to find someone here from HK! I think Hangseng futures is a bit different from the ES and I just started learning and trading the ES this year. Would appreciate if you would give me some advice.
I recently purchased the basic and intermediate course at NoBSdaytrading and jigsaw tool. Spent a month watching the DOM but still getting familiar with the order flow analysis. I remembered you mentioned somewhere in this forum a book about iceberg order, but the link is no longer working, could you suggest the book name of it again?
Besides, as most of the books are about market profiles but not many for volume profile, where do u think I shall begin with volume profiles?
For price action, most suggested Al Brooks. I have tried to watch his clips but every time I would need a cup of coffee to continue and I just don't seem to understand thoroughly sometimes. Do you have any other suggestion?
Hope that's not too many questions. Thanks.
Good to hear from another Hongkonger! I tried the Hang Seng for a short while, just to see if I could trade normal hours, but too thin and unpredictable for my liking. The European FESX is better but I just trade the ES now and enjoy learning more about it.
Not sure which book you are referring to, but the two that come to mind for better understanding of icebergs, order flow, and such are:
All About High Frequency Trading which is an introductory but still useful book. Has some examples of games played similar to John Grady's materials.
Trading & Exchanges which is a very thorough and valuable book on just about everything trading techno wise. Expensive compared to most books but less than 2 ES points, so equivalent to a very small loser.
In addition to Al Brooks whose Daily Updates I follow, I would recommend Mack who does a daily ES Youtube lesson throughout the week. His price action method is simplified, using the bare essentials of with-trend 2-legged pullbacks (H2/L2), measured moves, traps (failures), and trend lines. As Mack will say, you do not need to buy his manual as everything is covered in his videos. They are excellent. But his manual and website premium membership is not expensive and worthwhile to learn his methods quickly. Al's work is very comprehensive and deep and takes time, but you do get there ok if you can focus and stick with it. No need to go anywhere else (Al plus Mack).
Do not have any suggestions on volume profile as do not use. I watch profile for current session only but do read Peter Davies (DTs) daily market preview most days here on futures.io (formerly BMT). My charts have the previous day and Globex highs and lows, as well as previous day close line - plus the All Time High, week open and key levels from earlier months much like the stuff Peter pulls out of his market/profile analysis.
A lot of what I see in the DOM amazes me as well! I have so many questions from seeing different stuff, but I am getting the impression that no one really have the answers. There are so many players involved with so many different agendas.
Richard had a good answer in his original reply, but I thought it was important to mention one more thing. When watching the DOM, it is important to remember that a lot of the activities taking place in the es, are not directional bets. Sometimes it can be half an arbitrage trade, or someone just hedging a position. So if ES trades up or down to a certaing price, that price will trigger their hedge. In those scenarios, I am getting the impression that it is not necessary for them to "hide" their trade because they want it to fill. I may be wrong on this, but I think these are the large bid/ask orders that will stay for a long time in the book, without changing much even when price trades close to their order, and eventually through.
I remember on september the 8. before that dropp down aroun 1.11pm eastern, there was one of those huge bids resting at days low. It was around 3 or 4000, so not a gigantic amount, but compared to the rest of the book it was certainly sticking out. That order was sitting there for the longest time, and it did not change as price came down. In typicall es style, price came down and "tested" that bid (a few contracts traded into it), just to see if it was real (thats at least how it looked to me). After the test, price went up 2 ticks before returning down. This time, like a shark attacking its prey, a number of big market sell orders hit right into this huge bid and swooped it away. The rest is history from that point as there were a bunch of sell stops waiting below.
Whenever you see this type of action (a huge bid or ask sticking out in the DOM, and potentiall stops below/above), it is often a good play to place a stop sell or stop buy below/above this price, as the market will often blow through this price with a fair margin. You just have to be nimble and take profit as soon as price slows down as the snapback can be quick. Trying to sell/buy with the algoes as soon as you see them attacking the huge bid/ask is often difficult. It just happens too fast, so placing an order below/above can be your best shot.
This is not a play you want to do around the closing period. It has to be during normal action, and that bid/ask has to be very noticable (way bigger then the rest of the book).
One of the weirdest things I see happen in the DOM (not very common at all), is whenever some big block sell/buy order hits into a normal sized bid/offer. Let me explain a bit better with an example.
Do not remember which day this was, but happened a month or so ago. We had come a fair bit of the days low, and price had a bit of momentum going up. Bids were filling up fairly quickly whenever we ticked up, but not with huge amounts (around 300-400). All of a sudden a big block sell order (1000 + ) hit into bid, which was showing no more than 300 contracts. However, this bid, which was showing around 300, absorbed this block sell order and we did not tick down. My question is this: How did the algo or person or whomever sold this 1000 lot, know that inside bid was big enough to absorb his/her market sell order? There were only around 300 showing in the DOM on inside bid, and around the same amount at the next bid level. If there were no icebergs waiting, this block sell order would have spread around 2, 3 maybe even 4 levels. It was like the guy/girl selling the block order knew inside bid was an iceberg. How can this be? Were someone actually trading with themselves, or at least two parties cooporating?
Will probably never get a good answer on this, and it never stops twisting with my mind whenever something like this happens. So weird...
My take on this is that order flow is a bit like price charts.
People agree that there's a ton of ways you can read a chart.
For Order Flow, people tend to think there's a single way to use it. I would say that there isn't. Order flow is just like price charts. It's information. There's many ways to use it. For example, if it's a pullback and I see an iceberg against the pullback, I am in. If it's a trend and the pullback is in the way, I don't short it.
Trading in general can make your brain hurt. Think about the ES - you have the stocks in the S&P 500, those stocks have options. Then you have the SPY ETF, which also has options. Then you have futures options. Then you have correlated and inversely correlated markets. The value of the dollar impacts it as does interest rates. You have market internals too. There's no way you can take all that into account when trading and lots of people make the error of trying to understand all this and how these things impact the market and try to analyze all of it (or lots of it) to come to some really clever way of telling what will happen next.
So for me, I tend to keep it relatively simple. I don't know if this is a stat arb trade. I don't know if this is someone opening or closing a position. I don't know if this is a program trade kicking in.
What I do know is I actually have to get into the market in order to make money and I have to close trades if they are going against me. So I try to get in when I think it looks good on the order flow, when it looks good on the price chart and when the Tick, NQ, YM aren't running in the opposite direction.
In short, I try not to over complicate it and I also listen to my gut.
If you have any questions about the products or services provided, please send me a Private Message or use the futures.io " Ask Me Anything" thread
Richard, thanks for your reply. The resources you mentioned are rich and I got so much to catch up.
Just curious, do you have a day time job and what time do you usually trade the ES in HK?
