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Why does the market move towards the heavier side of the order book?
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Why does the market move towards the heavier side of the order book?

  #21 (permalink)
Trading Apprentice
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Late to the discussion... Here are some stuff I heard and learned from people or place quoted:

a) There is a tape pattern which is (large) size bid/size ask being "revisited" again and again are meant to be taken (trade thru). Personally I think there is some truth to this watching the tape. (bano)

b) There is also a totally opposite school of thought is to step in front of size but get out when decrement quickly. (stophunter)

c) Another school of thought thinks that (b) is a newbie play because institutions would never show their hands however they might if they are at the last piece of their order. (tape reading thread at ET... might be good to post this question to Maverick74)

d) The idea of liquidity vacuum explained by Peter at jigsawtrading (DT).

These are my wild guess but I thought about this problem sometimes:

Say it is showing a huge limit order at some underlying bid.

1) if it is indeed the last piece of an institutional buy order (done their job), wouldn't it be advantageous to take the last major piece of the demand out... last man standing? And if it turns out to be a fake bid, even better.

2) if (1) is true or just in general people thinks that price trades toward size, wouldn't that make people more likely to pull their underlying bids out in front of the large bid (who wants to buy at worse price?) Kind of a self-fulfilling prophesy.

3) It might be partly due to psychological comfort. If prudent buyers or cheap bastards trying to lean on the large bid, it creates a kind of air pocket because more bids will be moved just in front of the large bid which makes the top light and bottom heavy on the ladder. This makes the price move down faster and that sheer momentum might make the buyers have second thoughts (pull limit order or new buyers not entering) and seller more confident.

4) This one is a bit of a stretch... Also some buyers AND sellers might want to wait out to see how price react to the large limit order, this also thin out the liquidity on the buy side a bit meanwhile the sell side liquidity are only above the best bid... this too helps create some kind of air pocket?


Last edited by cook; November 21st, 2012 at 11:55 PM.
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  #22 (permalink)
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The Dax and CL are notorious for size sitting on the bid or offer...perhaps because it's easier to see. I use it as a confluence to support a trade 'idea'....

Guy Bower posted some interesting videos on YT about trading around size on the SPI contract...sorry, can't link it. Search for him.

Btw, great stuff DT!

XS

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  #23 (permalink)
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xiaosi View Post
The Dax and CL are notorious for size sitting on the bid or offer...perhaps because it's easier to see. I use it as a confluence to support a trade 'idea'....

Guy Bower posted some interesting videos on YT about trading around size on the SPI contract...sorry, can't link it. Search for him.

Btw, great stuff DT!

XS

Thing is - on a thin market, spoofing is more dangerous.

You spoof the ES when there's 3000 contracts in front of you, then you know you have time to move out of the way.

You spoof the DAX when there's 30 contracts in front of you, then you have more balls than brains IMO.

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  #24 (permalink)
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DionysusToast View Post
Thing is - on a thin market, spoofing is more dangerous.

You spoof the ES when there's 3000 contracts in front of you, then you know you have time to move out of the way.

You spoof the DAX when there's 30 contracts in front of you, then you have more balls than brains IMO.

Yeah and I've seen the spoofer get smashed too, then the price blasts through that level...

You were very right when you told me that the DAX and CL are similar, especially the way several levels will be taken out very quickly in one swoop. The bergs are much smaller too. You've got to be nimble trading these markets...very similar thin markets...

XS

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  #25 (permalink)
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josh View Post
Someone said to me recently:


Quoting 
Remember, the market moves TOWARD size in the order book. Contrary to popular belief and common sense. For example, if there are more offers in the book than bids, it is most likely going to probe higher to test that size. The market is create to do business in the most efficient way possible (getting off large size). This is why the market moves towards size.

I have observed that this tends to be the case as well, though I don't pretend to know how to use the DOM effectively to trade. Do you agree? And if so, why is it the case the the side with more orders tends to draw price to it? While spoofing occurs all the time, I'm assuming a relatively spoof-free environment for the sake of this discussion, although if spoofing is simply part of the equation of why this works, then please I'd love to hear your thoughts on it too.

At night, outside RTH, on contracts like ES (and similar), it's the opposite...market(s) moves away from the heavy order book side in general (not a hard fast rule...no such thing in this business), I have observed.

Ron

It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
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  #26 (permalink)
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I just logged on and saw this thread in my control panel as having new messages. I thought to myself, "what a stupid question... who would ask 'why does the mark move towards the heavier side of the order book'?" Then, of course, I discovered that it was I who had asked that question 7 years ago. Puts things in perspective, always a good opportunity to be humble

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  #27 (permalink)
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josh View Post
I just logged on and saw this thread in my control panel as having new messages. I thought to myself, "what a stupid question... who would ask 'why does the mark move towards the heavier side of the order book'?" Then, of course, I discovered that it was I who had asked that question 7 years ago. Puts things in perspective, always a good opportunity to be humble



Yeah I saw your “come back post” so to speak so I started to dive in and learn about you bro. Wow you started some great threads.

I just had to be part of at least one....lol

Ron


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It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
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  #28 (permalink)
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reply to the OP.....the observation made & what was told to you is simply not true. It may at times look like that....but it is an incorrect statement. If watching Market Depth & observing which side of the book was heavy and which was not....would be a joke to see it trade towards the lighter book. Its a blatant incorrect statement & whoever said if prob does not know what is the LOB

also illustrating.....but u can take it for what it is....

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also i did not mean to ruffle any feathers...however the LOB is a very complex subject...and most hardly ever scratch the surface...which maybe just good enough....so i did not mean to negate anything .... i myself am very deep into the subject of Order Flow...& i use it not for scalps....its for very very major turns in mrkt.....but again i can be entirely wrong...hence pls do what u have found been good for yr trades

an example of a LOB analysis is shown below....but am almost 100% that the heavy/light side of book is irrelevant w/o some key considerations


Last edited by paps; July 24th, 2018 at 12:17 PM.
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  #29 (permalink)
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paps View Post
reply to the OP.....the observation made & what was told to you is simply not true. It may at times look like that....but it is an incorrect statement. If watching Market Depth & observing which side of the book was heavy and which was not....would be a joke to see it trade towards the lighter book. Its a blatant incorrect statement & whoever said if prob does not know what is the LOB

also illustrating.....but u can take it for what it is....

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

Nothing works 100% of the time..... but there is an edge here.... ES 10 sec chart this morning following the heavy side of the book.....

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Ron

It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
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  #30 (permalink)
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As I said Ron...edge is what the game is. If there is an edge which probably is the case...then one is golden and one should not change it.

For me I may look at depth size but it has 0 statistical edge unless I can clean and clearly see what the aggressive limits have done. let me take this a step fwd...a poor high or poor lows are typically made in mrkts due to a certain sequence of limits in the market and has no forbearance to market depth. just by looking at depth one cannot at any specific period know that it is a poor high or poor low instantaneously. but then again this is my experience with order flow...& it may not coincide with others thinking.....thats what makes trading so wonderfully unique. else all would be L or S ...wink.


Last edited by paps; July 24th, 2018 at 12:45 PM.
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