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In the DOM, which side is the "buy side" and "sell side"?
In regards to the DOM / price ladder, when someone says the "buy side" are they referring to the left-hand side with the passive bids, or the right-hand side with the aggressive buys?
And of course conversely, when someone says the "sell side" are they referring to the right-hand side with the passive asks, or the left-hand side with the aggressive sells?
Can you help answer these questions from other members on NexusFi?
As you say correctly;
DOM: Buyers waiting = left, sellers waiting = right.
Fooprint: Aggressive buys=right, aggressive sells=left.
So whether 'buy side' means left or right depends if the reference is to passive buyers (left side) or aggressive buyers (right side). They would need to clarify.
When I use this term in casual conversation, it is hopefully obvious from context or me pointing at the footprint I'm talking about. But I have had to clarify at times.
When writing code or commenting code, I simply refer to bids, asks or trades, and mark if the trade was at bid or ask.
From chat GPT:
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In the context of a trading platform and the DOM (Depth of Market) or price ladder, the terms "buy side" and "sell side" typically refer to the following:
1. Buy Side: The term "buy side" generally refers to the left-hand side of the DOM or price ladder, where you typically find the passive bids. This side represents the interest of buyers who are looking to purchase a financial instrument at a specific price or better.
2. Sell Side: Conversely, the term "sell side" usually refers to the right-hand side of the DOM or price ladder, where you typically find the passive asks. This side represents the interest of sellers who are looking to sell a financial instrument at a specific price or better.
It's important to note that the left-hand side (buy side) is associated with bids, while the right-hand side (sell side) is associated with asks. Bids represent the prices at which buyers are willing to buy, while asks represent the prices at which sellers are willing to sell.
On both the buy and sell sides, you may also have aggressive orders. These are orders that are immediately executed at the best available price in the market, bypassing the passive bids or asks. Aggressive buys would be executed on the right-hand side, and aggressive sells would be executed on the left-hand side.
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The association of the buy side with the left side and the sell side with the right side in the DOM or price ladder is not universally standardized or mandated by a specific governing body. The placement of buy orders on the left and sell orders on the right is a convention that has developed over time in trading platforms and market interfaces.
While there isn't a definitive answer as to why this convention emerged, there are a few possible reasons:
1. Reading direction: In many Western cultures, reading and writing typically progress from left to right. It's possible that the left-to-right reading habit influenced the representation of bid prices (buy side) on the left and ask prices (sell side) on the right.
2. Historical representation: In traditional trading pits or open outcry systems, traders would often use hand signals or physical gestures to communicate their intentions. The convention of using the left hand for buy signals and the right hand for sell signals might have translated into the electronic trading interfaces as well.
3. Market convention: Over time, trading platforms and software developers might have adopted a consistent convention to represent buy and sell orders across various systems. Once a convention is established and widely used, it tends to persist and become the de facto standard.
It's important to note that while the buy side is commonly associated with the left and the sell side with the right, there may be platforms or systems where this convention is reversed or customizable. It's always a good practice to familiarize yourself with the specific platform or trading interface you are using to ensure accurate interpretation of the DOM or price ladder.
One thing you do know, you can test this yourself, market buy orders are filled at the ask, market sell orders at bid. I see the reason why as simply other wise the market would always allow you to buy low and sell high, which it does not by default. Questions such as what is the market context and/or perceived trader intent should always be considered. Ask yourself how is this volume affecting price, did it continue, did it bounce, or did it stall? Did it do this same thing resently? Does it seem like profit taking? Was it unexpected? Do you have an urge to get in on it? Does it seem like late comers that typically equate to loosers? Reading the market in the now, meaning your current perspective, tells you or allows you to make educated decisions about these traders rather than guesses, assumptions, rules based or equation based decisions. If 95% of traders are loosers, what are they likely to be? While nothing is ever 100% certain, with time things seem to make sense and unfortunately most definitely in hindsight. It is something that aways changes quickly.
In order to "hit the bid", an aggressive SELLER must hit "sell market" which then is appropriately, the BID side, which is why the BID side of the ladder is the SELLER
In order to "lift the offer", an aggressive BUYER must hit "buy market" which is then the OFFER side. This is why the Buy-side is considered the OFFER column.
Notice how there are 3-triple digit bids on this DOM. That is a stacked-bid and is directly interpretable as a BUYER willing to buy product at that price. If the market goes down and fills them, then watch for subsequent price defense at that level (the bidder is buying MORE... that is the guy you want to trade with). If the market approaches that level, buy won't fill them, watch for the DOM to change, and the buyer to raise their bid (in order to buy in to the market -- this means they believe it is going UP...)
You can change the title bar to this if it helps:
Seller | Buyer
45 | 30
13 | 25
25 | 50
150 | 20
200 | 3
175 | 14
I should clarify, too, since I can sense some counter-points from the previous posted material.
It doesn't really matter what you call the sides. It is about the relationship of the sides and how YOU understand it.
Like all of trading, what is important is the relationship of the transactions to each other, and to previous levels of interest. So in the example, another column should be added to the DOM Execution Side (you can also do this on the footprint), which would be DELTA-AT-PRICE, (ask volume - bid volume) which would look like this:
ASSUME THESE TRANSACTIONS WERE EXECUTED (no longer on the DOM - but on the FOOTPRINT or T/S):
The triple stacked fills (150/200/175) have a negative delta... which is indicative of seller-imbalance at that price. However, if price does not move lower significantly with assertive seller pressure (selling into the bid), then a BUYER is present at that level.
This is why it is so challenging to understand the DOM. You have to rigorously review and understand every-single setup that you do, because they are all different and unique, however, they will bear similarities between each (like viewing significant sell pressure or buy pressure).
This game is 100% about one-large-trader stopping out other large traders. The common element is VALUE. This is displayed as a VWAP, a VPOC, or a TPO-POC. These demarkation lines ARE CONSIDERED FAIR PRICE FOR PRODUCT.
Discount can be considered as 1 std dev low (also called value-area-low), and Premium can be considered 1 std dev high (also called value-area-high).
No institutional trader worth their salt will disagree with this. Retail does it wrong. Price and indicators are absolutely, stunningly worthless. Every indicator is just a derivative of price.
You must include some version of volume or time (some people like vanilla... some like chocolate) as your value-assessment, and then roll that into actual real-time data to make a salient entry into a professional's playing field. This is no joke. Most people dont understand the market because they have neither the training, tools, or time and practice to ever stand a chance.
