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Trying to wrap my head around Pull/Stacking vs Market Depth
Market Depth: Shows the current resting bid/ask orders on the book at each price
Pulling/Stacking: Shows how the bid/ask resting book orders have changed after each trade
If that definition is wrong, please correct me.
My confusion is in trying to understand why the numbers are so wildly different from these two tools. If I calculate that the Ask depth changes from 1000 to 700 over a given period, shouldn't the Ask Pull/Stacking read -300 for that same period?
I often times see the Ask depth decreasing on Market Depth, while the Pull/Stacking is indicating that more orders are being stacked at the Ask. I can't wrap my head around how that works.
You mention 'tool' but I am unclear if you are referring to a specific trading platform that shows you the market depth or not.
As for the definitions:
This is correct.
This is incorrect - Pulling / stacking are terms some people use to indicate when market participants add or remove resting book orders (i.e. liquidity) from a given price (or depth), but it is not necessarily after each trade. Some market participants may decide to pull/add liquidity because of a specific market event (an announcement, a specific time of day/week/month, etc.) that is not necessarily related to trades taking place, although pulling or stacking near where the market is trading can be common for certain market participants and can be related to trade events.
When you say
I am not clear whether you are referring to a specific tool. There are tools that will tell you that, are you talking about those ones?
I am using Sierra Charts, the Pull/Stack study and the Bid/Ask Depth study. I attached a picture to show what im talking about.
You can see in the picture (leftmost numbers) that the stacking at the Ask decreased from 791 to 580, yet during the same period the Ask Depth (green numbers next to red line) increased from 244 to 273.
I read the Stacking value as "Ask orders got added to the book", and I read the Market Depth value as "Ask orders left the book". Trying to understand how both can be true at the same time.
Discovered I can't post links:
i. imgur. com/j2uShZ8.jpg
Per SC's docs, if a trade is executed, it is added to the Pull/Stack number. So if 211 is Pulled from an Ask price (-211), and at the same time, a trade of 240 is executed at that Ask price (+240), that would give you a net +29, possibly explaining the increase from 244 to 273.
Would it be correct to say that the key difference between Market Depth and Pull/Stacking is that Market Depth only changes if an order actually gets filled, whereas Pull/Stacking only changes if an order gets added/removed from the book?
If that were the case, then the only relevant Market Depth level in this context would be the level right next to the current price, as those are the only orders that are going to be filled. Whereas orders could be getting pulled/stacked much further away in the book.
Although I have reasonably good knowledge of this, perhaps bringing @iantg into the conversation could help you. I know he has extremely detailed analysis with respect to the order book. I am not sure if this is entirely in his wheelhouse, but a great resource nonetheless.
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- Trade what you see. Invest in what you believe -
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I think you are correct on the Pull/Stack part, but I think Market Depth would also change. So given the -211 Pull, and no trade execution, my guess is the 244 would have decreased to 33.
But I'm out of my comfort zone here!
Also, there are some settings in Global Settings>Chart DOM Settings you should explore because those settings have an impact on how all this works.
Generically speaking, Market Depth will display the total current volume at a given price level at a given point in time. Each price level will update in real time based on volume added or canceled, but the total will always just be an aggregate number. I am less familiar with SC and this pulling/ stacking metric or indicator, but it looks like it is pairing down the activity from each price level and showing net adds or net cancels. If we are only looking at level 2 data, then adds and cancels will be it, but if we are also including level 1 data, then you could have adds, cancels and transactions to account for as well.
In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
