Best Thread Bund Bobl and Schatz Thread

[mckaldey]

Could anyone please go over the principle of scalping with the book again.

Did I get it right: Big orders on the bid or the ask are seen as a kind of wall (micro support and resistance). You see that it holds and then step in front?

What about time & sales? Could this be helpful as well or is it useless, because the information is already too old.

I know that a lot of expirience is involved, but I would like to know about the general framework.

Thanks....

 

[grantx]

http://www.trade2win.com/boards/attachment.php?attachmentid=33896&stc=1&d=1204459270

 

[grantx]

Mckaldey,

Please click on the attachment above.

Here are a few of my ideas. If you are looking to buy (or sell), wait until Time and Sales (left column on each ladder without the Time) starts to show buy (sell) orders going through, ie don’t buy when sell (buy) orders are going through.

In the middle ladder for the Schatz let’s assume you are looking to sell. First, I would wait until the offer size of 242 is taken out. It’s the smallest size on the whole ladder and could go in 1 or 2 trades, regardless of current market direction. Unless more sellers replace this, the price will tick up and you will get a higher bid/selling price. We will then have .550 bid, .555 offered. If the bid size is reasonable, ie similar to the majority, it’s not a bad place to sell.

But assume the sizes on both sides are roughly equal (large) with around 1500 on the bid and again, you are looking to sell. I would wait until the bid size has been reduced to around the 250 level. The key here is to watch the sizes, and speed at which trades are going through. If fast you know you will have to be pretty quick, possibly selling immediately without waiting for a reduction in the bid size. If there is less urgency you have the luxury of possible better timing. This is important because the larger the size, the greater the time it takes to reduce/eliminate. In the interim, predominant sentiment could have switched from bearish to bullish. Further, this potential “wall” will either remain or knocked down, reinforcing or contradicting your expectation.

This also relates to stops. If the trigger is at price X but the size is massive, then it may be premature as the likelihood of a breach is relatively small and you would have been stopped-out prematurely – watch the rate of attrition before deciding to close .

That’s it as a start.

Grant.

 

[mckaldey]

Mckaldey,

Please click on the attachment above.

Here are a few of my ideas. If you are looking to buy (or sell), wait until Time and Sales (left column on each ladder without the Time) starts to show buy (sell) orders going through, ie don’t buy when sell (buy) orders are going through.

In the middle ladder for the Schatz let’s assume you are looking to sell. First, I would wait until the offer size of 242 is taken out. It’s the smallest size on the whole ladder and could go in 1 or 2 trades, regardless of current market direction. Unless more sellers replace this, the price will tick up and you will get a higher bid/selling price. We will then have .550 bid, .555 offered. If the bid size is reasonable, ie similar to the majority, it’s not a bad place to sell.

But assume the sizes on both sides are roughly equal (large) with around 1500 on the bid and again, you are looking to sell. I would wait until the bid size has been reduced to around the 250 level. The key here is to watch the sizes, and speed at which trades are going through. If fast you know you will have to be pretty quick, possibly selling immediately without waiting for a reduction in the bid size. If there is less urgency you have the luxury of possible better timing. This is important because the larger the size, the greater the time it takes to reduce/eliminate. In the interim, predominant sentiment could have switched from bearish to bullish. Further, this potential “wall” will either remain or knocked down, reinforcing or contradicting your expectation.

This also relates to stops. If the trigger is at price X but the size is massive, then it may be premature as the likelihood of a breach is relatively small and you would have been stopped-out prematurely – watch the rate of attrition before deciding to close .

That’s it as a start.

Grant.

Great, thanks a lot Grant.

I'm familiar with time & sales and plan to apply it to filter trades and in regards of timing entries and exits. The DOM is absolutely new for me. From what you wrote I could imagine that it should be even better for timing entries.

You talked about the speed of orders getting filled or running trough. Do you use this as a confirmation that it's time to pull the trigger?

 

[grantx]

Mckaldey,

That's right. It's like an early warning system - if your long, for example, and sales suddenly start going through, I'll look at the quantity on bid. If it's small, I'll get out; if it's large, I'll wait for it to diminish to a size I think will soon disappear. However, if the sales turn into a torrent, I'll get out immediately. The opposite applies for entries.

Grant.

 

[mckaldey]

Mckaldey,

That's right. It's like an early warning system - if your long, for example, and sales suddenly start going through, I'll look at the quantity on bid. If it's small, I'll get out; if it's large, I'll wait for it to diminish to a size I think will soon disappear. However, if the sales turn into a torrent, I'll get out immediately. The opposite applies for entries.

Grant.

I will have to digest all of this first and watch it in realtime. I plan to start trading live again in the middle of the month.

I'm using a simple 3-Bar-Reversal pattern for my entries on lower timeframes like 150 tick for ES.

Do you use charts for entries? Or do you purely use DOM and T&S - maybe at certain points you locate on charts?

What about market correlation? Living in germany I plan to trade the FESX as well (point value and volatility of the DAX is too big at the moment...)

 

[buy 'em]

Grantx

Both CBOT and Eurex treasuries are excellent products to trade and I would highly recommend them to anyone but imo Eurex has the superior product because of the 10 deep orderbook along with the cheaper trading fees. The only downside is that the hours are not the best if you live in the US. You will just have to experiment with each of the contracts and go from there

 

[buy 'em]

Mckaldey

Hopefully this will help you out with orderflow. I wrote this not to long ago to help explain reading orderflow to traders who had never used it before.

 

[buy 'em]

There are 2 main types of orders. Orders from locals and paper.

Locals are large independent traders that usually trade big volume and are known liquidity providers in a market.

Paper can be anything from guys like pimco and goldman to large hedge funds. They are usually the longer-term players that come into the market to buy or sell in large quantities for longer term trades. You want to be trading with the paper not against it.

How can you tell the difference between paper and locals? One way would be to look at the bids/offers. Since locals are liquidity providers and usually trade the opposite of paper and fade large moves they should be sitting on the bids/offers and not giving up edge. When every tick counts they don't want to give up edge so I could find it entirely possible that most locals are making the bid/offer and not taking the bid/offer. While on the other side the paper which is usually longer term does not want to mess around with giving up a tick or two and just wants to get the order filled and move on. In that case it only makes since that most of the paper are just taking the market at the bid/offer.

Now if this is true we should be able to have a rough idea of where bigger locals are at and what paper is doing.

 

[buy 'em]

Like I said locals are in it for the short term so say the market is rallying hard and paper is just buying as much as they can. Locals meanwhile are selling into the rally and continuing to sit on offers. Now say we are running up to an area on the book that has massive offers and it also is a level on our chart. We can imagine that these big offers are probably big locals trying their best to stop this rally and are going all out to shut it down.

Say paper is extremely strong though and instead of running out of steam the paper is eating through these large offers in fairly decent size chunks. We finally break through all the offers and are on a run away again. Now all of a sudden you see tons of contracts just being puked as market orders. This imo has to be the locals that have been caught short and now are scrambling to get the out.

Now what I think is that if you see a move like this happening and you can somehow someway figure out what the average risk appetite of those bigger locals are you will be able to see when they are getting squeezed like that and about ready to puke there position at the market.

Something to think about

 

[buy 'em]

The next thing is how big is the order?

This has been brought up before but it imo holds true. The market tends to always trade towards size. That means if there is an order on the book that sticks out like a sore thumb more often than not the market will try to move to that order. One person said this is because when that big order appears scalpers tend to run to that order and try to lean on the size. This causes a short-term liquidity problem and we start moving towards that big size. Take it for what its worth but I am not sure I believe that entirely.

I think the main reason is that the market wants to move to that level to make sure it’s an actual order and not a spoof. Once the market moves to that level it wont take much before it either pulls and we go through it or it acts as a support/resistance level and we start trading away from it.

If you see a large order like this watch as the market trades towards it. Is it increasing in size, does it disappear, does it stay the same, does it weaken? These are all things to keep in mind to try to figure out if the order is real or not.

Once the market reaches the order does it start to "eat" through it or does it act as a support/resistance.

If paper starts to eat through it with size look for a break in that direction. If paper doesn't look too ambitious to eat through the order then watch for the market to bounce off the order.

 

[buy 'em]

The next area is to find out where is the paper giving up most of its edge?

In other words which is being hit more the bid or the offer and how aggressive are those market orders?

This is telling us people are not willing to wait around and hope to get filled on the bid/offer and instead are just taking the bid/offer.

The nice thing about actually looking at the transactions that are taking place on the bid/offer is that they cannot be manipulated like the bid/offer. Its easy to place a 2000 lot order on the bid and pull it right away but you cant just buy 2000 contracts and then cancel it!

Looking at the bid/offer transactions can also give you a good idea of the tempo of the market. Is it fast paced or slow paced? Are the offer transactions aggressive and the bid transactions less aggressive or the opposite?

 

[grantx]

Buy 'em,

Thank you for the info re bonds. Also the excellent description re order-flow - I've got a lot to learn, here.

If the weekend commentaries are anything to go by, I reckon we'll see further rallies in fixed-income, sell-offs in equities. Let's see what happens in Asia overnight.

Good Trading,

Grant.

 

[buy 'em]

Your Welcome

I think we also will see more selling in the equities (At least I sure hope so as I'm short quite a few S&P contracts).

Although I don't think fixed income has much more room to rally. It just can't justify any lower yields. So I think we will continue to be range bound in the fixed income market while the equities sell off even more.

 

[grantx]

Buy 'em,

By Christ that was a quick reply - I wouldn't like to trade against you. Lower yields? Sure, but where else to put the money? At least it safe (as safe as anything can be today)and it won't go south for while (you can always hedge but I suspect this is also expensive).

I'll watch the S&P's and shout encouragement.

Grant.

 

[buy 'em]

lol yeah im quick but sometimes being too quick can cause you to make a lot of mistakes lol!

With the ****ty yields the fixed income markets are giving investors they are better off sticking it under their mattress or at least using a portion of it to pick bottoms in the stock market. The poor demand for debt at the auctions is also a sign that people have bought all the bonds they need (im talking US treasury markets).

Thanks, feel free to shout as loud as you want to lol! My profit target on the S&Ps is 1300 and I think we could be even lower than that by the end of this week but im always a bear!

 

[mckaldey]

The next area is to find out where is the paper giving up most of its edge?

In other words which is being hit more the bid or the offer and how aggressive are those market orders?

This is telling us people are not willing to wait around and hope to get filled on the bid/offer and instead are just taking the bid/offer.

The nice thing about actually looking at the transactions that are taking place on the bid/offer is that they cannot be manipulated like the bid/offer. Its easy to place a 2000 lot order on the bid and pull it right away but you cant just buy 2000 contracts and then cancel it!

Looking at the bid/offer transactions can also give you a good idea of the tempo of the market. Is it fast paced or slow paced? Are the offer transactions aggressive and the bid transactions less aggressive or the opposite?

Great stuff buy 'em. Thanks for this lesson.

A lot to think about, hopefully I interpret it te right way.
In general I tend to overcomplicate things.

If you talk about bid/offer transactions you refer to the tape?
Is it always the combination of tape and DOM you watch when you judge what happens in the market?

How do you recognize market orders? Orders on the tape below the bid or above the ask?

One thing I think I understood: If a big order stops the market, it will most likely turn and if it eats up the order, it breaks through...😛

Really a lot to think about and to watch in realtime.👍

 

[grantx]

Mckaldey,

I think that's the crucial point re buy 'ems post - we have to study the DOM (and Time and Sales) until we can recognise and interpret subtle shifts in sentiment or behaviour. The saying goes, "You have to put the screen-time in", ie watch and study hard for a long time. No short cuts in this business.

Grant.

 

[buy 'em]

Great stuff buy 'em. Thanks for this lesson.

A lot to think about, hopefully I interpret it te right way.
In general I tend to overcomplicate things.

If you talk about bid/offer transactions you refer to the tape?
Is it always the combination of tape and DOM you watch when you judge what happens in the market?

How do you recognize market orders? Orders on the tape below the bid or above the ask?

One thing I think I understood: If a big order stops the market, it will most likely turn and if it eats up the order, it breaks through...😛

Really a lot to think about and to watch in realtime.👍

No problem, yeah overcomplicating things in this business can be fatal!!!

Bid/Offer transactions are just market orders. So say the market is 40 bid @ 40.25. So a market order is somebody just buying contracts at 40.25 or selling contracts at 40 So essentially they aren't waiting around and joining the bid/offer. They are just taking the best bid/offer out there at the moment.

The tape and DOM are the same thing. There is also time and sales but I don't use that.

Yeah thats exactly right. Locating the big bids/offers first is the foundation to everything else. You always want to be trading with the big boys and not against them.

I will try to make things a little more clear in my next post.

 

[buy 'em]

Ok guys i'm going to try to simulate a typical trade of mine during the day.

First I usually have the orderbooks up for bund, bobl and schatz up along with a 15 min chart of the schatz.

Next I'm looking for big bids/offers on the schatz book. The bids/offers that usually are the most honest are the ones that are farther out in the book (not the first 2 best bids and offers usually but not always). Also if there is a bid/offer at roughly the same level on one of the other contracts (bund or bobl) that is usually a good indication of an honest bid/offer. So say there is a nice size offer of 2000 contracts at the 8th best offer on the orderbook. Immediently I check out my 15 min chart and look to see if that is some sort of resistance level, if it is great if its not I still will lean on that size. I also check out the bund and bobl orderbooks and see if they have big size on the offer at roughly the same level in the orderbook.

Now I watch the market extremely close. If we are trading closer to that size is the offer getting bigger or is it getting weaker? If it is getting stronger I will sit tight and maybe add positions, if it gets substantially weaker then I remove my offer.

So say my order is still in place and I get filled. I will exit the market if we can break through that big order I leaned on so my risk is very little while at the same time im aiming for about 3-4 ticks so its a very good risk/reward setup.

A whole lot more goes into my decision making than that but at its most basic form that is what I am doing. Read over and over those posts I made about orderflow and watch the market continously while having no opinion what so ever. Just trade what you see not what you think.

Good Trading Guys