Coming up next: what I was thinking as I woke up this morning
This morning I woke up with two ideas already planted in my mind, so maybe I've been developing these ideas while i was sleeping.
1) Remove the hyperactive life-disrupting friend from my life again
2) Adding another element into my pro-trend semidiscretionary system: book reading
Coming up in a few minutes, I will tell you I will go about doing both.
[...thinking ...writing the post below...]
1) Turned off all phones. Text message saying I am tired from yesterday and won't feel like doing anything today. He replied telling me to call him. I replied saying maybe later, too tired to talk now.
USING MARKET DEPTH AS AN EDGE
2) Have woken up thinking of using the book together with the other indicators in my protrend system. Book, Market depth, what do you call it... have been thinking since I backtested all I could backtest and it seems the system is profitable even without the non-testable things (pivots and correlations), why not add another non-testable thing which makes sense, and that could add some edge to my system? I hope to bring my system to having such an accuracy, of say 80% , that I will not be tempted to either discard or second-guess its signals. If I'll succeed in doing that, I'll be so busy and so confident in the system, that I may be able to entirely remove the need and the urge for compulsive gambling, which probably is a wrongly channelled drive to make money.
Now, first of all, is there a book on EUR forex IDEALPRO and stuff? (Can't check now because markets are closed). Or should I use the regular futures book. And then how do I go about interpreting it. I will now do a
search on this topic on google and on elitetrader.com.
THOMAS LONG, FXCM.COM INSTRUCTOR
The first good thing my
search returned is this video, by
Thomas Long:
Now... I don't know if this tom long is the one reading or not, but this guy is reading its text way too fast for me. Way too fast. I've had to listen to it several times, and he still didn't make it clear to me what the hell he's talking about when he says bid/ask ratio of 2 to 1. Neither the first time, nor the second time, nor... he keeps on repeating the same things over and over again, and never slows down. Now, Tom, how do I identify the market maker, which level is he on? You go fast and don't stop to explain the details. Even though I don't think Tom's making this stuff up and it's the closest thing I found to my idea... well, it was better than nothing. Even though quite frustrating.
I am going to section this video, minute by minute and see what I am not understanding about it.
Up to minute 2:30 I've understood everything and it seems quite reasonable. Even though he didn't say what market depth he's talking about: yes, the one made available by fxcm software, which is what? Futures or what? The problem number one is that I am the one not understanding how the markets work, and to understand market depth you need first to understand what market and how. There's a guy I know who understands this stuff, but he's not that good at explaining things. He goes faster than Tom Long. So **** Gaspar Gomez and **** the ****ing diaz brokers, **** them all. I bury those cockroaches. What did they ever do for us?!
"
The key is to understand the role of the market maker"... yeah yeah... ****. Ok all clear now until 2:41. "A rush of buying pressure"? What the hell does this mean? "If the market maker is receiving a rush of buying pressure..."... what the hell does this mean? And also how do I identify the market maker on the market depth and which market depth are we talking about again? You gotta explain all this stuff you sonofabitch.
Ok, I was reading and searching for about 15 minutes, on Tom and market depth, and I read a few posts by him that gives the almost certainty that he's not bull****ting me. For example this one:
http://forexforums.dailyfx.com/fx-p...84-top-ten-reasons-trade-protective-stop.html
Also, even though I couldn't find any of his posts about market depth, I found this thread on their forum:
http://forexforums.dailyfx.com/acti...rm-trading-strategies-using-market-depth.html
But now if he's not bull****ting me then I'll have to get to the bottom of the market depth explanation by fxcm people. And that's going to be a lot of work, but I might as well follow this path, because it would otherwise take me hours to find another track and by then I'll just give up.
Another interesting thing is that here:
http://www.trade2win.com/preferred-brokers/forex
Fxcm are not in the t2w "spreadbetting" category but in the "forex" category, whereas I thought that any forex that is not futures is in the bucket shop category, which I thought was synonym with spreadbetting. Lots of things I don't understand and don't know still... to me the markets were always about going up and going down, and not about even knowing anything about why, what, how, who...
GREGORY MCLEOD, FXCM.COM INSTRUCTOR
All right, after all the chatting, let's get down to my task for today. Understanding that video a little more and reading this thread:
http://forexforums.dailyfx.com/acti...rm-trading-strategies-using-market-depth.html
There you go!!! **** the video. This other fxcm instructor,
Gregory McLeod, is a lot clearer than the goddamn video! All it took was clarity and two pictures. So, I'll finish the video just out of gratitude for showing me the fxcm forum. But the point is that market depth works just as I thought: if you see a bunch of people on the bid then the market will go up. "Rush of buying pressure"... making it look so complicated! Ok, but then the question will still be: does it work on
my market depth with futures or not? That is a major question. And I won't likely be able to test it or anything. Ok, now I'll finish the video.
[...watching video...]
Ok, the video is not bad at all after you have read the post on the forum by the other fxcm expert telling you how to understand the video. Basically another point that across to me is that we're not looking at one specific market depth level, but at
the sum of all of the market depth levels. That will be totally doable on futures, and in a few hours I will also know if it can be done with IDEALPRO forex (I don't even know what the hell this stuff is in terms of exchanges and markets traded, but I'm getting a better understanding little by little).
Now I'll read the forum, and tomorrow I'll look at the market depth available on TWS and see what I can make of it and if it can help me filter out bad signals or time my entry better. If it is so, I am counting on making money
every single day from the EUR, by adding up all these edges into one system: moving averages that make me go with the trend, pivots, correlations and now market depth. I am quite satisfied. If the edge and the results will be there, then the urges to gamble might disappear. By gamble after all I mean "trading without a predetermined maximum loss nor target", which is essentially what defines my gambling. Trading by instinct rather than by rules makes me lose. I cannot say this applies to everyone.
As I read the thread by McLeod, another point I am getting is the time span of the imabalance in the market depth. It's
significant only when it lasts for longer than about 10 seconds. This is good because my signals last about 1 minute, so, provided my futures book is the right book to look at, I will be able to integrate this method into my trading.
Ok, I am done. Conclusion: this stuff they're saying is simple, and they're not bull****ting me. I have to see if it works for me. What I don't like is that Greg integrates into his analysis many other things other than just market depth, so this makes it hard to understand how much of an edge market depth exactly gives him.
----------------
Other useful links (but I never know if it's bull**** or not) I found with my
search:
http://www.currencysecrets.com/2005/06/13/dukascopy-market-depth-data/
----------------
MY SEARCH ON "MARKET DEPTH" ON ELITETRADER.COM
Ok, I had more time so I continued my search on elitetrader.com and came up with these threads, and I will comment on and quote from each one after providing their links:
1)
market depth as indicator?
It looks like a lot of work is coming my way:
Do a Google search on the terms:
"PLAT order book imbalance"
PLAT stands for Penn-Lehman Automated Trading contest.
There has been a good deal of research done on SOBI,
or Static Order Book Imbalance models. Less research
on DOBI (dynamic) models.
Also, if you can disassemble the order book, you can see the price skew by source which will help scrub out random one sided rates that are sometime bogus "spoofs".
Don't always buy the depth of book at face value by itself. Also, look to disqualify any far outlying orders that are static. They add more noise that assistance.
Hopefully, I'll find a quicker answer here (link below), I don't want to read the usual "academic" essays on trading.
2)
Market Depth patterns
Post starting the thread, by rhay:
I scalp the Dax mainly and try to use market depth to position my entries and exits. If possible, I position stops behind/within large volume and sometimes position limit entries in front of large volume.
I realise that this is an inexact and sometimes unreliable science because of the limit display only, pulling and spoofing etc.. However, I do feel that it has something to offer and think I profit from it in quite a lot of my trades.
I have also noticed some patterns in market depth that tend to prodvide support/resistance and to some degree direction.
Has anyone else noticed patterns that they use?
I scalp the dax quite heavily. Generally, I believe that putting stops behind size or getting in behind size will yield poor results in the long run.
Obviously, this is not necessarily true if the size is there because of S/R or something else. The market will very often trade to size, so you might be catching a falling sword on frequent occasions.
Just so you know what my angle is, I trade around 700 to 1500 contracts a day and more on active days. I trade but I also bring on guys and train them to trade my money. I thought you should know that my comments are based on experience.
This is what I've been reading on elitetrader.com ever since, years ago, I started reading posts on the market depth edge: it works, and then, next post, it doesn't work. Personally I didn't find a way to make it work, just like I never found a way to make volume work. But then this might also depend on which market depth I've been looking at. Maybe the fxcm people are looking at a different market depth than me (I am looking at futures).
Let's now read the third post. I want to get to the bottom of this thing. There's dozens of posts on this thread.
Hi Rhay
It is interesting that you bring up the subject of market depth. I to scalp the dax but not to the same extent as FutureTrader71, I trade between about 15-20 round turns aday. I have spent a considerable amount of time studying market depth and I do feel as though there is an edge to be had in there. When I studied MD I was looking at the ratios between the bid and ask sizes at different levels and came up with some very interesting results.
FutureTrader71
I take it you have a direct connection to the exchange and only look for about 1-2 ticks at a time? Have you ever looked at bid ask ratios using the DAX market depth, as my long term aim is to automate my analysis of different ratios at different level of market depth?
Scouse
Goddamn... "interesting results" but he doesn't tell which results, "edge to be had" but he doesn't say which edge... thanks a lot.
More from FuturesTrader71:
Actually, I go for whatever the market will dish out. I scale in and out all day long and will add and hold and reduce depending on the depth, tape and approaching support/resistance.
Yes, I do have a direct connection through my clearing firm to the exchange. I trade in the room next to where the line comes in from the exchanges. It is as direct as it gets.
I don't believe in bid/ask analysis. I haven't gone too much into it but there is way too much fake stuff in there. There are good reason why the market will trade towards size, so bid/ask is not much more than an illusion, in my opinion. Like I said, my skill is based mainly from trading the product for some time and from watching the market from the time I come in until the exchange is closed. It is all discretionary and, therefore, my risk plan is key for the group and myself. I use CQG for charting and rely on that when the market is range bound or quiet. Other than that, I will watch the book and know what is probably real or not in there.
science_trader replies:
You should...
But let me tell you that only a computer would be able to do that for you. Just forget finding something interesting with your eyes only.
At this point i can't keep on quoting everyone, so please refer to the link for the rest. So far it looks like it's not going to be easy to use market depth to time my entries better. There's three opinions, equally divided among all the posts I've been reading:
1) it can be read with your eyes
2) it can be read only by a computer
3) it cannot be read
Only if #1 were true I could use it for my purposes. And only as long as it holds true for the market I am trading. So I will probably discard it because I don't want to use something whose efficacy is unreliable. Better learn to use best the things that I am positive about: pivots, correlations, moving averages.